Business credit reports can be a vital tool for credit risk management and company research. Access to in-depth information about businesses, such as company background information, financial data, payment trends, and insight into banking, trade and collection histories, are needed to help make informed financial business decisions.
While the information on your business credit report constantly changes based on transactions, balance fluctuations, and payment behavior, one thing is for certain — you should closely monitor those changes as they can impact your company in more ways than one.
When applying for credit, most lenders, creditors, and suppliers will review your business credit reports in order to assess the financial risk of extending credit terms, and to determine appropriate credit limits for your business. They may also monitor your reports regularly to review your company’s ability to pay, and adjust credit terms as they feel may be necessary.
Potential business partners and investors may also review your business credit reports to obtain background information on your business, to analyze financials, and to review who you are doing business with. They may also evaluate your company’s payment history as well as outstanding debts, and check for any potential red flags such as liens or judgments.
In addition, potential customers are known to check a company’s credit report to see if a business is a legal enterprise, prior to doing business with them. This is not an uncommon practice in today’s business environment.
Other businesses may review your reports if they are considering doing business with you. For example, by identifying the most creditworthy businesses, a company may offer first-time customers a line of credit at minimal risk.
Did you know your business insurance premiums may be based on information obtained from your company reports? Insurance companies can use business credit reports for underwriting insurance risk. Many factors play a role in how they can predict risk such as industry classification, payment trends, number of trade experiences, and credit utilization.
Finally, most government departments also review business credit reports for regulating businesses, collecting taxes, and rewarding government contracts. For example, in order to do business with the Federal Government, your business must become properly registered. One of the requirements is to obtain a D&B D-U-N-S® Number. D&B D-U-N-S Numbers serve to identify and track businesses, much like Social Security numbers track individuals.
It’s vital to monitor the health of your own business credit report, as it can be the basis for decisions that other companies, creditors, suppliers, insurance firms, and customers make about you.