When deciding to extend business credit, a focus on the right data is a critical part of avoiding late- and non-payers. However, reading through such reports can be overwhelming. After all, some reports can be nearly a dozen pages long. What’s more, how do you know which data is unreliable (or irrelevant) versus the type of profit-protecting info that will help you determine:
“Will I be paid? If so, how soon?”
“Are there any financial difficulties making this customer a risk?”
“How much credit should I extend, if any at all?”
Rest assured, these five areas of a business credit report will help streamline your decision-making process:
Payment history – This is one of the fundamental parts of any lending decision. When it comes to a business, this area of its credit report offers insight into how reliably their company has been paying its suppliers and vendors.
In addition to monthly and quarterly payment activity, other valuable insights include:
- Any instances of balances being 90+ days past due
- On a similar note, “days beyond terms” to see how many days (if any) a company takes to pay its invoices
- A snapshot of business performance based on accounts reported or closed within the last 24 months
Payment history can also reveal important balances. This includes total trade and collection balances, as well as trends surrounding high credit usage and six-month averages.
Credit risk score – This will help predict the risk of a business going 90+ days delinquent at any given time. The lower the score, the higher the risk.
For example, Experian’s Intelliscore Plus provides a score ranging from 1 to100. A 1 indicates high risk; 100 means a low risk of severe delinquency (or bankruptcy) in the next 12 months.
Intelliscore Plus also has two exclusion scores: a 998 when a bankruptcy has occurred in the past two years, and a 999 when there isn’t enough data to score a business.
Equifax’s Business Credit Risk Score™ provides a range between 101 and 660. Like before, a low rating means higher risk and vice versa.
This is another useful tool for seeing how likely a business is to incur a 90+ day delinquency. The same is true when it comes to charge-off and bankruptcy risks within the next 12 months.
Similar data can also be found through Equifax’s Business Credit Risk Class™.
Financial stability score – Want to be sure a business is unlikely to fail? This area of a business credit report will help provide peace of mind. Unlike the other areas mentioned so far, a low score here indicates a lower risk.
Public record activity – This will provide the option for both a quick glimpse and detailed info of any vulnerabilities in the form of tax liens, judgments, or bankruptcies on file.
You’ll be able to see a snapshot of the status, quantity, and dollar amount, and have access to detailed information with a single click of a hyperlink.
Plus, these public records will also return business registration info obtained from Secretary of State Offices (or other trusted sources).
Fraud risk(s) – Being able to detect early signs of trouble tied to a customer’s account is another key element of minimizing lost profitability.
Commercial Fraud Shield℠ provides a series of checks to screen for potential signs of fraudulent activity.
Specifically, you’ll be aware of any potential listings on the OFAC warning list and:
- Know whether or not a business is currently active
- See if the business has been a victim of fraud in the past
- Spot any potential inconsistencies with the business name, address, phone, and its tax ID number.
Through Xactus, you’re able to get all the information in one convenient business credit report and the added peace of mind that every piece of data has been verified (not self-submitted).
The end result is making sound financial decisions and stress-free experiences for both sides. For more information, contact your strategic account manager today.