Extending Business Credit based On Business Credit Rating

provided by IndustryCreditReports.com  

Go To Search Menu Now !

Business credit rating is a review of the company’s transaction history that may include payment trend within the last 60 to 180 days, collection activity, public records such as liens, judgments, corporate filings, or bankruptcies. Financial risk perceived may vary from lender to lender, vendors or existing customers of the business.

The business profile also plays an important role in its rating that may include annual sales, years in business, structure of the business, industry, principals, and company stock.

The information used to create a rating is gathered from suppliers or lenders that the business has dealt with in the past. A business's credit report contains average payment of days past terms, usually reported by existing major suppliers, bank institutions, monthly leases and utility bills. Vital information that is taken into account is average high limit, number of payment histories during the last 30, 60, 90 and 180 days. The number of trade references reporting during the same periods along with up or down trend ratios may also give the report strength or weakness.

For example, if a credit rating of company A has 130 trades reporting with 400 payment summaries in the last 90 days compared to company B that has 3 trades reporting and only 9 payment histories, obviously the one with more trades and payment history has more validity and strength than company B. Both may contain fair ratings, but at least you know the character of the business before making a credit decision based on the credit report results.

Depending on the size of the business, average high limit to be extended, and number of days allowed for terms, using credit reports can be a useful method in your credit decisions. Business Credit Reports are one of many tools used by small business that can be utilized in credit decisions.

A small water bottle distributor that sells small companies may average credit extensions of $50.00 to $200.00 and perhaps reviews a report to make sure nothing negative is on the report. Perhaps a report similar to company B in the above example is ample enough to determine the credit decision.

However, if you are a large tire supplier selling to a large trucking fleet that may extend $100,000 of credit, you may want to make sure the trucking fleet company has other vendors with far more credit than your business will extend. It is not uncommon to ask for financial statements or company credit applications and review bank trades, and other trade references of equal size credit limits to give you more comfort.

Questions you may ask the bank mentioned in reference :

  • What is the structure of the company’s debt?
  • Are the loans secured or unsecured?
  • What is the line of credit amount and how much is being used?