Credit Check
A credit check helps you gain insight into a company’s financial reliability in advance. It gives you a clearer picture of the risk you’re taking before you ship on credit or enter into a business relationship. This allows you to make informed decisions about payment terms and credit limits.
Learn Credit Risk
Meer learn Credit Risk
What is a credit check?
A credit check is an assessment used to determine whether a company can meet its financial obligations. It involves reviewing various business and financial data, as well as indicators that suggest potential payment problems.
A credit check is relevant, for example, when you:
- supplies goods or services on credit;
- enters into a new business relationship;
- accepts a large order;
- selects a supplier;
- enters into a lease or rental agreement;
- provides credit or financing.
The results will help you determine appropriate payment terms and credit limits.
When do you conduct a credit check?
A credit check is often conducted before a business relationship begins. Especially when you supply goods on credit or enter into a major financial commitment, it’s wise to verify in advance who you’re doing business with.
A credit check can also be valuable when it comes to suppliers. Financial problems at a key supplier can have consequences for your own business operations.
For existing clients, a new review may be necessary if circumstances change—for example, in the event of a larger order or new indications regarding their financial situation.
What information do you use for a credit check?
⇨ Company Information
Information from the Commercial Register helps to correctly identify a company. This includes the official company name, legal form, business address, directors, and date of incorporation.
These data provide an important foundation, but on their own they say little about the financial risk.
⇨ Financial Information
Where available, financial statements provide insight into, among other things, revenue, net income, equity, liabilities, liquidity, and solvency.
⇨ Payment Experiences
The way a company actually pays its invoices provides additional information. For example, chronic late payments can be an important warning sign.
⇨ Risk Scores and Business Developments
By combining data from various sources, trends and risks can be identified more quickly. Examples include changes in financial position, corporate structure, or other relevant indicators.
How to Run a Credit Check in Four Steps
1. Check the company
Identify the correct company using, for example, the company name, Chamber of Commerce number, and business address.
2. Evaluate the available information
Review financial data, payment history, risk scores, and relevant developments to gain a clear understanding of the company.
3. Determine your terms and conditions
Use the result to determine an appropriate credit limit, payment term, or other terms and conditions.
4. Keep track of important changes
A credit check is a snapshot in time. A company’s situation can change. With key business partners, it is therefore wise to continue monitoring relevant developments.
A one-time credit check or ongoing monitoring?
For a new account or a single transaction, a credit check be sufficient. If you want to manage financial risks across your entire client portfolio, it is important to continue monitoring these relationships even after that.
With the Credit Risk Platform – Finance Analytics It provides a clear overview of the credit risks in your portfolio. You can see which customers require extra attention and respond more quickly to changes in, for example, payment behavior or credit risk. This allows you to adjust credit limits and payment terms in a timely manner.
Conducting a credit check is part of credit risk management. Learn more about credit risk management on our Credit Risk Management page.
Direct contact with a Credit Risk specialist.
Be sure to check out our other Learn pages for additional insights and in-depth knowledge.
