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- iHaveNet.com: Small Business Guide
Small Business Money Matters
When you're considering granting credit to new customers, evaluating the reliability of potential suppliers, or analyzing your company's own credit standing, it is a good idea to run a credit report. A typical business credit report provides a snapshot of a company's credit history, including how it pays its bills and manages other financial obligations. Using these reports can help you mitigate risk by identifying warning signs of potential customers' credit problems. They can also help you determine whether your company is an attractive credit prospect for its suppliers.
Be sure that your analysis of a credit report includes a review of the following areas:
Credit risk rating
Many credit reports include a rating system designed to help you gauge potential risk of late or delinquent payments.
These ratings are often based on an analysis of a variety of credit factors, such as past payment performance and legal filings, and can be used to help you quickly make a credit decision. A "high risk" rating should be taken seriously.
Payment history
Analyze past payments for signs of how a company manages its bills.
Look for timely payments, as well as trends. For example, if you notice that a prospect used to make minimum payments on credit cards and is now paying each month's balance in full, it may be a sign that the company has developed a stable revenue stream and is therefore a better credit risk. It's also a good idea to see how a business' payment history compares to other companies in the same field. This will tell you if its payment patterns are in line with industry norms. When reviewing your own report, keep an eye out for similar trends that your suppliers may notice.
Company information and background
A credit report will include the company's name, address, and phone number, and may also have information on its business type, industry (by SIC or NAICS code), number of employees, sales figures, incorporation status, and key officers.
Review this information to make sure it is consistent with your company's records. If it is not, be sure to contact the company for an explanation. Be on the lookout for fictitious company names designed to hide the true ownership of a business, which may be an indication that the company is trying to conceal information.
Legal issues
A credit report will contain information about bankruptcy filings, outstanding lawsuits, liens and court judgments that can help you identify new clients that may be credit risks, or suppliers who may or may not be reliable.
Be aware that many companies have, at one time or another, faced some kind of lawsuit or other legal proceeding, so the presence of a pending case may not necessarily be important. On the other hand, companies that have liens placed against them or have gone through bankruptcy proceedings should be assessed seriously.
Collection proceedings
Does the company have a history of letting its bills lapse, or having accounts sent out to collection?
Be aware that some late payments may be the result of disputes over merchandise or other non-financial issues.
Company age
Take note of how long the company has been in business.
In general, companies that have been around for a number of years are better at managing money than young companies. Young companies may also be good credit risks, but you may need to do more research to assess their creditworthiness. In the case of a new company, check the personal credit reports of company leaders to gain insight into how diligent they are about monitoring bills.
UCC filings
A company's Uniform Commercial Code (UCC) filings will tell you about the liens and leases it has in place.
Review this section of the report for clues about how a company uses credit. If it has a number of assets pledged as collateral on existing loans and/or has a high number of trade credit relationships with other businesses, it may be overextended. Take these factors into account before deciding to add your name to its list of creditors.
Small Business Guide
- Starting Up Your Business
- Coming Up With a Winning Business Idea
- Common Startup Mistakes
- The New Rules for Startups
- Business Incubator FAQs
- Naming Your Business
- Researching Your Business
- Your Personal Savings
- Registration, Licenses, and Permits
- Getting a Tax ID Number
- Fast-Growth Startup Resources
- Structuring Your Business
- Overview: Corporations
- State Offices of Incorporation
- Incorporate Out of State?
- Writing a Partnership Agreement
- Choosing a Board of Directors
- Basics of a C Corporation
- Basics of an S Corporation
- Basics of an LLC
- Basics of a Sole Proprietorship
- Basics of a Non-Profit Corporation
- Basics of a Professional Corporation
- Basics of a General Partnership
- Basics of a Limited Partnership
- Your Company's Public Relations
- Elements of a Successful Public Relations Campaign
- How to Use Your Press Coverage Effectively
- Press Releases
- How to Write a Successful Press Release
- Sample Product/Service Press Release
- Sample Commentary Press Release
- Sample Event Press Release
- Sample Tips Press Release
- Sample Personnel Press Release
- Effective Competitive Analysis
- Managing Purchasing to Maximize Cash Flow
- Top Six Pricing Mistakes Businesses Make
- How to Avoid Lowering Your Prices
- Bidding Basics
- Hiring Staff
- Creating an Effective Job Description
- Do You Know How to Pick Them?
- Little-Known Hiring Resources
- Classifying Contract Workers
- Tips for Successful Interviewing
- What You Can't Ask in a Job Interview
- New Hire Paperwork
- Small Business Insurance
- Types of Insurance for Small Businesses
- Small Business Insurance FAQs
- Insurance Resources for Small Businesses
- Home Office Insurance: Myths & Realities
- Small Business Resources
- Government Resources for Small Business on the Web
- Resources for Women Entrepreneurs
- Fast-Growth Startup Resources
- Small Business Security Resources
- Taking Time Off
- Your Pre-Vacation Checklist
- How to Take a Vacation
- Learning to Delegate
- Getting Away When You Can't Get Away
- Preparing for Tax Season
- Year-End Planning Tax Savers
- 10 Ways to Pay Less in Tax
- 25 Common Business Deductions and Expenses
- Avoid These Common Errors and Audit Triggers
- Understanding the Home Office Deduction
- Corporate Income Taxes Primer
- Employment Taxes Primer
- Sales Tax Primer
- Sole Proprietorships and Partnerships Tax Primer
- How to Get a Filing Extension
- Year-End Reconciliation
- Getting the Most from Your Accountant
- Developing Accurate Financial Projections
- Cash Flow
- 10 Ways to Help Increase Your Cash Flow
- Cash vs Accrual Accounting
- Bookkeeping and Record Keeping Basics
- Quick Ways to Get Through a Cash Crunch
- Projecting Cash Flow
- Cash Flow Triage
- Getting Funding
- Cash Flow Through Factoring
- Small Business Investment Corporations (SBIC)
- Traditional Funding Sources
- Non-Traditional Funding Sources
- Your Company's Credit
- How to Read a Business Credit Report
- Credit Terms Glossary for Your Small Business
- How to Protect and Improve Your Business Credit Rating
- Give Your Business the Financing Edge
- Employee Compensation
- Employee Benefits
- Bonuses: How To Be Fair
- Workers' Compensation Q&A
- Keeping Workers' Compensation Costs Down
- Payroll Management Choices
- Key Elements of Payroll
- Working with a Payroll Service Provider
- How to Create a Business Plan
Small Business Money Matters - How to Read a Business Credit Report
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