What Is A Company Credit Check?
A company credit check is something that you do when you want to look at a business’s financial position. This allows you to determine whether or not the business is stable, and act accordingly.
When you run a credit check on a company, you will be provided with more information than you would when you run a personal credit check. This information is provided in a company credit report. It includes ownership and financial information, liabilities, and the business’s credit score, among other things.
Why You Should Check Another Company’s Credit Score
Just as your bad financial behaviour can have a negative impact on your own company credit score, doing business with companies with financial issues can also reflect in your credit score.
There are three main reasons why you should run a check on another company to get its credit report:
Protecting your business’s cash flow
It goes without saying that your business’s cash flow is extremely important. If you start to have issues with your cash flow, you may start to struggle to pay lenders and suppliers. As a result, your company credit score will reflect that you can’t pay your own debts on time.
By checking another company’s credit report, you’ll be able to determine if you’ll experience trouble further down the line. You can then decide to offer a different agreement to the company or avoid doing business with it altogether.
Making better decisions about the future of your business
We already touched on this above, but understanding your partners’ or suppliers’ financial position can help you avoid financial risk.
If you find that the businesses that you want to work with (or already work with) have poor financial behaviour, you can make better decisions about how or if you do business with them. For example, you can offer them higher interest rates, shorter repayment times, or anything else that might make it less of a risk for your business.
Avoiding fraudulent companies
One of the most beneficial things about a business credit report is that it can show you a company’s history. This includes anything that has happened in the past that was out of the norm.
If the company that you’re planning on working with has a history of illegal or deceptive practices, or has failed to pay off debts, you’ll avoid falling victim to those same practices yourself.
Running A Credit Check On Another Business
Running a credit check on another business comes down to knowing where to look and how to interpret the information provided to you. In the UK, a company credit check can be done through different credit rating agencies.
Each agency uses its own complex algorithms to calculate the creditworthiness of a business. However, financial information submitted to Companies House, any County Court Judgments (CCJs), and a variety of other financial data are included in the calculation.
It’s ultimately up to you to decide which of the options you want to use. Four of the top options in the UK are Experian, Dun & Bradstreet, Equifax, and Creditsafe.
Experian allows you to run credit checks on both UK and international suppliers and customers. The reports provided contain detailed information about the companies: who they work with, their financial data, the business’s age, and any CCJs.
Many banks and lenders utilise Experian’s services to determine whether companies looking for loans are creditworthy or not.
The information that this solution provides includes:
- Business identification and credit score ratings.
- Public record information.
- Detailed payment information.
- Details of company directors.
- International credit reports.
Dun & Bradstreet
Dun & Bradstreet also offers the flexibility of providing business credit reports of both local and international businesses. Their priority is to help you protect your business through comprehensive credit checks and by providing detailed business information.
One of the features worth mentioning is the ability to receive alerts for high-risk accounts. This allows you to identify changes that could impact your business before they happen. You can then adjust accordingly to either mitigate the negative effects of those changes or avoid them altogether.
Some key features of the Dun & Bradstreet solution are:
- Overall business risk scores.
- Provides a score for risk of bad debt write-off.
- Recommends maximum credit to provide to the company.
- Provides detailed data about companies and their credit history.
- Includes automated alerts for data changes, business credit score changes, and new business events.
Equifax is another reputable name for checking business credit scores. And, just like the other two options, this solution also includes detailed information and additional features that can help you to make more informed decisions for your business.
The key features provided by Equifax when checking the business credit score of another company include:
- A Business Failure score to assess the risk of a business ceasing operations in the next 12 months.
- A business credit risk score to determine the risk of a company not making future payments.
- The ability to work with Equifax to interpret data.
- Detailed customer behaviour information.
Creditsafe allows you to credit check any company in the world and also provides a free business credit report. The solution lets you monitor the business credit score and report of a supplier or customer.
Creditsafe’s key features include:
- Verifying if a company is genuine by confirming registered details.
- Recommendations for maximum credit limits to provide to debtors.
- Verifying company directors’ and shareholders’ information.
- Identifying key risk indicators, such as CCJs, and late or missed payments.
- Identifying the true ownership of any company.
What If A Company Has A Bad Credit Report?
When you receive the credit report of a company you are doing business with (or were planning on doing business with), you’ll have a decision to make. Generally, there are three ways you can go about moving forward.
- Continue as normal – If the business credit score and credit information of one of the companies you want to work with is low, you may still decide to take the risk and move forward. A bad business credit score doesn’t always mean things are going to go wrong in the future.
It is important to assess all the information that you have access to before you move forward, as bad business credit scores usually indicate higher risk.
- Adjust your plans – If you choose to work with a company that has a bad business credit score, you don’t have to proceed as you usually would. There are other ways to go about business with these companies, such as adjusting your suggested interest rate, changing their credit limit, or shortening repayment time frames.
- Don’t work with them – You don’t have to work with a company with a bad business credit score or any other negative credit information. If you feel the risk is too high, you can refuse to do business with them. Just make sure you communicate your reasoning clearly.
Can you check someone else’s credit score in the UK?
If you’re an individual trying to check another person’s credit score, it’s probably illegal. There are only a few instances when it is legal to access another individual’s credit score. If you’re trying to access business credit scores, however, there are several tools that you can use to do this.
Is it illegal to run a credit check without permission in the UK?
The Fair Credit Reporting Act (FCRA) limits who can run credit checks and in which circumstances it’s allowed. Only business entities with a legitimate reason are allowed to run a credit check on an individual without their permission in the UK.
Can you do a credit check on a limited company?
You are allowed to run company credit checks on limited companies that have been registered on a government database. Several CRAs allow you to do this and provide additional information to assist businesses with making more informed decisions about their customers and suppliers.
Who can run a credit check in the UK?
There are a variety of business entities that are allowed to run credit checks in the UK as long as there is a legitimate purpose for the check. Some of these business entities include banks, lenders (such as credit card companies), insurance providers, mortgage providers, landlords, and utility companies.