Predicting Insolvency With a Company Credit Rating
Knowing a company’s credit rating is a key advantage in the fight against bad debt. But what if the situation is more serious than just an unpaid invoice here and there? Insolvency can make or break a business - and it could creep up on your company without warning.
Company insolvency can set off a domino effect. Once one company goes bankrupt, its clients all suffer the effects of unpaid debt, putting them at the risk of insolvency too. It’s not always easy to see insolvency on the horizon, but a company credit rating can help entrepreneurs spot the danger signs ahead of time.
Here are some of the things to watch for when you order a credit report.
1. Familiar Director Names
CheckMyClient’s company credit rating shows you a comprehensive list of past and current directors and other company officials.
Check the list carefully, because some of these people may have run other businesses in the past. If you recognise any names, it can be worthwhile investigating those companies’ credit ratings to obtain a complete picture.
If you see a pattern of insolvency, be very careful in dealing with companies those directors are currently running.
2. Multiple CCJs
A County Court Judgement is often a creditor’s last resort when they get paid. The company’s CCJ history is a factor in their company credit rating, and it’s a useful way of reviewing any problems that company has had in the past.
One CCJ could perhaps be a slip, so although it should be noted, don’t write a client off on the back of it. On the other hand, if you see multiple CCJs - especially CCJs that are close together and recent - should give the client a very wide berth.
On your CheckMyClient report, you can see the total sum of the CCJ reports too. This will help you to put the figures in context.
3. Our Credit Rating Figure
On every credit report issued by CheckMyClient, you’ll see a number on the Credit Score tab. This is our individual assessment of that company’s creditworthiness.
Remember that this figure is purely for guidance, and it’s not an official assessment of the company’s credit score. But it can help you to make an informed decision quickly, without poring over the numbers for hours.
In our experience, companies with a low credit rating and a high risk category are at far greater risk of insolvency.
A company credit rating is a combination of many different pieces of information, and in the fight against risk, it’s essential to take it into account. Insolvency can spark a chain reaction, but by being prepared, you can avoid getting involved with clients that are clearly a bad risk from day one.