Forming new business partnerships is an exciting opportunity for growth, but it also comes with risks. Without proper due diligence, you could be putting your business at risk. Late payments, contract disputes, legal issues, delayed shipments—it’s all bad, and it can hurt your ability to manage your business and serve your customers.
One of the most effective ways to protect your business from these risks is by running a credit check on a business before signing an agreement. An Experian, D&B, or Equifax business credit report can provide a snapshot of a potential partner’s financial stability and give you confidence to make the right decision.
What Will a Credit Check on a Business Show?
While there are different business credit reports available, an Experian, D&B, or Equifax business credit report typically includes:
- Credit scores and risk ratings: A numerical representation of the company’s financial stability.
- Payment trends: Details on whether the business pays its invoices on time or frequently misses payments.
- Trade references: Information from suppliers and vendors about payment relationships.
- Credit limits and terms: Maximum approved credit amounts and payment conditions from existing creditors.
- Public records: UCC filings, corporate registrations, and other official documents.
- Outstanding debts and legal filings: Information on liens, judgments, bankruptcies, and collection actions.
- Business details: The company’s ownership, industry classification, and operational status.
This information gives you an independent assessment of a company’s financial reliability and helps you identify warning signs before entering into an agreement.
Avoid Risky Partnerships
A credit check on a business is key to avoiding risky partnerships that can impact your company. It helps you avoid contracts with companies prone to late payments or defaults, allowing you to protect your cash flow and make better business decisions.
With the information you find, you can avoid partnerships that don’t fit your comfort level, or adjust contract terms that better align with the risk. For example, you may want to shorten payment terms for business partners, charge higher interest rates, or ask for deposits upfront. You can also add protective clauses to your contracts.
We’ve all seen the impact of supply chain disruptions over the past few years. Although supply chains have improved, there’s still a risk if a vendor is not on solid financial footing. Research by McKinsey shows there’s still considerable risk of future disruptions. Tariffs, governmental policy changes, and the potential of an economic downturn make businesses vulnerable. By verifying the financial stability of your vendors and suppliers, you reduce the risk of supply chain interruptions that can hurt your ability to make a profit.
When Should You Perform a Credit Check on a Business?
It’s a good idea to periodically do business credit checks on all of your partnerships and monitor accounts to look for changing conditions, but it’s especially important in the following scenarios.
Before Signing Partnership or Supplier Agreements
Running a credit check on a business before forming a partnership or selecting a supplier helps you verify their financial stability. This reduces the risk of entering into agreements with companies prone to late payments or defaulting on obligations.
When Evaluating New Vendors or Service Providers
Financially unstable vendors can cause you all sorts of problems. A credit check helps you confirm their reliability before committing to a long-term business relationship.
Before Extending Credit or Payment Terms
Checking the creditworthiness of new clients or customers lowers your risk of delayed payments or potential non-payment.
During Mergers or Acquisitions
Credit checks are essential during M&A due diligence to assess the financial health of target companies. This helps you avoid acquiring businesses with hidden financial liabilities.
When Economic Conditions Are Unstable
Economic conditions can change in a hurry. During downturns or when there is significant industry disruption, a credit check on a business can reveal signs of financial deterioration so you can be proactive.
Before Accepting Large or Custom Orders
Large and custom orders have the potential for greater revenue, but they also come with higher risks. A credit check can help you mitigate that risk before you start production or fulfillment.
Get On-Demand Business Credit Checks with Command Credit
With Command Credit, you can pull Experian, D&B, or Equifax business credit reports instantly. You can pull one or more reports, and you do not need a subscription or long-term contract. Simply enter the business information, pay for the report, and you can download it instantly.
You can also choose from several types of reports from these credit reporting agencies to get a more comprehensive picture of a potential partner’s financial health.
Command Credit also offers ongoing account monitoring and credit portfolio evaluations to avoid risky situations that can hurt your business.
Make smarter business decisions with Command Credit. Get started today.