What’s in a Business Credit Report?
Most business credit reports are made up of the same information. Understanding this information can greatly help any entrepreneur navigate the confusing and overwhelming world of business credit.
Company Background
Any credit report will typically include the company’s name, address, and phone number. It may also have information on the type of business and related industry (by SIC or NAICS code), sales figures, officers and the number of employees. This information is considered supplementary and is used to establish stability and size of the business itself.
Credit Rating
Similar to credit grade as in personal reports, many business credit reports have their own way (ex: Paydex in D&B) of judging how well a company has paid its bills. Typically this rating is associated with overall credit risk of the company. Those that take longer than 30 days to pay their bills are considered riskier than those that pay bills promptly and on receipt. The latter often has a desirable credit rating.
Payment History
This is the most important category in assessing credit worthiness. Payment history details when payments were made and in what amounts (ex: minimum payments vs. full balances paid off). The latter suggests the company has reached growth in revenues where as the former suggests the company is in trouble with cash flow management.
Legalities
Information about bankruptcy filings, outstanding lawsuits, liens and court judgments are also available. Though lawsuits always bear serious consideration, a history of lawsuits may mitigate the risk associated with a pending lawsuit in conjunction with other factors. Any liens or judgments against the company are equivalent to serious delinquency status on personal credit reports.
Collections
Collection activity is another negative on company credit reports. A history of collections means that the company is negligent in paying its bills on time and often lets bills slip without contacting creditors to make other arrangements.
Company Age
The length of the time the company has been in business is also of keen importance. A company that has been around for only a few years is of course a bigger risk than a company that has been doing business for quite some time and has a big history.
UCC Filings
To place liens against a company, vendors, banks and credit grantors will place a Uniform Commercial Code (UCC) filing against the company. This is available on the credit report. New loans or large credit lines will consider how many UCC filings a company has already in existence before granting credit or a loan.
Filed under: Business Credit
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