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UK and International Credit Checks

Jan 11, 2023 Red Flag Alert Updated On: August 15, 2023
UK and International Credit Checks

We’ve written many times about the dangers of bad debt. This is when a company loses money because one of its customers goes out of business and can’t pay its invoices.

With the UK economy in recession, the number of insolvencies is beginning to skyrocket.

This means that bad debt is also likely to increase.

If your business gets paid after it has delivered goods or services then you need to protect it from bad debt by performing credit checks on all customers.

That’s why it is critical to find a credit referencing agency that can provide credit checks on UK and international companies. 

This article explains what credit scores are, how they work with credit checks and how UK-based credit scores are different to international ones. 

What Is a Business Credit Score?

A company’s business credit score shows its likelihood of failing to meet financial obligations like paying invoices. 

It is often expressed as a number from 1-100 but it can also be a rating. For example, at Red Flag Alert we rate companies with a healthy credit score of gold, silver and bronze, while companies at risk of insolvency are rated one, two and three red flags. 

Credit rating agencies provide company credit scores. These organisations use algorithms and databases of business information to calculate each business’s credit score. 

Companies will check a client’s business credit score to assess whether extending credit to that customer is safe. 

What Determines a Company’s Credit Score?

Company credit scores are partially determined by how a business previously handled its finances. 

The following factors will all have an impact:

  • Late, partial or missed bill or invoice payments 
  • Exceeding overdraft limits
  • Delayed or missed filing of business accounts 
  • Multiple applications for finance over a short period 
  • Amount of existing debt
  • The size of the company
  • The level of risk inherent to the company’s industry
  • Legal notices like county court judgements (CCJs)

What Is a Company Credit Report?

A company credit report provides details about a business’s credit score. 

As well as the company credit score, it also provides information such as: 

  • Ultimate beneficial ownership 
  • Any subsidiary companies
  • Financial information
  • Liabilities 
  • Bankruptcies

It is produced by a credit referencing agency, usually at the request of a company that wants to grant credit to the business in question. 

It helps them to decide what credit risk your company poses, whether they should grant you credit and if so, what credit limits they should impose.

Imagine your company wanted a bank loan. As part of the application process, your bank may request a credit report on your company. 

The bank will weigh your credit score against how much you requested and their risk tolerance. 

If the risk presented by the loan is within their tolerance level, the bank will most likely grant the loan.

Credit applications aren't the only situation where another business might request a credit report on your company. 

Another good example is when you buy insurance for your business. The insurance firm would consider your credit report when evaluating your risk level. 

Why Perform a Company Credit Check on Each Customer?

Performing credit checks reduces the financial risk your company faces. 

Here’s how it helps protect your business: 

Avoid bad debt

If your customers become insolvent and owe you money, you probably won't get it back. 

That's because unsecured creditors—in other words, companies with unpaid invoices—are always repaid last in the insolvency process.

HMRC, secured creditors like banks and company directors are all repaid first, leaving little or no money for unsecured creditors.

Losing money in this way is called bad debt. Companies that take on bad debt are 300% more likely to become insolvent themselves within a year. 

Business credit score checks help you avoid working with companies that have poor finances or that are badly managed. This helps minimise insolvency risk to your business. 

Sustain revenues

Losing a client means losing money. But you could also lose supplier credit facilities, be forced to make redundancies and even stop investing in growth.

Many businesses rely on one client for a large chunk of revenue. Losing this customer can be a disaster and lead to insolvency. 

Minimise customer acquisition costs

Replacing customers is expensive. The average cost of acquiring a new customer can be up to £1,000.

Regular company credit score checks and financial health monitoring allow you to see if you risk losing a customer. If the risk is high, you can take preventative action. This could include assigning more resources to prospect for new clients.

Avoid losing suppliers

Losing a crucial supplier to insolvency may stop you from delivering goods and services. This can slow cash flow, damage customer relationships and lead to the loss of clients.

Replacing suppliers is time-consuming and expensive. It is also difficult to agree on favourable credit terms with new suppliers. You may have to pay extra for goods and services, or pay your invoices earlier than you usually would. This will eat into your cash flow. 

How to Check Business Credit Scores

To check a company credit risk score, follow these steps:

Set your risk tolerance

The more stringent your risk tolerance, the more customers you end up rejecting during credit checks. Turning too many businesses away could impact your profitability. Try to strike a balance that protects your business and maximises revenue.

Find a credit reference agency

Credit reference agencies—sometimes known as credit reporting companies—hold data on UK companies. They use this information to make informed decisions over credit agreements. 

Get a credit report

Log into the portal for your credit referencing agency and find the company you want to check. You’ll often be given multiple options because there are usually several businesses with similar names. Choose the one you want and request a credit report.

Make credit decisions

Compare the company's credit score and any other relevant information with your risk tolerance. If the company's credit score exceeds the risk tolerance, they have passed the check. If the score is too low, they have failed it. 

What Is the Difference Between a UK and an International Company Credit Check?

Performing a company credit check on international customers is slightly different to checking a UK-based firm.

Here are the differences:

  • Not every credit ratings agency can provide an international company credit rating. They need to be connected to international databases.
  • Sometimes companies need to be researched. The credit referencing agency may not have enough data available on the company to make a full business credit report. If this is the case then they will have to research the company. This is usually performed by a team in or near the country the company is based in. This can take 2-10 days, depending on the country.
  • Credit information on companies in some countries may not be available. Some countries do not share company data or are unstable, and so the information is not available. A business credit report cannot be created if this is the case.

The UK's Only Independently Owned Credit Referencing Agency 

Red Flag Alert has been developed over the past 15 years to provide a robust business credit checking process. 

Our algorithms use machine learning to accurately predict a company's financial health. 

This allows you to avoid working with businesses with a high credit risk rating.

You can also take proactive steps to protect your company if an existing client's financial situation deteriorates. 

Red Flag Alert makes performing company credit checks easy. We provide at-a-glance indications of the credit risk companies pose.

We have data on every UK company, as well as businesses in most countries around the world. 

We analyse and report on the same metrics as traditional credit reference agencies, but we also incorporate other data to provide a more holistic picture of how a business is performing, and score companies based on their predicted risk. 

This includes information like:

  • The number of CCJs a company has filed against it
  • The date of its latest company accounts 
  • The directors’ other business interests

 Our users benefit from: 

  • Access to our system's industry-leading financial health ratings for over 15 million businesses
  • Over 100,000 updates per day and 50 new companies per month
  • The ability to monitor the financial health of new customers and existing ones
  • Instant alerts whenever a customer credit score changes
  • A more complete picture of financial health than any standard business credit reports
  • The ability to download a business credit report in a variety of formats 
  • The ability to filter sales prospects by credit status, making it easier to find customers in good financial shape
  • Instant access through your CRM using our API
  • Save time and improve your customer experience thanks to fast business check process

The UK’s most reliable company credit checks

We often spot financial warning signs that our competitors miss. 

For example, we predicted problems at ferry operator P&O, when many other credit referencing agencies still rated the company as having a very low credit risk.   

Discover how Red Flag Alert’s experienced team can help you mitigate risk and protect your business. Why not get a free trial today and see how Red Flag Alert can help your business?

Or you can read our Q3 Intelligence Report to learn more about the UK's economic challenges.

Published by Red Flag Alert January 11, 2023