By Marco Carbajo, Guest Blogger
A business credit report is an essential tool for banks, lenders, suppliers and credit grantors in assessing the creditworthiness of small businesses. The information contained in a report provides crucial details needed to make informed credit decisions.
It illustrates a company’s ability to meet its contractual obligations based on payment history and public records. The data in a small business credit report is vital to getting the funding you need to successfully run and grow a business. It impacts the following financial decisions:
Business credit reporting agencies – such as Dun & Bradstreet, Experian Commercial, and Equifax Small Business – collect data on millions of businesses and compile the data into a business credit report. All the information collected in a company’s report is used to calculate a business’ credit rating.
The typical information that makes up a small business credit report includes:
Typically, all business credit reports have the same type of information. Although each business credit reporting agency has its own process for collecting and verifying data, the main data sections are pretty standard.
The first thing that displays on a small business credit report is the business profile or company information section. This section lists the company’s legal name, address, incorporation details, ownership, subsidiary details, and number of employees.
Other standard information listed in the business credit profile section includes financial data. This data includes annual sales and may include a financial statement.
The payment history section shows a company’s payment history for the past several years. This includes invoice activity, outstanding balances, payment terms, and credit limits.
If there is an issue with your payment history then this is where you will be able to see it. Once you’ve spotted the issue you should be able to fix it. For example, perhaps you don’t use the correct invoicing thing, so it would be better to change your tactic, and make the most of some of the best Xero apps. This way an issue shouldn’t occur.
The public records section lists legal filings, bankruptcies, collections, and UCC filings. If a business has legal judgments or collection accounts reporting in this section, a creditor may view the business as being in financial distress and may be hesitant to work with it.
Finally, based on the information listed in a small business credit report, each business credit agency will issue a business credit score or rating that predicts payment behavior.
Business credit reports and scores are a measure of a company’s financial stability. The main goal for small business owners should be to establish records of timely payments with all of their financial obligations in order to establish a strong business credit report and score.