A step-by-step guide to checking the creditworthiness of a company

Posted on February 9, 2024November 5, 2024 by Sam Begley

A step-by-step guide to checking the creditworthiness of a company

Creditworthiness is key when it comes to offering financial services to businesses. From determining a business’ level of financial stability and ability to repay loans, to understanding how they operate, assessing creditworthiness is a core aspect of due diligence before taking on a business client.

What is company creditworthiness?

Company creditworthiness refers to an assessment of a company’s ability to meet its financial obligations, particularly its ability to repay loans, fulfil contractual agreements, and manage its financial commitments responsibly. Creditworthiness is a measure of the company’s financial stability, reliability, and overall credit risk.

There’s a lot riding on creditworthiness, so knowing how to check the creditworthiness of a company is essential. We’ve put together a step-by-step guide to determining company creditworthiness to ensure you make the right choice when onboarding your next business customer.

A step-by-step guide to determining the creditworthiness of a company

1. Gather Basic Information

The first step in assessing the creditworthiness of a company is to ensure that you have the very basic information about them available to you. Though very simple, the essential details of the business are essential to assessing creditworthiness. This includes: the registered name, physical address and legal structure (e.g. whether they are a limited company, an LLP, etc.)

This basic information can help you determine the legitimacy of the business and is a key aspect to complete before proceeding.

2. Assess Financial Health With Companies House Data

Once you have the basic information on the business whose creditworthiness you are checking, the next step is to use the data held by Companies House to accelerate the process.

Companies House data will allow you to see director information, if there are any unpaid debts or CCJs against the company, whether the company is in administration and more general filing histories and financial statements that you can analyse later.

Some of the information available through Companies House can show you very serious red flags when it comes to creditworthiness assessments. CCJs in particular can indicate that the business has had serious financial issues and a history of non-compliance.

3. Run A Business Credit Check

Once the company has passed your Companies House checks, it’s time to run a business credit check on them. While Companies House offers a range of very beneficial public information, by running a business credit check against a company, your creditworthiness assessment will be even more accurate.

A business credit check from a trusted provider like Creditsafe is invaluable when assessing creditworthiness. A business credit check will give you even deeper insight into the financial stability of a business, showcasing a company’s in-depth credit history, as well as providing you with a credit score similar to that of a personal credit report.

Many credit report providers will also offer you a suggested credit limit for your business clients. This enhances your creditworthiness assessment even more, and ensures that you are undertaking more advanced due diligence.

4. Analyse Financial Statements

Once you have successfully run a credit check on a business, you can comfortably analyse their financial statements. With a business’ balance sheets, profit and loss statements, and cash flow statements you’ll have much deeper insight into their financial health.

Take financial ratios, liquidity and profitability into account and you should find it relatively straightforward to understand how the company manages debt. From there, you’ll be much closer to accurately determining their creditworthiness.

5. Verify Trade References

With all the information so far, you should have a solid grasp on the creditworthiness of the company you are assessing.

However, another very useful avenue to pursue as part of the process is verifying trader references. Contact the business’ suppliers and trade partners to request references regarding their own experiences with the company being assessed to accurately verify their experiences.

Verifying a business’ legitimacy and creditworthiness independently through people who have worked with the business gives you very reliable and accurate information into how reliable the company really is.

A faster way to check creditworthiness

Creditworthiness is an important step in the onboarding process, but it can be time consuming and resource intensive. When both speed and accuracy are key, having an advanced automated business intelligence platform on your side can be a lifesaver, which is why we build SalesTech.

With SalesTech, you’ll have full access to all of the data available from Companies House and the ability to credit check businesses, all in the same place. Based on your custom criteria, our platform will automatically create reports, enriching your data and ensuring you spend your time and resources only where they are most important. SalesTech can even automatically approve or decline applicants for your services based on creditworthiness parameters that you define.

For more information about our SalesTech platform, get in touch with our team today.

Effectively carrying out due diligence on a company with Companies House data

Posted on February 9, 2024November 5, 2024 by Sam Begley

Effectively carrying out due diligence on a company with Companies House data

Conducting effective due diligence on a business is essential to company’s operating in a range of sectors. Whether involved in accounting, business lending and brokerage, property, insurance or any of the other myriad industries where accurate due diligence is of the utmost importance, you’ll know how difficult it can be to do effectively and with a high degree of accuracy.

Many businesses will already utilise Companies House as a part of their due diligence process, but often without using the most efficient methods. Manual Companies House lookups take time and resources away from areas that could be spent building your own business, while also not making full use of the data available. Considering the data on offer from Companies House is valued at over £3 billion, if you’re not making the most of it, one of your competitors will be, and you could find yourself left behind.

So how can you carry out due diligence on a company by efficiently making use of data from Companies House?

How do you check the legitimacy of a business?

With Companies House data, you can look up the information necessary to determine whether or not the company you’re dealing with is who they say they are, a critical aspect of the due diligence process. With Companies House data, you’ll be able to ensure the business in question is registered, the date of incorporation, address and director details. All of this is an essential aspect of due diligence.

Once you’re confident that you’re dealing with a company that actually exists and that you’re talking to the right people, you can delve further into the data to enhance the legitimacy of the business.

By accessing the data highlighting the company’s annual financial statements and shareholder details, you can also understand the legitimacy and financial stability of the company at a more granular level. Shareholder information is an excellent way to build on your understanding of a company’s ownership and funding structure, while the financial statements will provide insight into the general financial health of the business.

How do you check if a company has a CCJ?

County court judgements (CCJs) can have significant implications for your due diligence process. A CCJ is a court order issued against businesses that have failed to repay a debt and, therefore, is a red flag for any business operating in the financial space.

Knowing a company has a CCJ can highlight creditworthiness issues, indicate potential problems with supply chains and even suggest a history of legal non-compliance. For many businesses, working with organisations who have a CCJ could be very risky, and may be entirely out of the question. As such, it is incredibly important to know whether or not a company has any CCJs as part of the due diligence process.

Once again, Companies House data can be your key to understanding whether or not a company holds any county court judgements. With access to a company’s filing history and financial statements through Companies House, you’ll have a much deeper understanding of a company’s financial history, any outstanding debts they may hold and if a CCJ has ever been levied against them.

Combining Companies House data with a business credit report is an even more effective way to accurately judge a company’s financial status.

How do you check if a company is in administration?

Knowing whether a company is in administration is critical to the due diligence process, suggesting the potential business client is experiencing a period of severe financial distress. While administrators will seek to avoid liquidation, if a company is in administration, the level of financial instability is likely to be a major red flag during your due diligence process.

As with CCJs, Companies House keeps records on whether a company is in administration as part of their filing history. Companies House’s data will show the administration documents; including a notice of appointment of an administration and a statement of affairs, that will indicate whether the company is in administration. Of course, simply being in administration may not be reason enough not to work with a business, so it’s important to set criteria that is important to you and cross-reference the company’s status against other financial data before making major decisions.

How to use Companies House for due diligence

When it comes to performing due diligence on a business client, Companies House is an incredibly valuable tool. The information on offer through their database is second to none, and when used efficiently, can be a huge time and resource saver for your own organisation. That’s why we utilise this incredibly powerful tool as part of our SalesTech business intelligence platform.

With SalesTech, you’ll have full access to all of the data available with the Companies House API to enhance your due diligence process. Based on your custom criteria, our platform will automatically create reports, enriching your data and ensuring you spend your time and resources only where they are most important.

For more information on how to enrich your due diligence process with our business intelligence platform, get in touch with our team today.

Day: February 9, 2024