Business credit reports can provide vital information, so it is best to learn how to read them to get the best information needed when making decisions.
Generally speaking, individual companies that provide credit reporting services do not have the exact same formats, but the most important information is always available.
Business Identification
The first part usually deals with information regarding the identity of your business. This includes the full official name for your business, its address, phone number or numbers, business type and category, length of operation, and number of employees.
If your business is related to other businesses via a parent-child or subsidiary relationship, then this may be included as well. The names of key personnel, such as the CEO and Corporate Treasurer will also be included. Overall sales data is also usually included. This section is straightforward enough, as it deals with simple facts.
Payment Behavior
Since credit is all about lending money which is to be paid back, it makes sense that a credit report will discuss your business’s behavior when it comes to paying the bills.
One important statistic is the “Days Beyond Terms” or DBT. This value denotes the average number of days it takes a between the due date of a received invoice and the date of actual payment. It is the most accurate and current indicator of how a business pays. Needless to say, the smaller a business’s DBT is, the more attractive it is to credit companies.
Examining trends in payment is also important. The optimum goal is a “stable” trend rating, which indicates that your business is consistent in paying its bills on time, rather than an “unstable” trend with spikes in payoffs and periods of delinquency.
Industry Comparisons
Credit companies are not just interested in the financial behavior of your company but also how it stacks up against others in the same industry. Ideally, your business should score better than a majority in the industry, which indicates that your company performs better than most of your competitors.
These comparisons are visible via a simple percentage value indicating the percentage of businesses scoring worse or better than your business. The comparison can also be seen if your payment trends are graphed against industry averages.
Other Information
Bankruptcies are definitely negative marks on your report, and creditors will want to know such things. Having any pending obligations for payments for materials, equipment, and services rendered will also leave negative impressions, particularly if you are overdue on those payments.
Having suits or liens filed against your business is also a bad sign. These point to possible violations of business conduct or similar infractions, which can reflect on your business behavior, so creditors are wary of these.
In Summary
Reading a business credit report is not difficult if you know what to look for, and what they mean. The report is essentially an overall credit rating, which is adjusted to reflect industry averages. This is the baseline for decisions, whether as a creditor or credit-seeker. As a business owner, you will want this value to be as high as it can be.
