Business credit checks :

Business credit checks are done by various financial institutions on their clients before offering credit to them. During the process these financial institutions acquire the business credit report of their customers. The credit report thus acquired includes several financial details about the client to whom the credit is being extended. The business credit report consists of the past record of the payments made by the client, any history of the client

getting bankrupt and any lawsuit that is filed against the client. This credit reports also give a rating to that client which eventually decides what are the chances of the client paying back the loan. Making a prudent study of this report the financial institution has to take the decision if it is secure and profitable to give financial assistance to that particular client.

Importance of a credit check :

The process of credit check is of great significance keeping in mind the current scenario of the credit market. This helps the lender to do extensive study on the client to whom he is extending financial support because if the loan is not repaid it will be a big jolt to the financial institution. There are few important reasons to conduct credit checks, which are listed below.

• This helps you to make choice between the customers in the market as to who is more prospective in terms of making payment and help in earning more business.

• The credit check helps you to know the current financial status of the existing client. Based on this you can take decision on whether to continue business relation with that particular customer.

• The business credit check enables you to know the complete past financial track record of a new prospect before you enter into any liaison with that client.

• The business credit checks done on various companies at random will give you an edge over your competitors. It will help you to know your exact position in the market and what are various other prospects you can look up to.

• If you keep an constant eye on various credit reports online then you will come to know regarding any changes that has taken place in the credit report of a client and which is significant enough to change the market position of the client.

• It also helps you to take other decisions regarding the finances of your company keeping in mind the market standing of the various companies.

Components of a business credit report :

There is a standard parameter that all the business credit report should follow. Each and every financial organization must be aware of these parameters as then only they can Asses as to how much viable the particular business credit report is to their needs. There are particular points that a company should cover in their report while making assessment of any company. Some of the components of the business credit reports are listed below.

1) Business background information business background information helps the financial institutions to know about the past records of the client they are serving to. Business background information section of the report give extensive information about the past business deals of the client.

2) Extensive financial information this section of the report shows various assets that are acquired by the business house owned by the client. It also gives information on how much credit the client is already owing to the market. It also gives an insight to various liabilities of the client in the market.

3) Credit risk factors this gives a clear picture of how much risk is involved in extending credit to a particular customer.

4) Banking, trade and collection history this section of the report speaks specifically of the track record of the client with various banks. The ways the client conduct their trade and how they approach the recovery method of various financial institutions.

5) History of liens, bankruptcies, judgments and business registration this section completely deals with the legal standing of the client in the market. It allows you to know if the client had any case of bankruptcy in the past, if the registration of the company is done taking proper legal measures and if there are any lawsuits filed against the client.

6) Uniform commercial code filings this section helps to adjudge the credit position of the client in the market in comparison to the credit positions of other companies in the market.

Interpretation of credit report for business credit check :

The business credit report provided by a company on the client must be properly interpreted by the financial institutions. This exercise is of paramount importance as the document in the written form is not alone sufficient to pass the ultimate judgment. All the sections of the report must be carefully read to understand if the particular matches all the criteria of the financial institution. There are few tips on how exactly you must proceed with a particular section and what is the nature of conclusion you should draw from it.

• The most important part of the business credit report is the business background information. This particular section gives you a clear insight to whether to tie up with a particular client.

• The extensive financial information of the client makes you aware of the amount and nature of risk involved in extending help to a particular customer. Assessing this section you can calculate whether it is profitable for outfit to continue ties with the client and if your organization is ready to counter if any of the risks materializes.

• Credit risk factor is the section, which is assessed to keep a check on the existing customer. You must check this section after regular interval of time. Based on the information in this section you can take decision on whether to increase the amount of credit for the existing customers.

• The uniform commercial code given in the business credit reports must be used to decide which is the more prospective company to work with. Since this gives the market standing of a particular company in comparison to other companies thus it can also be used to check ones own position in the market.

Business credit check is a very essential tool to gain strong foothold in the market. It saves the financial institutes to loose money in their ventures as they are beforehand aware of the conditions and nature of the clients they are dealing with.