When doing business with other companies, it is important to know who you are dealing with. A credit check can be of great value here. In this article, we will explain exactly what a credit check entails, why it is important and what benefits it brings.
What is a credit check?
A credit check is an investigation into a company’s financial health. It looks at various factors, such as creditworthiness and payment history. The purpose of a credit check is to get a picture of the company’s financial situation and determine whether it is responsible to do business with this company.
Why is a credit check important?
A credit check is important to understand the financial health of a company or customer. Especially if you want to do business with them, it is important to know in advance if there are any risks involved.
Preventing non-payment
One of the main reasons to perform a credit check is to prevent default. By mapping out the company’s financial situation, you can determine whether it is responsible to do business with this company. Based on this, you can decide not to give delivery on account, for example, but to have payment in advance.
Easier to determine payment terms
Another reason to perform a credit check is to determine the payment terms. Based on the results of the credit check, you can determine what payment terms you apply and what collateral you ask for when entering into an agreement. This allows you to reduce the risk of default and better control your cash flow.
What are the benefits of performing a credit check?
Performing a credit check has several advantages:
- Reducing risks: By conducting a credit check, you can reduce the risk of default and thus protect the financial health of your own business.
- Better negotiating position: Based on the results of the credit check, you can take a better negotiating position and, for example, negotiate more favourable payment terms based on their creditworthiness.
- Greater insight into the financial situation: By conducting a credit check, you will gain more insight into the financial situation of the company you are doing business with. This can help you make strategic decisions and set the direction of your own business.
Have you performed a credit check, but still want to be extra sure of no risks? Then you can opt for credit insurance.