Running a business can be like dating. There’s a new company that seems great and promising until one day, it disappears with your hard-earned money. Something similar can happen when dealing with companies without inquiring into their credit history.
Sure, they can boast an elegant website and great sales, but what do you do if they have a history of delayed payments, shady debts, or even bankruptcy? That’s where a company credit check could become your financial crystal ball to separate the good operators from the disasters.
What Is a Company Credit Check?
Consider a company credit check as akin to a financial background check. A company credit check gives you substantial clues about the company’s payment history, outstanding debt, credit score, and general financial health. In other words, a bank does a credit check before giving you a loan, and businesses should do likewise with their partners before signing contracts or extending credit.
A business credit report service provides detailed reports and information regarding a company’s financial standing, creditworthiness, and payment history. These reports help lenders, suppliers, and investors gauge the risk of extending credit. Companies like Experian, Dun & Bradstreet, and Equifax write complete reports, assisting businesses in maintaining secure loans, negotiating better contracts, and retaining solid financial credibility.
Why Does This Matter?
Why do you want to do a credit check before entering a business deal? Because no one likes to walk into a business deal blindfolded:
1. Preventing Late Payments and Bad Debts
Imagine fulfilling a big order or completing a huge project only for the client to tell you sometime later that they are in bankruptcy and can’t pay you.A credit check highlights the companies that are usually slow in paying their bills and gives you an idea of whether or not you want to do business with such companies and whether you should seek upfront payments.
2. Spotting Financial Red Flags Early
Witnessing a company be seemingly success-oriented is not the same as a credit report that could say otherwise: heavy debt, falling revenues, or a history of previous defaults. A credit report shows the red flags that scream disaster and could be the reason for your utter loss and disarray.
3. Building Trust with Reliable Partners
Would you rather cooperate with a financially solid company that pays on time or with one that struggles with cash flow? Credit checking is one way to evaluate a partner’s mode of reconciliation and thus reduce tension in business dealings.
4. Protecting Your Business’s Cash Flow
Cash flow is the lifeline of your business. Once a client fails to pay you, your payments to suppliers, employees, and other expenditures can be impacted. By performing a credit check, you can prevent the dangerous domino effect of one payment failure leading the way for many others.
5. Reducing Legal Troubles
Recovering money when a supplier or a customer goes into bankruptcy can be a battle. Even if a suit is filed, there are slim chances of recovering all that is owed, so much so that a simple credit check is a preventive measure from this hassle.
How to Perform a Company Credit Check
Thankfully checking a company’s credit isn’t as complicated as it may sound. Here’s how to do it:
- Use credit agencies: Experian, Dun & Bradstreet, and Equifax provide highly detailed credit reports. You can also access all three agency reports at Command Credit.
- Search for public records: It is common practice to have bankruptcies, court cases, and financial filings available online.
- Request financial statements: When a big deal comes along, request a balance sheet, an income statement, and a cash flow report.
- Look into payment history: If the client isare known for delayed payments to other deal partners, why wouldn’t they act the same toward you?
Final Thoughts
A company credit check can be considered a safety checklist for making a sound business decision. It can save you from falling into unfavorable partnerships, shield your cash flow from significant disruption, and help kick off a good relationship with decent companies. So, before you sign on to your next significant partnership, do your homework because what you never know what could hurt you in business.
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