Imagine a mid-sized company offering generous credit terms to attract new clients. Over time, unpaid invoices pile up, forcing the company to write off tens of thousands of dollars in bad debt. With reduced cash flow, it struggles to pay suppliers, misses growth opportunities, and faces mounting legal fees from collection efforts.
It’s not a pretty sight, but unfortunately, it’s becoming more common.
On average, more than half of all B2B payments due…are past due. About 8% have turned into bad debt.
Think about those numbers for a minute. That means for a company earning $5 million in revenue annually, more than $2.75 million is already beyond the due date and $400,000 each year is bad debt. When you apply the median formula Gartner uses to classify business sizes, the average numbers are staggering.
Extending credit isn’t a bad thing. In fact, it’s necessary to generate revenue and grow your business. But it does present a risk. The key is to take smart risks and mitigate your exposure wherever possible, requiring comprehensive credit evaluation practices. Regularly reviewing business credit reports and knowing how to check business credit scores can help you identify high-risk customers and make better decisions.
It’s especially important in the current economic environment.
Last year, bankruptcy filings increased by more than 14%. More than 23,000 businesses declared bankruptcy in 2024. Just as Q1 2025 results were starting to trickle in, Goldman Sachs raised the possibility of a U.S. recession to 35%. Morgan Stanley also lowered its growth forecast for the year, while S&P Global Ratings forecasts inflation to rise again and has downgraded its GDP growth predictions for the year.
Making sure you are on top of the financial health of your customers is critical.
The Hidden Costs of Extending Credit to the Wrong Customers
When you extend credit to the wrong customers or clients, there can be a ripple effect that hurts your business in several ways.
Revenue Loss and Write-Offs
Unpaid invoices can quickly turn into bad debt. This directly cuts into your bottom line, forcing you to write off revenue you once counted on. In some cases, it may cause you to have to take out a loan or short-term financing to make up the difference.
Even small losses can turn into significant financial damage. If your company operates on a 10% profit margin, losing $10,000 in unpaid invoices requires an additional $100,000 in sales to offset the loss.
Operational Strain
Dealing with delinquent customers can take up a lot of time. Your team has to chase down payments instead of focusing on other business. Legal fees, collection agency expenses, and administrative costs add up, while staff hours spent on follow-ups, dispute resolution, and documentation reduce productivity.
Cash Flow Disruption
While there are plenty of contributing factors, the biggest reason businesses fail is trouble with cash flow. You need money coming in to pay suppliers, meet payroll, and invest in growth. When your customers fail to pay on time, it compromises your financial health.
Reduced cash flow and working capital mean you may have to dip into your reserves, tap credit lines, or postpone sales plans.
Reputation and Relationship Damage
Extending credit to the wrong customers can also harm your reputation. When you face financial instability due to unpaid invoices, it affects your ability to pay your suppliers or fulfill contracts.
If you can’t pay your suppliers on time, it can strain your relationships. They may up interest rates or require shorter payment windows, increasing your costs. If you can’t get the goods or materials you need to meet your obligations, it can drive away even loyal customers. If you don’t have inventory to sell, you’re losing revenue.
Inability to Get Financing
When you extend credit to unreliable customers, it can affect your company’s own creditworthiness. Missed payments or a high volume of outstanding receivables can negatively impact your business credit score. Poor credit makes it harder to qualify for loans or lines of credit from suppliers and can reduce your financial flexibility.
Lower Your Risk with Business Credit Reports
When you check business credit on a customer or client, you get an independent assessment of their financial health from one of the three business credit reporting agencies:
- Experian
- Equifax
- Dun & Bradstreet (D&B)
With Command Credit, you can pull a business credit report from any one of these agencies or all of them without having to sign up for a long-term subscription. Reports are available on demand and can be downloaded instantly by filling out some basic information.
What’s Inside a Business Credit Report?
With a business credit report, you get an overall credit score, which is a good indicator of how your customer or client has paid their bills in the past and their current financial health. It’s a snapshot combining payment history, credit utilization, and other financial metrics to determine risk levels. Each credit reporting bureau uses slightly different information and its own proprietary method for determining a score for its business credit reports.
Dun & Bradstreet
D&B has its PAYDEX score on a scale of 1-100 with the highest scores indicating a lower risk of late payments.
Equifax
Equifax uses a scale of 100-992 for its business credit score.
Experian
Experian uses a scale of 1-100 but breaks down scores into more risk categories
Besides credit scores, you can get predictions on delinquency rates, business failure, financial stability, and more. Insights into historical payments, trade lines, past due amounts, and credit utilization can give you a comprehensive picture of your potential customers or clients.
Warning Signs That Indicate a High-Credit-Risk Customer
When you check business credit, there are a few key red flags you should look for. Here are the most common warning signs that may indicate an issue.
Poor or Nonexistent Business Credit History
When evaluating potential customers, one of the most telling indicators of risk is history. If they have limited or nonexistent history, they may pose a higher risk. The lack of historical payment information makes it difficult to assess their reliability.
Late Payment Patterns
Frequent delinquencies signal financial instability. If you see a pattern of late payments or slow pays to other suppliers, you can likely expect the same. Repeated late payments indicate a pattern of cash flow problems. Accounts with multiple outstanding balances are clear warnings.
Excessive Debt or Low Cash Reserves
Overleveraged customers are more likely to default on payments. Check for credit utilization and debt-to-income ratios. Customers who carry substantial debt may struggle to meet additional credit obligations.
Businesses that have used up most of their credit may be a poor risk as they may not have additional resources to cover short-term debt. Low working capital increases the likelihood of payment issues.
Recent Changes in Ownership or Structure
Frequent restructuring or leadership changes can signal financial instability. Businesses in the middle of a merger or acquisition may have money tied up until things settle down. Rapid business changes can indicate financial distress. Frequent turnover in key leadership roles can suggest internal problems or unmet expectations.
Best Practices for Safeguarding Your Business from Credit Risks
Before extending credit, it’s essential to conduct a thorough review of a customer’s business credit report.
How to Check Business Credit
Whether you’re trying to figure out how to check your business credit or how you check a business credit score for a supplier, customer, or client, here are the steps to take.
- Gather business information: Collect the customer’s legal business name, address, and tax ID.
- Compare business credit reports: Review sample reports from Dun & Bradstreet, Equifax, and Experian at Command Credit to decide which business credit report or combination of reports best fits your needs.
- Pull credit reports instantly: Enter the business and payment information, and you can download business credit reports on demand.
Command Credit makes it easy to get the data you need to mitigate your risk and make better credit decisions.
Establish Clear Credit Policies
You also want to set clear and consistent policies for extending credit. This shows transparency to your customers and helps avoid conflicts down the road.
You should define your credit terms, including payment deadlines, credit limits, penalties, and how you determine creditworthiness. Standardized approval criteria ensure you don’t take unnecessary risks that exceed your comfort level. Comparing business credit reports and financial data against your criteria is a fair way to evaluate customers.
Monitor Credit Profiles Regularly
What do Rite Aid, Bed Bath & Beyond, Hostess, and Motorola all have in common? They were all well-known, established brands with years of profits behind them…until they weren’t. Each of them went from low credit risks to bankruptcy in just a few years.
Regularly monitoring your customers’ business credit scores is critical for you to detect early signs of financial trouble. Periodic reviews can help you be proactive. Ongoing account monitoring can alert you to changes to take action. When a company’s financial health starts to deteriorate, you want to be in front of the line, especially if it heads towards bankruptcy.
Even your long-term, best customers can suddenly find themselves in trouble. The pandemic, supply chain disruptions, changes in government policies, tariffs, and geopolitical unrest can impact even well-performing businesses. The sooner you see a potential problem, the more easily you can address it before it impacts your business.
What to Do If You’ve Already Extended Credit to the Wrong Customer
If you’ve extended credit to the wrong customer, don’t worry. It happens to almost every business from time to time. Or maybe, the business had financial issues come up after you onboarded it. Either way, here are some strategies to protect your business.
Strengthen Collection Efforts
When payments are overdue, don’t wait. Send regular payment reminders, and don’t hesitate to pick up the phone and call. Adhere to the collection policies in your credit agreement. If you get consistent delays or excuses, step up your efforts and put a hold on future credit until things are resolved.
If you can’t get a clear resolution, you may need to escalate further using legal counsel or a collection agency.
Renegotiate Payment Terms
Often, businesses that struggle are looking for solutions. You can sometimes head off problems by working with your customers to establish payment plans or provide more flexible terms for outstanding balances.
You might want to offer incentives for bringing payments current, or discounts for prompt payment of outstanding invoices. You may also have to combine this with tighter payment schedules, higher interest rates, or changes to credit limits.
Review and Revise Your Credit Policies
If you’ve made some mistakes, you’re not alone. Use them to improve your future credit policies. It’s worth reviewing your practices from time to time. You may need to raise your minimum business credit score requirements or credit limits or increase the frequency of your business credit checks.
Use past mistakes to improve your future credit practices.
FAQs — Frequently Asked Questions About How to Check Business Credit
How do you check a business credit score effectively?
Use Command Credit to instantly pull business credit reports from major credit agencies, giving you a comprehensive view of a company’s financial health.
How to check my business credit?
With Command Credit, you can easily check your business credit by entering your company’s details and instantly accessing a detailed report.
How often should I check business credit reports?
You should check business credit reports at least quarterly or before extending new credit terms to catch any red flags.
What’s the difference between personal and business credit scores?
Personal credit scores reflect individual financial behavior, while business credit scores measure a company’s creditworthiness and payment history.
Get started with Command Credit today. Pull on-demand business credit reports or get account monitoring, credit portfolio scoring, fraud prevention services, background investigations, and more.