Why you should use a credit reference agency

 

 

Don’t underestimate the importance of a credit reference agency

 

During tough economic times, it’s natural to look for savings wherever you can. For many companies, this will mean foregoing a credit check on possible customers or suppliers. Hiring a credit reference agency may seem like an unnecessary expense, but this is a big mistake. 

Skipping investing in a solid risk management solution means sacrificing long-term stability for short-term savings. Using a credit reference agency is the best way to spot future risks, helping you to steer clear of potentially catastrophic losses. A thorough credit check, from a reputable credit reference agency, will pay for itself many times over.

Of course, deciding to analyse a company's financial health is only the first step. Not all credit reference agencies offer the same level of service, so it’s important to make sure you’ve picked a good one. In this blog, we’ll take a look at the reasons you should use a credit reference agency, and how you can make sure you’re getting what you pay for. 

 

Less risk, more reward

 

There are many advantages to using a credit reference agency, but they all have one thing in common... reducing risk.

Whether these risks are financial or reputational, using a credit reference agency is a surefire way to spot threats on the horizon:

  1. A company credit check can help you to steer clear of businesses that are unreliable or untrustworthy. You can find out if a customer has a history of late payments, giving you a chance to switch to a better alternative. 

  2.  A credit reference agency can help you to avoid fraud by flagging suspicious activity in company records. This could be anything from a director with previous prosecutions, to a company that has changed its name and address multiple times. By alerting you to these warning signs, a credit reference agency gives you the opportunity to conduct enhanced due diligence before putting your money on the line. 

  3. Working with unreliable businesses doesn’t just pose a financial risk. It can also damage your reputation. Running a business credit report on potential partners lets you avoid reputational damage by association, ensuring that you are not unfairly punished for the mistakes of others.  

  4. Using a credit reference agency allows you to gauge your own position within the market. You can run analysis on competitors and see how you stack up against them. If they are ahead in certain dimensions, you can focus on these as areas for improvement. 



 

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Get to know yourself 

 

Of course, credit checks aren’t just for potential customers. Running a check on your own company can also be a big help.

It’s often difficult to assess your own finances honestly, and this can allow risky practices to go unnoticed. A fresh pair of eyes may be able to spot weaknesses in your portfolio or supply chain that you would have missed. A low credit score will act as a wake-up call, forcing you to confront these vulnerabilities before it’s too late. 

Improving your business credit score should be an ongoing project. Not only does it give you peace of mind about your finances, but it signals to other companies that you can be trusted. Being able to produce a recent, healthy credit report will make you a far more attractive prospect to businesses that are looking for a partner. 

 

Forget black box credit scores

 

Hopefully, we’ve convinced you of the merits of using a credit reference agency.

But there’s still one question left; which credit reference agency should you use? It’s easy to assume they’re all the same, but this couldn’t be further from the truth. 

Many credit reference agencies will only provide a basic credit score. This will usually take the form of a single number, accompanied by little or no additional information. This is called a black box score because its origins are hidden from the customer. 

Rather than reducing risk, this kind of credit score can actually increase it. If you don’t know the criteria used to create the score, you can’t be sure that it’s a true reflection of a company’s financial stability. This may cause you to develop a false sense of security around a risky company, or to avoid doing business with a company that is perfectly safe. 

 

Why black box scores are not enough to manage risk

 

Black box credit scores

 


 

Settling the score

 

We felt that our customers deserved better, so we made it our mission to create an alternative. The result? H-Score®.

With the H-Score®, we aim to provide an evaluation of the present and a prediction of the future. We do this by comparing published financial records to those of similar companies that have failed in the past. We then use this information to calculate the likelihood of a comparable failure in the next five years. This is expressed as a value from 1-100, with a score of 25 or less indicating a high level of risk. 

Unlike a black box score, the H-Score® is transparent and is accompanied by a detailed breakdown of our calculations. If you’re unsure about anything, we’re always happy to explain.

 

How Company Watch compares to other credit reference agencies

 

UK credit reference agencies

 


 

A risk management tool for every occasion

 

Running credit reports on businesses is just one of our services. Whether you want to unearth hidden company directors or search the Companies House database for risk-related keywords, we have a state of the art tool that is perfect for the job. 

If you’d like to dig even deeper, our Forecast View feature lets you simulate a range of economic shocks to see exactly how they would affect your's, your customers, or your suppliers, financial health in the future. Every result adjusts a given company's H-Score®, making it easy to compare and contrast complex economic scenarios. 

We could talk about our useful features all day, but we’d rather just show you instead!

 

 

 

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We lift the lid on how company credit scores are built and applied, by credit reference agencies, to provide financial risk solutions.

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Ultimate Guide: Company Credit Check ⬇️

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