The concept behind most business transactions is simple. Buy products at a low cost, sell them at a higher price, and keep the profit. If only it was that simple. In today’s complex economy, there are many more things to consider.
2020 has proven that. We have seen a record number of businesses close their doors, a rising number of bankruptcies, and major disruptions to supply chains. Many formerly healthy businesses have suffered and those that have survived have had to adapt to new ways of doing business.
You can no longer assume your customers will be able to pay their bills or be able to pay them on time. Before you extend additional credit or fulfill orders for new customers, you need the assurance that you will get paid.
In the past, many businesses relied on credit references or credit applications. That does not work anymore because it is too easy for a business to only provide references for companies they pay on time so you do not know about the ones they are not paying. This is why you need business credit reports.
The Best Business Credit Report
The best business credit report can tell you a lot about your customers and provide information you need to make smarter decisions about extending credit and taking on new partners. Three major credit bureaus provide business credit reports:
- Dun & Bradstreet
Which is right for your business? The answer depends on several factors. Each company uses slightly different sources of information to produce credit scores. Before you decide which report is the best business credit report for your needs, you should compare what they offer and review samples.
Dun & Bradstreet (D&B)
Dun & Bradstreet focuses exclusively on business credit and shows you how a business interacts with its vendors and suppliers. The PAYDEX score measures how reliably a company has paid its bills and stayed current within the terms of their agreements. It also includes:
- Delinquency scores and future predictions
- Forecasts for potential business failure
- Supplier evaluation risks
- Credit limit recommendations
Equifax uses data collected by the Small Business Finance Exchange (SBFE) and other sources to evaluate creditworthiness. It uses tradeline credit information along with public records, such as liens, judgments, and bankruptcies to produce a credit score. It also provides information about:
- Payment trend lines over the past year
- Credit risk scores, indicating the likelihood an account will go beyond 90 days, face severe delinquencies, or result in a charge-off within the next 12 months.
- Business failure scores
Experian gathers information from both suppliers and lenders. Besides supplier info and public information, it also examines bank data such as credit transactions, outstanding balances, available credit, and credit habits. Besides producing an overall credit score, it also includes a financial stability risk rating to forecast the likelihood a company will experience several financial distress or bankruptcy in the next 12 months.
Warning Signs That Indicate Potential Financial Problems
It is a good idea to periodically pull business credit reports for your biggest customers or anytime you feel something is not quite right and trust your instincts. Here are some of the warning signs that can tell you there may be financial concerns in the future.
- Slow pay
When customers start to stretch out their payments or miss payment deadlines, that is a warning sign. Someone that paid their bill within 15 days and now waits until the last day of the term may be experiencing cash flow issues.
- Turnover at the top
When companies regularly turn over executive staff, it can be a sign of a company in turmoil.
- Company linkage
If a parent or sibling company is in trouble, there can be a ripple effect that impacts how the customer pays its bills.
- Accounting issues
If you hear there are “accounting issues” when you call a customer to follow up on an invoice, this is a warning sign. Lost or misplaced invoices, problems with financial institutions or the old “check’s-in-the-mail” story can all be indications of larger problems.
If you detect any of these warning signs, a business credit report can help you determine whether there could be a potential problem. When you check the company’s business credit report, look for signs of trouble such as drops in credit score, credit limit decreases, and increases in days beyond term (DBT) payments.
Buy Business Credit Reports Instantly
Being proactive before extending credit can help you mitigate risk and ensure you continue to get paid on time. accredit makes it easy to buy business credit reports and assess the financial health of customers and potential partners. Just enter your information and click to instantly download the information you need to make better business decisions.