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As an eCommerce business, your website is in place to sell to your customers and any potential online customers. As with any business owner, you want to make as many sales as possible to increase your profit. In addition to your online customers, however, there will be times when you need to work with other businesses. This may be to offer your goods and services or to purchase from them. This may mean you provide small businesses credit as payment terms or simply invoice on a 30-day basis. However, either way, it is essential that you eventually receive your payment within the timeframe you give them. And, of course, that they pay you at all.
This is crucial to avoid getting your company into problems due to a lack of payments leading to cash flow issues. Therefore, This article will explain how your eCommerce business can credit-check other companies to determine their payment history and business credit score.
What is a Credit Check?
A credit check is a method to assess how much of a credit risk a company poses. Examining specific information can provide a credit score for the company, which you can use to decide how risky or healthy it may be to work with them.
It can reveal, for example:
- details of the company, such as directors and corporation details;
- legal issues, such as any county court judgments (CCJs) the business may have;
- what previous credit limits the company has had;
- past credit risk scores;
- payment habits; and
- any loans they have.
You must credit check businesses you work with as it reduces risks for your business, which could lead to legal repercussions, such as going to court, for which you should get legal help. For example:
- falling into debt;
- inability to meet contractual legal obligations; and
- unnecessary business costs.
How Do I Credit Check Other Businesses?
There are various ways your internet business may choose to credit-check another company.
APIs
One way to check another business’s credit is to use credit-checking technology. This means getting a credit checking API, which large credit brands like Experian and Equifax can provide.
This guide sets out how to set up, finance and grow an online business in the UK.
The credit company must give your internet business the licence to use their API. Although this requires you to learn some technical skills, using it with your eCommerce business provides a mechanism to incorporate credit-checking data into your work.
Creating a System to Check Businesses
You do not necessarily need to get the latest technology for your eCommerce brand to credit-check other companies. Instead, you can create your own system. This involves making forms to ask questions and collecting financial information from the business. You can do the latter by using Open Banking technology.
References and Accounts for Businesses
Your eCommerce business can also credit-check other companies by asking for references. For example, you could ask for:
- bank references; and
- trading references.
Trading references demonstrate how the business you intend to work with trades with others. It is always best to get more than one reference to ensure you get an accurate picture of how the business honours its legal and contractual obligations.
Other Companies
Getting other companies to carry out a credit check for your business is also possible. Trade credit insurers can give your internet-brand trade credit insurance with a process that checks your customers’ credit.
In addition, you can approach credit bureaus to buy company credit reports. These include information about the other businesses, such as their:
- annual sales;
- invoice activity;
- any collections on accounts the business has;
- past years of credit limits; and
- any legal judgments.
Also, business organisations local to where you base your eCommerce company can give you information about the business payment reputation.
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Key Takeaways
Your eCommerce businesses will likely want to credit-check other companies you plan to work with. This includes, for example, checking any loans they have or any CCJs and their payment history. Checking a business credit reduces the risk of legal problems for your business, such as failing to meet your contractual relations and being taken to court. If you wish to credit-check other companies you work with, there are various ways to do this. This article has explained some of these.
For example, you can check their references, such as trade references and bank references. You can also check their financial statements. A further way to check the credit of another business is to ask a company that specialises in credit checks to supply you with a company credit report.
If you need help understanding business credit checks in the UK, LegalVision’s experienced eCommerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
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