Commercial due diligence (CDD) is a vital part of any business relationship. Whether you’re extending credit to a company or buying it outright, you need to be sure you’re not exposing yourself to unnecessary risks.
To do this effectively, you need to look beyond a company’s façade and examine the hidden factors that could cause it to pose a risk. This is a long process, and one that few businesses have time for. This is where we can help.
From analysing company reports to assessing supply chain risk, our tools let you carry out thorough due diligence in a fraction of the time. Our in-depth, enhanced due diligence reports make it easy to look before you leap.
What is commercial due diligence?
Commercial due diligence refers to a series of checks that need to be carried out before you go into business with a company. It is usually performed by a third party consultant as part of a wider due diligence process.
The aim of commercial due diligence is to build an accurate picture of a company’s financial health and its commercial attractiveness. This means looking at the current state of the company’s finances and predicting its likely future performance. In order to do this, the CDD provider will consider four main factors:
Market conditions
- How stable is the company’s industry?
- Are there any big changes on the horizon, e.g. new regulations or disruptive technologies?
- How vulnerable is the company to market fluctuations?
- How reliable is the company’s supply chain, and how would it be affected by the loss of a supplier?
- How are similar companies performing and have any suffered recent losses?
Competition
- Who are the company’s main competitors?
- Does the company offer anything its competitors can't?
- Has the company’s market share changed over time?
Customer base
- How large is the company’s customer base?
- Is it growing or shrinking?
- Does the company have many returning customers?
- How satisfied are customers on average?
Internal factors
- How well managed is the company?
- How happy are the staff?
- Is the company setting realistic targets?
- Does the company have a solid business plan?
Is a company credit check the same as commercial due diligence?
Commercial due diligence efforts are a time-consuming process, so it’s no surprise that many companies look for a quicker option. A simple company credit check will give you a rough overview of a business' financial health, but it won’t go into nearly as much detail as CDD.
Most company credit checks are automated, resulting in what is known as a black box score. This is a credit score whose origins are unclear. A company will be given a risk rating, but you won’t know how the credit reference agency arrived at this number. This can create a false sense of security as certain risks may have been underweighted in the process.
However, the biggest weakness of a basic company credit check is its inability to predict the future. An automated credit check will be based only on the current state of a company’s finances, giving little thought to the possible effects of market fluctuations. Relying on these scores is a big risk, as they are highly susceptible to change.
The best of both worlds
Putting your faith in a basic credit check can leave you vulnerable to the unexpected. CDD is a much safer option, but hiring someone to carry it out can be expensive and time consuming. This is where we can help.
Our tools allow you to perform your own commercial due diligence process in a fraction of the time. Not only do we provide fast results, but we allow you to dig deeper than other due diligence providers:
- Rather than issuing a simple credit score, we use our proprietary H-Score® to quantify risk. This isn’t just based on the company itself, but also compared to the performance of the industry as a whole. We calculate the extent to which the company resembles similar companies that have failed in the past and then assign a score out of 100. A score of less than 25 means a company falls into our Warning Area and indicates a probably risk of failure in the next five years.
- Our SearCHeD tool allows you to search hundreds of thousands of Companies House report documents in a matter of minutes. You can search public records of a given company for keywords or phrases indicative of risk, allowing you to spot vulnerabilities hiding in plain sight.
- Our director matching tool lets you conduct enhanced due diligence by identifying company stakeholders with a history of bad debt or insolvency. It can also be used to identify phoenix companies or directors - businesses created in the wake of a bankruptcy that avoid paying their creditors. Like a Phoenix rising from the ashes...
By combining these features, you can build a detailed picture of a company’s present financial health, but this is only part of the service we offer. To truly understand risk, you need to be able to predict a company’s future performance, and this is where we really shine.
Forecast View™ is our state of the art risk modelling tool. It allows you to simulate a range of common financial shocks and immediately see how they would affect a company’s performance. Anything from the loss of a supplier to a spike in interest rates can be modelled, and a range of reporting options makes it easy to share the results. If you want to dig even deeper, our Experiments tool let you design your own scenarios for a bespoke risk assessment.
Armed with all this information, you can rest assured that you’re making the wisest decision every time.
