In 2020, an analysis of $3 billion in sales revealed that 57% of invoices were paid late. For a business doing $5 million in gross revenue, that means $2.85 million was not paid on time. Late pays can result in cash flow and working capital problems that negatively impact a business. Chasing payments also takes time away from revenue-producing activities.
Over the past year, an uncertain economy has taken a toll. Business bankruptcies rose nearly 20% in 2020 compared with the previous year. Real estate, oil and gas, restaurants, entertainment, and retail were among the hardest-hit industries. Many companies that had been financially healthy in the past found themselves facing hardships that impacted their ability to pay their bills.
These two concerns — late payments and financial instability — are key reasons why a small business credit check for customers and suppliers is more important than ever before.
Performing a commercial credit check to understand someone’s credit and payment history can help businesses make better decisions about extending credit and negotiating terms with customers. Understanding the financial health of a supplier is also important when issuing purchase orders and buying the products you intend to sell.
Business Credit Report Agencies
Three major credit bureaus track business performance and produce a business credit score:
- Experian Business Credit Report
- Dun & Bradstreet Business Credit Report
- Equifax Business Credit Report
Each agency approaches a small business credit check slightly differently, but each will provide you with an overall business credit score and surface signs of financial instability.
Experian Business Credit Report
The Experian Score Summary provides a financial stability risk score, assesses repayment risk, and suggests credit limits based on current financial performance. Experian also provides an Intelliscore, which is a business ranking that is similar to a FICO score for evaluating personal credit.
Experian provides details on:
- Repayment risk
- Financial stability
- Days beyond payment terms
- Credit balances
- Derogatory legal filing, liens, bankruptcies, and fraud alerts
Experian also provides recommendations on credit limits.
Dun & Bradstreet Business Credit Report
Vendors and suppliers submit payment information to Dun & Bradstreet, which are used to determine how promptly customers pay their bills — a leading indicator of how they will perform going forward. Dun & Bradstreet uses these tradeline references to assess viability as part of its evaluation but does not report them separately.
Dun & Bradstreet provides details on:
- Business viability
- Total loss predictor
- Paydex score
The Paydex score indicates the risk of slow payment on invoices.
Equifax Business Credit Report
Equifax builds its credit risk scores using financial services and trade payment data. The Payment Index is a dollar-weighted indicator that assesses a company’s past and current payment performance, which helps predict the likelihood that a business will experience severe delinquencies or file for bankruptcy during the next year. Equifax provides details on:
- Repayment risk
- Financial stability
- Days beyond payment terms
- Derogatory legal filing, liens, bankruptcies, and fraud alerts
- Credit limit recommendations
Equifax also provides summary-level tradeline details.
Detailed Business Credit Report
Besides a business credit score and basic information, you may also wish to get more in-depth information from a commercial credit check to understand how the score was calculated and other factors that may impact financial health.
For example, the Experian Premier Profile includes balance sheets and income statements from publicly traded companies, family trees, credit balances, and additional tradeline details. The Dun & Bradstreet Business Information Report (BIR) includes public filings, credit balances including terms, and lists of company officers, employees, and facilities.
How to Find the Best Commercial Credit Check
As you bring in new customers, renew credit for existing customers, or commit to a supplier, you should check their creditworthiness and financial health to help minimize your risk. A commercial credit check provides an independent assessment so you can evaluate their financial health and make more informed business decisions.
Since each business credit agency provides different information, the first step is to compare business credit reports to find the one that best fits your needs. You may decide you want to pull more than one in some cases.
Comparing and buying business credit reports is easier than you might think. If you go to myaccredit.com, accredit will show you samples of the various reports and buy them instantly online. You do not need to sign up for long-term subscriptions. Rather, you can select the reports from any of the credit bureaus you want and download them instantly.
Businesses need to be more careful than ever about who they partner with, buy from, and extend credit. Mistakes can be costly and have a long-lasting impact. If a customer is unable to pay their bills on time, it can affect your ability to pay their bills promptly — which can then hurt your credit score. It may hinder your ability to get credit with others and result in less-than-favorable terms.
Pulling a business credit report upfront is the best way to minimize your risk. Visit myaccredit.com to select business credit reports to perform commercial credit checks on customers and suppliers.
