Analyzing Business Credit

Excellent credit is not only of great value to an individual, but can also help companies gain power, save money, and gain access to funding that will allow them to become more profitable. Analyzing business credit is a useful tool when a potential or current vendor, B2B customer, insurance provider, factor, investor, or banker is assessing whether they will work with your company or extend financing.

Here are few examples of situations when business credit will be reviewed:

  1. Vendors:

    A vendor will review credit information before extending payment terms. If your firm’s credit history reflects poor payment habits, the vendor may only offer payment upon receipt or refuse to work with your company all together.

  2. B2B customers:

    Customers might review business credit information before agreeing to engage in a partnership or take you on as a client. For instance, when a supplier looks to sell their product to a major retailer such as Target, their business credit and credit history will be a factor in determining whether a relationship can be established. If/when the partnership is secured, major retailers will monitor business credit scores to make sure they do not fall below their predetermined threshold. if credit scores drop, the supplier will be dropped.

  3. Insurance Providers:

    In order to operate safely, most businesses need insurance. Whether you’re insuring a fleet of 250 trucks and drivers or just purchasing general liability, you’ll want to secure strong coverage at affordable rates. Business owners who do not manage and establish healthy credit will be subject to much higher premiums on their insurance policies.

  4. Invoice Factoring:

    Factors will review both the new client’s business credit AND the business credit for the customer invoices being factored. If you and/or your clients have poor credit and negligent payment history, the factoring company may deny you or charge exorbitant fees. It’s so important to monitor your own business credit and that of your b2b customers for this (and many more) reason(s).

  5. Investors:

    Would you risk your capital on a company that has a history of poor payment habits? I didn’t think so. Investors frequently review credit as a means to protect their investment(s).

  6. Bankers:

    There are so many options when it comes to business loans or lines of credit. In order to get the best rate and have the most options you’ll want make sure that both the owner’s personal credit and the company’s credit is in good standing. This will give you options when shopping for a loan based on individual business needs. Some companies opt to offer a personal guarantee on a traditional loan or an SBA loan, both of which require good personal credit, while others may look for a business loan that will not require a personal guarantee or personal liability.

  7. Competitors:

    Do you know how your business credit scores compare to your competitors? Being competitive in any environment means having a strong business inside and out. If your company is sharp enough to make a good impression, having poor credit history can tell competitors that there is a weakness within your business.

In today’s business environment, companies want to eliminate as much risk as possible. By evaluating credit it is clearer whether the current/prospective client or borrower is stable therefore the decision to seal the deal is made more easily. Some business credit reports even allow you to compare your business credit to your peers as well as viewing a comparison of how many inquiries were made.

Having poor credit scores as a company is like showing up to run a marathon without sneakers: to most inquirers a business with poor or very limited company credit looks unprepared and ill-managed.

This will lead to interested parties making their own conclusions about the reliability and financial well-being of the firm. In order to secure profitable opportunities, affordable financing and premiums, maintain desirable payment terms, investor relationships, and make sure your firm is reflecting a highly creditable and financially responsible company, you will want make sure that your business credit is being built, established and managed.