What you need to know about company credit reports

What you need to know about company credit reports

4 Mins

While most people understand how their own personal credit report can impact purchases and lending decisions, not all business owners are aware of how their company credit report can impact how potential customers, suppliers, and partners view their business.

Company credit reports give you instant access to the financial history of a company allowing you to make quick and informed decisions about the people you work with before you consider lending them credit.

In this guide, we’ll explain what is included in a company credit report, how a credit score is determined and what areas you should review to make an informed credit decision. 

Chapter 1

Company Credit Score

The first step of understanding a company credit report is knowing how a credit score is calculated and how you can use it to your full advantage.

Like personal credit scores, a variety of different factors are taken into account and analysed to create and append a credit score to a business. Typically, this includes age of credit history, number of recent credit enquiries and the payment history for a company.

With Creditsafe, a company credit score can be found within a company credit report, along with the key financials and other information that is analysed to create it. The score determines the likelihood of a company becoming insolvent in the next 12 months, with 0 being very likely and 100 being very unlikely. The higher the business score, the more stable the company is.

Unlike personal credit scores, which normally range from 0 to 999, on a company credit report the scores ranges from 0 to 100, with 0 being and 100 being very unlikely. The higher the business score, the more stable the company is.

Companies can run a company credit check on any other companies that they want to do business with by pulling a company credit report, and within this report, you will find a company credit score.  

Chapter 1

Business Information

A company credit report can provide key information about a company's financial health, yet many companies aren’t fully aware of what information is also included.

Every report will state the business name, incorporation date, trading address, company number and have a SIC description (which places the company into an appropriate sector based on its principal activity stated at Companies House). You can also find additional information such as a website address and telephone number where applicable. Copies of original documents filed at Companies House are also available for verification. 

Director Name

Telephone Number

Group Structure

Sic Code

Trading Address

Website

Chapter 1

Company Credit Limit

Before working with a business, you might be tempted to set a company credit limit based on the level of trust which has already been established. Extending credit to other businesses can help build customer loyalty, encourage larger orders, and provide a competitive advantage against less generous suppliers.

Included within a company credit report is the recommended credit limit which is given as a yardstick for the maximum contract capacity on a single contract over a 12-month period. Often known as trade credit, this financing method allows businesses to purchase goods and services without applying for a traditional loan.

While considering lending to a company, calculations are often based on certain assumptions, and there’s no guarantee that past performance will carry on into the future. Extending credit carries risks, and the main purpose of any credit limit exercise is to determine a reasonable amount for a client.

Extending credit to companies will always carry risks, and the main purpose of any credit limit exercise is to determine a reasonable amount for a specific client. 

Want to monitor any changes to a company credit report?

Company Monitoring helps you to keep a close eye on your customers and suppliers without the need to regularly check their company reports

Chapter 1

Director and Shareholder details

In order to gain a better insight into how a company operates, you need to know more about the people running the business and their history. Inside a company credit report, you will find information including the name, address, and date of birth of the directors and shareholders within that company. 

While credit checking a new customer, you may find that the company in question is a start-up with very little credit to its name to date. By analysing its directors, you could establish that the subject is headed up by a director with a wide portfolio of successful businesses under their belt. This may give you incentive to extend credit to that business despite its relative youth.

“60% of UK directors were once the director of a company that is no longer trading”

Chapter 1

Company Financial information

It pays to understand how a company is performing, and delving into company financials enables you to identify any detrimental trends in cashflow. All limited companies registered with Companies House are required to submit accounts on an annual basis. 

This information includes profit & loss statement, the balance sheet, capital and reserves, cashflow and other financial items. It will also include ratios such as creditor and debtor days, pre-tax profit margins and so on. These are all taken into account when determining the company credit score, however, the information is there for the viewer with an eye for numbers to delve deeper if they so wish.

These annual filings can ultimately tell you how the company performed in the previous 12 months and helps to understand any risks associated with a company. By analysing the most recent financial data alongside real-time factors such as a company’s credit score, you can have an insight into a company’s predicted performance over the next 12-month period.

Chapter 1

Adverse information (such as CCJs)

With late payments continuing to be a problem for many businesses in the UK, you should always do your due diligence on potential customers before dealing with them.

Company credit reports show you any adverse information on a company, such as County Court Judgements (CCJs). This is where the company in question has failed to pay an invoice to another and has been taken to court to have the debt paid.

For example, if the CCJ is paid or successfully disputed within 30 days, it will be removed from the credit report. However, if it is paid late or not at all, it will either show as outstanding or settled on the company credit report for six years.

Chapter 1

Payment Behaviour

If a company has a good reputation and lots of business coming in, it may seem like a huge win if you manage to take them on as a client or partner. However, you still need to understand their payment behaviour. What if they paid their bills on average 20 days late every month? That could have a damaging effect on your cashflow and something you should consider analysing before signing any contracts. 

As companies file their accounts with Companies House annually, the payment behaviour of a company is a strong indicator of their current financial situation. Identifying any changes in a company’s payment behaviour are an important indicator of the current economic situation of a company. An area to keep an eye on is, if a customer has met his payment obligations on time – if the number of days an invoice is overdue increases, this is often an indication of deteriorating liquidity and should be kept in mind.  

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