Using A Business Credit Checking Company – 5 Benefits

//Using A Business Credit Checking Company – 5 Benefits

Running a business takes time and money so why lose money due to bad business credit? If you invest in a credit checking company, they will save you both time and money. Read about the 5 benefits of why it’s good to use a business credit checking company.

Jump To:
Back To Basics: What Are Business Credit Bureaus?
Personal And Business Credit Scores
Do You Know The Credit Score?
So Who Controls Your Credit Score?
What Are Business Credit Bureaus?
Why Use A Business Credit Checking Company?

Benefits Of Running Company Credit Checks
Company Credit Checks Online
So What Should You Look Out For?

Back To Basics: What Are Business Credit Bureaus?

Just about all businesses will require finance or credit somewhere along the line, whether it be an expansion loan, start up capital, or a business credit card to aid cash flow. Therefore, maintaining a high business credit or commercial credit score is essential in order to be able to qualify for finance if and when the business needs it.

So, what are business credit bureaus and what’s their role in business credit?

Personal And Business Credit Scores

Both your personal credit score and your business credit score can affect your ability to obtain business credit. Ideally, you’ll want to keep your personal credit score separated from business, as you don’t want one affecting the other.

Three main bureaus handle credit data when it comes to personal credit and your personal credit is quite protected from prying eyes. But your business credit is a lot more open to inspection to anyone who queries it. That’s why it’s so important to maintain a high business credit rating. As far as business credit goes, a score of at least 80 out of 100 is considered excellent.

Do You Know The Credit Score?

A question for all business owners: how many of you know your company’s business credit score? If you can’t answer that question, then you have plenty of company. If you answered “What’s a business credit score?” you’ve also got plenty of company.

credit-scoreAccording to research, 60% of small and medium sized business owners don’t know their business credit score – and 50% don’t even know they have a business credit score.

While the above observations were made based on overseas business research, we can assume similar results if applied to NZ businesses.

Lack of awareness about your business credit score can have big repercussions for your business – both today and in the future. They say knowledge is power – and clearly knowledge of your business credit score, how to improve it and how to protect it can give you the power to grow your business.

The unfortunate thing for the NZ market is that, in most instances, credit scores are based on little or no trading information. Generally they are reliant on the old adage of “no news is good news”, which tends to lend itself to a medium-good rating.

However, if you had a disagreement or dispute in the past that resulted in a negative outcome, then, no matter how small the amount, it is likely you will be disadvantaged because your business credit score has been adversely affected.

So Who Controls Your Credit Score?

In NZ, there are three major credit information bureaus providing commercial credit information and ratings although CreditWorks is the only one gathering pertinent and current, trading data on a regular (usually daily) basis, thus enabling a more accurate or realistic assessment to be applied to the scoring.

Which brings me to the real point of the article – your ability to positively impact your credit score by ensuring that your business is recognised as being sound financially.

The only way this can be accurately achieved is for the information bureau to be supplied with your trading history by those you do business with and obtain credit from. This is what we have come to know as Positive Data (as opposed to Negative Data, which effectively scores you on the absence, or otherwise, of bad credit indicators.)

I recall a situation a number of years ago, when my employer at the time was seeking to upload their debtor ledger into the CreditWorks database (CRISworks). On becoming aware of this intent, one of the major housing companies they supplied expressed concern about their franchise’s credit behaviour becoming visible to enquirers and members of CRISworks.

However, upon further examination, the housing company concerned identified that this could well work in their favour when dealing with suppliers. Since the company prided itself on its payment profile, and regarded itself as the best in the business when it came to paying their debts on time, it saw the advantages of potential suppliers being aware of this good behaviour.

With suppliers being able to note from the payment profile that a customer is low risk, having established a sound track record of on-time payments, and good volume, they will be keen to attract and retain that customer’s business. After all, this means less borrowing to finance debt, thereby lessening overdraft fees as well as the credit management and payroll costs associated with chasing slow payers.

This meant the housing company was in a strong position to negotiate the best possible deals, which wouldn’t necessarily have been the case if suppliers had concerns about getting their money on time, or couldn’t validate the customer’s track record.

While the use of trade references and networking has some benefit in this area, it is still reliant on full honesty, transparency and accessibility to be of value, which is not always the case. Also, customers seeking credit will logically provide potential suppliers with selected referees they want them to call.

In the end, the housing company referred to above virtually insisted its details were supplied to the information bureau for this purpose.

Finally, the last word from the US Small Biz Daily publication on their reference to credit scoring:

“Getting your suppliers to report your good payment history to the relevant business scoring agencies is very important. Too many merchants rely on negative data to tell them whether or not they should trade with someone. The old ‘no news is good news’ philosophy, is fallible. The merchant needs to realise they would be doing their good customers a favour by providing their trading history to the credit bureaux.”

What Are Business Credit Bureaus?

Business credit bureaus focus solely on business credit data. They gather data from various creditors and supply that data to interested parties. A business credit bureau is not necessarily the same thing as a credit rating agency, but these bureaus can divulge your credit score to anyone who queries it, even yourself.

(Debt collection agencies can also be referred to as credit bureaus, as debt collectors have a lot of data when it comes to people and businesses that don’t pay their debts, or pay them punctually.)

Why Use A Business Credit Checking Company?

Using A Business Credit Checking Company – 5 Benefits

In a perfect world, one would be able to deliver goods or services and get cash payment in full. Unfortunately, this is the real world and you’ll have to extend credit to some, if not most, of your customers. But credit is tricky.

Refuse to sell on credit and you risk losing a lot of business; sell on credit and you risk losing your money.

When you extend credit to a business customer, you are basically taking cash out of your company and lending it to them. Whether you are extending credit for 30, 60 or 90 days, you want to be reasonably sure that you will get your money back. But how do you know if a potential business customer will pay you once you deliver the merchandise? Well, that’s easy, just perform a company credit check on your customers.

By using the right bureau (one that deals in positive data ) and performing a company credit check on both new and existing customers, you will get a good idea of how they have been handling debt in the recent past. The credit report you get once you run a credit check contains important information such as the customer’s payment history, bankruptcy records, lawsuits  payment defaults and court judgements against the customer. A risk rating that predicts the likelihood of payment is also provided.

Company Credit checks are performed through credit bureaus, also known as credit checking companies. These are organisations that track the credit histories of individuals and organisations by managing a pool of data submitted by entities and individuals trading in the market.

Benefits Of Running Company Credit Checks

Using a credit check company to check the history of a customer could be very beneficial to your business.

It enables you to:

    1. Maintain a positive cash flow. Without a positive cash flow, your business will run into difficulty managing the day-to-day cash requirements. Running a credit check on customers will help you determine whether a customer will pay you on time so that you can make the necessary arrangements. Maintaining a positive cash flow is highly dependent on predictability; the better you can predict when you’ll get paid, the better you can plan.
    2. Avoid bad debt. Bad debt is every business’ worst nightmare. By running a credit check on a customer, you will be able to find out their creditworthiness and their likelihood of paying the debt.
    3. Determine suitable interest rates. The more you risk, the bigger the reward should be: that’s the general rule of business. If you are going to risk giving credit to a person, you want to impose an interest rate that matches that risk. Credit checks will help you determine the risk.
    4. Estimate how long a business will be in operation. If you are looking for a long term partner, this information is important. You don’t want to invest in a business relationship and then have it end because your partner went under. By conducting a credit check, you can tell whether a company is healthy or not.
    5. Value a company. Credit is a transferable asset. If you are looking to buy a business, a good credit rating will make a business more valuable as you can ride on it once you acquire the business.

5 Benefits of running company credit checks

Company Credit Checks Online

Thanks to the internet, performing a credit check on a company has never been easier. All you need to do is visit the website of a reputable credit reporting bureau, such as CreditWorks, (which is a leader in the Positive Data credit space) and follow the instructions. Once registered,  the credit report will be available for you to download directly from the website, or sent to you via email.

The benefits of conducting company credit checks online include:

  • Checking the business credit of any company is as simple as a couple of clicks.
  • You’ll get the information you need instantly or within a very short time.
  • Up-to-date reports. Since information is sent to you quickly, all the latest data collected about the company you are checking will be included in the credit report.

So What Should You Look Out For?

As a business owner you really want to keep tabs on the credit reporting associated with your business to make sure there have been no errors in that reporting. Another thing to be on the lookout for are unpaid bills, maybe bills that got misplaced and you simply forgot about.

Seemingly small things like these can adversely affect your overall business credit rating. Even having a trade account with a supplier affects your overall rating, as their experience with you will be reported to the credit agencies.

So, team up with a business credit bureau and keep a constant eye on your business credit to make certain it maintains a “healthy” status.

To know more, visit CreditWorks at www.creditworks.co.nz or contact us on +64 (09) 520 0626.

By |2019-08-06T14:41:57+13:00September 19th, 2018|Uncategorized|

About the Author:

Alan has been with CreditWorks since 2011, after 18 years as the National Credit Manager of PlaceMakers, and previously 14 years in the Finance Industry. Alan’s contribution to the Credit Industry was recognised when, in 2010, he received the Credit Professional of the Year award from the NZ Credit and Finance Institute.