What is a company credit check and when should it be used?

It’s common B2B practice to carry out company credit checks on a customer you are currently or planning to business with. A company credit check will give you insight into a customer’s current and historic financial information, which illustrates the financial risk a customer has on your business.

In a typical company credit check you will see:

• A business's credit score
• A business's payment score
• A business's credit event history
• A business's general information
• A business's payment score
• A business's directors and fillings information

This information will give you a good insight to the financial risk a customer will present to your business and give you the ability to draw your own conclusion about what actions to take with which customers, but we’ve took it one step further. Using comprehensive data from Experian, we produced a company credit check that can tell you so much more. Click here to see exactly what is included in a CreditFocus company credit check.

When should it be used?

Like many businesses in the UK, you may rely on a few key customers to drive revenue and increase profits. it’s important to assess the financial risks a customer will have on your business to make sure your cashflow is protected as the future of your business could be determined by the choices you make with customers early on in the relationship.

A company credit check is typically carried out at the start of the business relationship with a customer before you set credit and payment terms and consider extending credit to that customer. However, it’s not uncommon to periodically credit check existing customers to make sure they haven’t recently been experiencing any financial problems that could affect them paying what you’re owed. As a B2B business owner, you need to ask yourself three simple questions to protect your business’s cashflow:

1. If one or all your customers experienced financial difficulties, could my business continue to operate with if one or all my key customers couldn’t pay what they owed?
2. Do I really know my customers financial situation well enough to stake the future of my business on it?
3. Is the information I have on my customer correct and up to date?

If you can’t confidently answer 'yes' to these three questions, to protect your business you should carry out a credit check on the customer in question and get all the information you need to answer ‘yes’ to these questions

That is why new customers should be credit checked at the beginning of the relationship, before any agreements or terms have been made and then finding out they have a history of late or even unpaid invoices.

When periodically credit checking an existing key customer, you’ll see if they are facing financial difficulties that will affect them paying any outstanding debt that’s owed to you, allowing you to act quickly and effectively to protect your cash flow if a key customer faces financial difficulties.

The only issue with credit checking an existing customer is that a company credit check will only show you information historically and at that point in time. You may identify a drop in their credit status, indicating they are starting to experience some problems, but if something goes wrong with the customers financial situation after you have carried out a credit check, you will unlikely be none the wiser to it, until they start failing to make payments you agreed.

Finally, a company credit check can also be used when you want to find out more information about your competitors.

You can use the same financial data that you would get for a customer to determine how well a competitor is performing and how lenders perceive them. The directors and company fillings will give you insight as to who’s running the company and if your familiar with the directors, what activities they will undertake.