The Ins and Outs of Business Credit
By Michelle Collins | February 29, 2004
Here's the scenario: a new client contacts you, eager to do business. They are a well known name and could be a big boost for you, but you've heard through the grapevine that they aren't known for paying their bills on time. What should you do? A business credit check may be the answer.
Where to go
As with individual credit reports there are several places you can go to get a business credit report. Here are your options:
Dun & Bradstreet: This company focuses specifically on business credit reports. They offer a wide range of services from simple reports to thorough documents outlining various facets of the businesses credit past.
Equifax: Best known for their individual credit reports, Equifax also offers commercial credit checks.
Trans Union: Operating in Canada since 1989, Trans Union Canada offers both commercial and individual services for credit checks.
Northern Credit Bureaus: The only major credit reporting company to operate solely in Canada, Northern Credit Bureaus also offers both commercial and individual services.
There is very little difference between an individual and a business credit report, explains Geoff Vincent, VP of Marketing with D&B. The one major exception is that a business report is likely to have more payment activity showing up simply because businesses conduct more transactions than individuals.
D&B collects their information using eight different sources of publicly available information. They are:
While companies may offer a variety of reports from basic information to in depth histories of the client in question, Vincent recommends that the small business owner start off with a report that shows payment histories over the last 12 to 24 months. For example, D&B offers a document known as the Payment Profile Report.
To see a sample of D&B's Payment Profile Report go here: www.dnb.ca/samples/payprofile.html
The report will begin with basic information on the company, such as executive names, the number of employees, and sales figures.
“Typically this doesn't change a whole lot,” says Vincent. “But you want to verify that this information is correct. If you called a company to check this information and something wasn't right, that would be a flag.”
Additionally, there may also be a section that summarizes the company's legal actions. If you see that one or more legal cases involving this business, that should be another flag.
The report should also show information on the company's financial history. For example, the D&B report displays this as a graph, where one colour represents the business in question, and other colours show the industry's average payment record. From there you can see if the payment timelines are normal.
Like Equifax's scoring system, you can also find scores for business credit checks as well. Here is a break down of D&B scores:
“I think in this report what you're looking for is the actual payment habits or records of the business. It shows how the trends have gone for this business in the last two years, up or down. You don't always have to say no to a sale, but use this knowledge to make conditions for the payment arrangements if you want that business,” says Vincent.
Making a decision
While the ultimate decision to grant credit rests with you, the business owner, these reports can act as a tool to make an informed choice. While others you know may not have good experiences with this company it doesn't mean that you will as well.
“I don't think there's ever been a case where people rely solely on these reports. If you're a business owner and you're just not sure about the decision to extend credit this is a very good way to become more comfortable with that decision,” says Vincent.
Where to go
As with individual credit reports there are several places you can go to get a business credit report. Here are your options:
Dun & Bradstreet: This company focuses specifically on business credit reports. They offer a wide range of services from simple reports to thorough documents outlining various facets of the businesses credit past.
Equifax: Best known for their individual credit reports, Equifax also offers commercial credit checks.
Trans Union: Operating in Canada since 1989, Trans Union Canada offers both commercial and individual services for credit checks.
Northern Credit Bureaus: The only major credit reporting company to operate solely in Canada, Northern Credit Bureaus also offers both commercial and individual services.
There is very little difference between an individual and a business credit report, explains Geoff Vincent, VP of Marketing with D&B. The one major exception is that a business report is likely to have more payment activity showing up simply because businesses conduct more transactions than individuals.
D&B collects their information using eight different sources of publicly available information. They are:
- Internet
- Government Registries
- Yellow Pages
- News and Media
- Courts and Legal Filings
- Payment Data
- Contacting companies directly
While companies may offer a variety of reports from basic information to in depth histories of the client in question, Vincent recommends that the small business owner start off with a report that shows payment histories over the last 12 to 24 months. For example, D&B offers a document known as the Payment Profile Report.
To see a sample of D&B's Payment Profile Report go here: www.dnb.ca/samples/payprofile.html
The report will begin with basic information on the company, such as executive names, the number of employees, and sales figures.
“Typically this doesn't change a whole lot,” says Vincent. “But you want to verify that this information is correct. If you called a company to check this information and something wasn't right, that would be a flag.”
Additionally, there may also be a section that summarizes the company's legal actions. If you see that one or more legal cases involving this business, that should be another flag.
The report should also show information on the company's financial history. For example, the D&B report displays this as a graph, where one colour represents the business in question, and other colours show the industry's average payment record. From there you can see if the payment timelines are normal.
Like Equifax's scoring system, you can also find scores for business credit checks as well. Here is a break down of D&B scores:
|
100 |
This company pays their bills right away. In fact, they are probably taking advantages of discounts because of their excellent record. | |
|
90 |
This score indicates that the company pays their bills before the due date. | |
|
80 |
The business pays their bills on or before the due date. | |
|
70 |
The business pays their bills 15 days after the due date, but pays before the 20 day mark. | |
|
60 |
The business pays their bills 20 days after the due date, but pays before the 30 day mark. | |
|
50 |
The business pays their bills 30 days after the due date, but pays before the 60 day mark. | |
|
40 |
The business pays their bills 60 days after the due date, but pays before the 90 day mark. | |
|
30 |
The business pays their bills 90 days after the due date, but pays before the 120 day mark. | |
|
20 |
The business pays their bills 120 days after the due date. | |
|
10 |
The business takes longer than 120 days to pay bills, but may pay soon thereafter. | |
|
1 |
The business takes longer than 120 days to pay bills with no indication of when the money will be received. |
“I think in this report what you're looking for is the actual payment habits or records of the business. It shows how the trends have gone for this business in the last two years, up or down. You don't always have to say no to a sale, but use this knowledge to make conditions for the payment arrangements if you want that business,” says Vincent.
Making a decision
While the ultimate decision to grant credit rests with you, the business owner, these reports can act as a tool to make an informed choice. While others you know may not have good experiences with this company it doesn't mean that you will as well.
“I don't think there's ever been a case where people rely solely on these reports. If you're a business owner and you're just not sure about the decision to extend credit this is a very good way to become more comfortable with that decision,” says Vincent.