A business credit score measures the likelihood that a business will remain solvent for the next 12 months
The most strategic businesses today rely on business credit scores to help them better manage their cash flow and make decisions on which companies to work with. As such, business credit reports help businesses answer key questions, including:
There are often two stages that a typical small business goes through as they scale into a mid-market company:
Business owners can get free alerts to changes in their business credit scores
If you're in Stage 1 and curious if your report looks sparce, feel free to schedule time with one of our small business experts who will happily walk you through your business credit score and report.
It's important to note that when a company's business credit score drops, the consequences can be dramatic and result in one or more of the following:
When you're ready to start actively managing your business credit, we're here to help.
For executives in the enteprise space, a business credit score is generally used for credit decisioning.
Just about every enterprise organization has their own credit decisioning policies that reflect the nuances of their industry, growth strategy and risk tolerance. In addition to the credit score, they'll often look at other indicators such as any legal issues, suggested credit limits, and days-beyond-terms to determine:
Thanks to the prevelance of credit data being shared via APIs, credit managers are using a variety of tools to help them with their credit decisioning. Some will visit a Business Credit Bureaus website to pull reports, but there's been a considerable increase in using business credit data within third party tools, such as Salesforce and High Radius.
Business credit scores can be brought directly into platforms as diverse as Salesforce, Sage, and High Radius
Creditsafe's algorithm uses data from over 9,000 data sources to create one of the most predictive credit scoring algorithms in the world. The algorithm uses data points such as the below in order to build a credit score for a company.
Payment data: Describing the late (or not) payment behaviour of a company, when such data has been available
We wanted to put more of a spin on how business credit is actually used, but it can still be interesting to see how others define Business Credit Scores.
In their definition, Nerdwallet follows a common pattern of defining a business credit score by comparing it to a personal credit score:
"A business credit score is similar to a personal credit score, such as your FICO score, which is the most popular credit scoring model. Just as a FICO score measures your personal creditworthiness, your business credit score is a numeric representation of your company’s creditworthiness."
Not surprisingly, Fundera choose to focus on the funding element in their definition:
"A business credit score is a way for lenders to predict how likely you are to repay debt. The business credit score ranges from zero to 100 and, as with personal credit scores, the higher your number, the more likely you’ll be to qualify for affordable financing."
US News also explains a business credit score by comparing them to a personal credit score, but offers two insightful differences:
By comparision, Investopedia offers a creative take by explaning business credit scores by showing examples of different situations:
What if Company A was considering taking on Company B as a client and wanted to know the likelihood that Company B would pay its invoices in full and on time? No business wants to do hours and hours of work for a client, then not get paid. Company A could check Company B’s business credit score first, then agree to do business only if Company B’s credit score showed that it had a strong history of paying its suppliers. Company A could even purchase a subscription service to monitor Company B’s credit score on an ongoing basis. If the score dropped significantly, Company A could lower its risk by discontinuing business with Company B or requiring payment in advance.