3 Things a Credit History Check Can Tell You About a Business

Running a business can be complicated and often involves constantly raising money and making new business deals.

For SMEs, the answer to these challenges is often the trade credit, which allows suppliers to work with companies that don’t have the startup funds required for certain operations.

However, suppliers are risking a lot, so a credit history check can be helpful by showing key information about a business.


1. Assess Deal Terms With a Credit History Check

One of the most useful aspects of checking a business’s history before issuing trade credit is to get a feel for its reputation, and what kind of deal may work best for them.

You can see a company’s credit score. Similar to a personal credit score, this will let you know important information about how much debt the business has and how long the business tends to take to repay loans.

With this information, you can make a smart decision about lending. For instance, you may want to extend less credit to a business that already has a lot of outstanding obligations.

With trade credit, suppliers and clients can create their own contracts that are custom to the needs of each party.

2. Get Reassurance of Repayment

A credit history check will also give suppliers a better idea of a business’s payment history. Does the report show missed payments or defaults on loans or credit lines?

This is a sign you may not be able to count on that company to uphold its obligations to you. You can also see if there is a certain repayment arrangement that works best for the company, since trade credit payments can be flexible.

The information in the report can also help you determine if your agreement should include any specific or unique payment penalties or requirements to make sure you receive money when it’s due.


3. Watch for Supplier-Hopping

A credit history check will also list all of the recent lines of trade credit a business has. Look carefully at the length of each relationship.

It may be a concern if a credit report shows a company has switched between multiple suppliers in the same field in a short period of time. This shows that the company may have a problem maintaining its business connections.

Companies that are just looking for short-term deals may not be a good value to you, especially if you are looking to build a solid base of partners. Use the information from the credit report to see if there is a pattern and talk with the business’s director about the concern.


Protect Yourself With a Credit History Check

Using all the information that a credit check tells you about an entity is a smart way to protect your business.

The report allows you to make a well-researched choice about whether to issue credit to an SME or if the risk is too great.

For help getting a credit history check on a business and managing other trade credit accounts, reach out to PencilPay to streamline your operation.