Most of us are familiar with the concept of checking our credit score—and, luckily, it’s a fairly simple process these days (for instance, you can do it right here). And although you almost certainly know how important it is to understand how to check your own credit score, did you know that it’s also just as vital to know how to check another business’s credit score?
It’s true—even though you might think that a business credit score is just, well, private business, it’s actually publicly accessible. And that could become important to you in the future, especially if you’ll be working closely with other companies. For example, perhaps you’re offering trade credit, and want to figure out if a new business will pay their invoices.
Whatever your particular reason for wanting to check the credit score of another business, you’ll get the same useful information—it’s a way to check up on their history with debt, and help you make smart financial decisions as the head of your own business.
Why You Should Know How to Check the Business Credit Scores of Other Companies
According to credit bureau Experian, as of 2015 upwards of $8 billion is lost or stolen from small businesses yearly due to fraud. It’s possible that this number is actually underreported, and that the damage being done is more severe.
With the surge in ecommerce and online storefronts, it’s likely that this trend is only growing. And if you own an online store, you’re already probably hyper-vigilant about fraud—so anything you can do to help keep you safe is in your best interest. You want to know if there’s anything shady in their history—do they not pay their big debts? Checking the business credit scores of the companies you hope to do significant business with helps keep you safely back from the edge.
After all, business credit scores are affected by the same factors as personal credit scores—length of credit history, debt repayment, credit utilization, bankruptcies and judgments—as well as other considerations, like the age and size of the company, and the risk of their industry (some industries are riskier than others). Since these scores are standardized and algorithmic, they’re the best way for you to get an objective look at a company.
Determining the business credit score of a potential partner will help you decide what kind of invoice terms (aka net 30, 60, or 90), if any, you should extend. The ability to offer trade credit to customers may make you a more attractive business partner than your competitors, but that won’t mean anything if you’re not getting paid the money you’re owed. You can minimize this risk by checking their credit score before agreeing to terms.
Another Business’s Poor Credit Could Affect Your Own Survival
As a small business, you depend on your customer’s ability to pay their bills. If your customers fall behind on their payments to you, then your cash flow suffers, which might mean that you’re forced to make late payments to your vendors. And late or partial payments can have long-term negative effects on your business.
Yet most small business owners don’t run credit reports on potential business partners. Maybe a friend or colleague whom you trust refers you to your prospective partner. Or the meeting takes place in person and you “get a good vibe.” More likely, your conversation unfolds via email, and everything seems legit. But as above board as a company may look, proof is in the numbers. Always remember that a partner is going to present the best version of themselves—after all, they want to do business with you.
The sad reality is, though, that small businesses are more susceptible to fraud because of their limited resources. There often isn’t a large accounting team that can catch discrepancies immediately, or an IT department that can go all out on security. And due to limited fraud protection for businesses (as opposed to all the safeguards put in place for individuals), it’s up to you as the business owner to protect yourself. And you’ve worked too hard to fail due to another company’s bad business practices.
How to Check the Business Credit Scores of Other Companies
The Fair Credit Reporting Act (FCRA), passed in 1970, protects personal credit scores as private. But a business’s credit report can be pulled at anytime without that business needing to give permission. There are numerous credit reporting agencies, which charge varying amounts for each report, and collect different information.
1. Dun & Bradstreet
Dun & Bradstreet was founded in 1841 and is one of the oldest credit reporting companies in existence. They provide a credit summary, a credit risk score, and a financial stress score, as well as include payment comparisons between the business you’re researching and other companies in the industry.
Their reports also include a PAYDEX score, which is Dun & Bradstreet’s business credit scoring system, similar to the Fair Isaac Corporation (FICO) score for individuals. This can help you determine your risk in extending payment terms to the business in question.
A one-time report from Dun & Bradstreet will cost $121.99.
Equifax has been around for more than 100 years. Their business credit reports include public records information (like bankruptcy) and a business failure score, which predicts how likely it is that a business will fail in the next 12 months, along with possible reasons why.
The Equifax reports may also include business demographics, payment history, and any other people or companies associated with the business (which you can then run a credit check on, to get a more complete view of how they operate).
An Equifax one-time report will cost $99.95.
The newest major player for business scores is Experian, which was founded in 1996. Their credit reports include basic information, most of which can be found in public records, but they also offer risk reports (which include basic info as well as business verification, Risk Indicator Ratings, and Risk Alerts) and business credit monitoring services (which give you an unlimited number of credit reports on the businesses you’re monitoring, and send alerts as new information is gleaned).
An Experian one-time report will cost $39.95.
You’ll need to decide what best fits your needs—meaning how much information you’ll want to pull about the business you’re looking at. At the end of the day, you’re making sure no one else is putting your business at risk, so take that into consideration.
What to Do If You Can’t Check Another Business’s Credit Score
You might find yourself in a situation in which you can’t check credit on a business—maybe it’s a consideration about money or maybe it’s limited time. Regardless, you can still take cues from this idea and do some sleuthing on your own.
Here are a few steps to take:
- Verify that you have the correct (legal) name of their company as well as the owner and/or representative’s complete name.
- Be certain that you have their physical location address(es).
- If anything they’ve submitted to you is incorrect or inconsistent, make sure that you ask lots of questions about why.
- Ask questions not just about erroneous information but about everything they’ve told you.
Above all, trust your gut.
Don’t Forget: Monitor Your Business Credit Score, Too
Hopefully, you’ll have thought about checking your own business credit score at some point throughout all of this, too. After all, you should find out what your potential business partners may be seeing when they research you.
Depending on what you find, you can correct bad data and update incorrect information. If you monitor your credit score on a frequent basis, you may be able to catch inaccurate information before it has a chance to affect your score. You may also be able to stop identity theft before it can cause too much damage. It’s just one more step you can take to guard your small business against fraud.
- Experian.com. “Is Small Business Fraud Overlooked?“
- Forbes.com. “The 10 Riskiest Businesses to Start“
- DnB.com. “Business Information Report“