Credit Decision

Credit Decision

There are a range of solutions available today to help you make credit decisions. Credit decisions arise everyday for many businesses.

• Can my business afford the risk of extending credit?
• Do I extend credit to a small business?
• What credit limit should I set?
• What are the terms for repayment?
• How can you avoid customers defaulting on payment?

A credit decision is not based on a single factor, but involves a variety of variants to assess the level of risk in making the final decision.

Much uncertainty is taken out of the decision to extend credit when you carry out a full credit check on the company you are considering doing business with.

Making a Credit Decision with a Company Credit Report

A company credit report will allow you as the lender to determine the companies' ability to make payment on time and thus minimise the risk of them defaulting on payment. It can alert you to warning signs of unstable or risky companies.

These are some of the features of a credit report that allow you to do this:

Credit score - The credit score is one important variable in assessing the credit worthiness of a potential customer or supplier. The score takes into consideration among other things profitability, age of company, liquidity, tangible net worth and working capital. The score is given as a guide, but is not the only indicator that should be used.

Credit limit - The credit limit is a suggested figure of credit offered to the customer. It is a calculation on figures from the annual accounts, with the three principle areas of pre-tax profit, working capital and tangible net worth used to calculate it.

CCJ information - A credit report from checkSURE includes a list of all satisfied and unsatisfied county court judgements from the past 72 months. It includes the dates, amounts and case numbers of the CCJ.

These three factors alone can begin to form the basis of your credit decision. However the financial information contained in credit report can also be very enlightening. It can reveal the history and stability of the company. Not all company credit reports will contain the profit and loss figures, as small companies only have to file abbreviated accounts. Yet even the history of their past years of annual accounts and evidence that a company files their annual accounts on time, can help you in your credit decision.

An excellent credit history generally always included no late payments in excess of thirty days, no county court judgements and no negative information or figures in the accounts. But there are always exceptions. Close relations with a company may reveal that even though there maybe isolated minor instances of poor credit, it is not because they have a lack of regard for paying on time and there are genuine explanations.

So making sensible credit decisions comes with knowing your potential customers. Using the information from a checkSURE credit report comes will hep you determine the acceptable level of risk involved in making credit decisions.

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