Running any company is challenging, especially when business is affected by seasonal ups and downs, road conditions, and slow-paying customers. Freight factoring resolves this by offering steady pay each time you haul a load for a client. Instead of waiting for your client to pay you, get paid the same day using freight factoring.
Carefully planning your routes and taking on work is only part of the job. You need a strong cash flow to pay for fuel, meals, and other expenses when your drivers are on the road. If you’re an owner-operator, you don’t have time to waste when it comes to verifying a new client’s reliability and reputation. That’s where freight factoring services like credit checks are vital.
The Value of Credit Checks in Freight Factoring
A business credit report provides important information on a company’s finances. The report includes the following information.
- Payment history and any amounts past due or in default
- Information on bankruptcies, liens, or judgments
- Risk predictors in terms of the possibility of not getting paid
- Score for financial stability
- The business’s owners or major shareholders and corporate structure
- The business family tree
- Three years of summarized finances
- Recommendations for a credit limit
This information is invaluable. If you are reading over the credit score and see the CEO’s name, you could run a quick search of that name looking for any red flags. If the CEO has bankrupted other businesses, it’s best to consider the likelihood of this business also going into debt.
How to Run a Credit Check
How do you order a business credit report? The information you provide depends on where you’re running the credit check, but expect to submit this information.
- Enter the company name.
- Enter the city, state, and country.
- Submit your request.
- Refine your search if you don’t see the company.
If possible, you can enter the tax ID and get better results. If you still see no results, you may need more information from the client.
Once you find the company, if you’re not using a freight factoring company’s free business credit check service, you’ll be taken to a page to choose how detailed the report needs to be. If you’re on Experian, a one-time view with the Intelliscore and Financial Stability Risk Rating is $59.99. Subscriptions cost up to $2,445 per year. It’s often a better value to sign up for free factoring and enjoy access to unlimited business credit reports.
Don’t ignore the best practices to ensure you receive accurate information. Make sure you’re using established policies when you run credit checks. You don’t want to demand credit checks each month for one client and skip them on another.
Also, ensure you always run business credit reports and not personal ones. Consent is unnecessary with a business credit report, though you can ask for it as a courtesy. Personal credit checks require consent. If you use TBS Factoring, you’re certain to run business credit checks.
What Information is in a Credit Check?
Once you receive the online credit report, you have pages of information to analyze. While different companies arrange the information on their products to fit their needs, a business credit check will contain these items in some order.
Company Profile
The company profile provides basic information like when and where the company was founded. Is the company a sole proprietorship or corporation? Is the company public or not? Additionally, it includes the address, phone number, annual sales, net worth, owner/CEO, number of employees, and type of business.
There’s also going to be a business family tree section that details any businesses that are linked to the initial (parent) company. For example, TJX Companies is the parent of TJ Maxx, TK Maxx, Sierra, Marshalls, HomeSense, and HomeGoods.
Financials
A breakdown of the company’s finances is shared. It includes assets, liabilities, working capital, and net income. It shares the differences in these numbers for three years. This helps you see if there are any concerning drops in revenues and sales.
Trade Payments/Creditors
In this section of the credit report, you gain insight into how many creditors the business has. The largest value of past due accounts and information regarding accounts placed in collections are also shared.
Business Risk
This is often a graphic rating that details the risk of doing business with that company. The scale ranges from low risk to high risk. It also offers insights into how much credit you should extend to that business.
Delinquency Score
This is important information. It predicts the likelihood of the company paying its bills at least 90 days after their due date. There’s also a Financial Stress Score that analyzes the risk of that company shutting down or filing for bankruptcy in the next year.
Viability Rating
If the report includes the viability rating, it is an analysis of the chances that the company will go into bankruptcy or insolvency in the next year.
Legal Proceedings
While a personal credit report may not delve into lawsuits, a business credit report does. It includes bankruptcy filings and liens, judgments, lawsuits, and UCC (Uniform Commercial Code) filings against the company.
Using all of this information, you have a comprehensive view of the stability of the business. Some reports will end with a credit score. Each credit bureau uses its own scale. If you use Experian, a 51 to 75 is low to medium risk, and anything between 76 and 100 is low risk. Ratings of 50 or lower are medium to high risk. Aim for clients who are low risk.
TBS Factoring Offers Credit Check Services
Make sure you choose a freight factoring company offering unlimited free business credit checks. Some companies offer a specific number of free credit checks per month. You incur a fee for every credit check after that. If you’ve run 20 credit checks and must start paying $5 per credit check for the rest of the month, the fees add up quickly.
You can check a business credit report on your own, but it gets costly. Experian charges $39.95 for a basic credit report. Other options like Dun & Bradstreet are even more expensive with an on-demand credit report costing $189.99.
Or, save money and enjoy the benefit of getting paid quickly. With TBS Factoring, submit your bills of lading to us for immediate payment. We deduct a small fee that’s based on the number of trucks in your fleet, the volume of work you do, and the freight factoring arrangement you make. Typically, that freight factoring fee is less than 5%. In addition, you gain additional benefits like fuel discounts and unlimited business credit checks. It’s a win-win situation.