The importance of company credit checks

06 Jan 2021


In these uncertain times, checking the credit worthiness of the businesses that we deal with, has never been more important. The credit check report is a vital resource, that could prevent your business becoming a victim of late, or none payment of your invoices.

St Helens Chamber Members have access to free company credit reports. These reports will allow you to check the financial position of any limited company that has submitted its accounts to Companies House.

What information do you get?

This depends on the size of company you are researching.

  • If you are researching a large company, (one with a turnover in excess of £10.2M), you will get the Profit and loss report, and the Balance Sheet.
  • Companies with a turnover less than £10.2M, do not have to publish full accounts. So in these cases, you will get just the Balance Sheet.

Profit and Loss report shows revenue and expenditure, and in consequence profits or losses.

Balance Sheet report shows what the company owns, what it owes, and in consequence the equity in the business.

Both types of report, come with one main disadvantage. They are both derived from the companies last published accounts, which means they can be up to 18 months old.

How do you use the report?

  • The summary

The first part of the report is the company summary. Read through this first of all, and note the positives and the negatives.

The summary gives you;

  • An overview of the company, what it does, its incorporation date etc.
  • The all-important credit score. This is followed by the key, which details what the score means in terms of risk. The score is based mainly on the accounts figures
  • A “commentary” section, which details various occurrences that have affected the credit score. Again using accounts figures
  • County Court Judgement (CCJ) information.
  • Information on payment/enquiries trends
  • Directors, Shareholders, and group structure information

If a company has a good overall score (e.g. 71 upwards), the summary may well be enough for you to make your decision without the need for further investigation.

If you want to delve deeper, check out the accounts section.

  • The accounts

The Profit & Loss

The important thing here is to look at the trends. You have 5 years figures, so you can get a true picture of how this company is performing. Look at the turnover, profits or losses, and most importantly, look at the gross and net profit margins.

Ideally you are looking for increasing, or at least stable profits, and profit margins. The occasional year of underperforming is not over concerning. However consecutive years of losses should start the alarm bells ringing.

The Balance Sheet

Although not as straightforward as the P&L, the Balance sheet should not be neglected. Your subject may be showing good profit levels, however that does not mean it has the funds to pay its bills. For an indicator on this, the Balance Sheet is your friend.

What does the Balance sheet show you?

The balance sheet shows the financial position of a company at a specific point in time. It shows its assets, its liabilities, and in consequence, the equity in the business. Put simply, what it owns, what it owes and what’s left.

What you are looking for in the balance sheet, are indicators that the company has sufficient funds to pay its suppliers. For this, we focus on the current assets and current liabilities of the company.

In accountancy terms, “current” means cash or cash equivalents that can be converted into cash in the short term.

Balance sheet figures allow detailed analysis of a company’s finances. However for the purpose of a basic check of credit worthiness, the following 6 steps are a good starting point to assist you in making your decision.

The 6 steps

– Check trade debtors. These are customers that owe your subject money

– Check trade creditors. These are suppliers that your subject owes money to.
Debtors should be significantly higher than creditors. Ideally this will be the trend in previous years.

Check the total current assets. This includes debtors, cash and stock

– Check the total current liabilities. This will be creditors and short term loans.
Ideally, current assets will be at least double current liabilities. Again, check the trend.

Subtract the total current liability figure from the total current asset figure.
The resulting figure is the company’s total working capital. Or in other words, the funds it had available at the time the balance sheet was drawn up, to pay its bills.

Finally, in the Capital and Reserves section, take a look at the P & L Account Reserve. This is the cumulative figure for the companies retained profits, (i.e. profits left in the business after everything, including dividends has been taken out)
Look for a stable or yearly increasing trend here. Companies often keep this figure at a fairly consistent level by taking dividends out, so don’t be overly concerned if it doesn’t show an increase. The danger signs to look out for are sharp falls, or negative figures. Both of which indicate that the company may have financial difficulties.

The next steps. (Do this now)
– Think of a company, any company. Customer, supplier, competitor, it doesn’t matter (they won’t know that you’ve checked them)

Email the Chamber with the company name and address, and ask for a credit report. If you’re a Chamber Member you will receive your free credit report, usually on the same day.

– Use the 6 steps. Would you give this company credit? You decide.

– Repeat steps II to IV, for your current, and potential customers.


Credit checking has its limitations, and should only be used as guide to assist you with your decision. That being said, other than having access to your subjects current management accounts, it is the best option available to you. So despite the limitations, it moves the odds considerably in your favour, and will hopefully result in fewer bad debts for your business.

St Helens Chamber provides 12 hours of fully funded support to St Helens businesses to help with financial projects such as forecasting, costing, or just a general financial health check.

For more information on Business Financial Planning Support please contact John Woods on 01744 742058 or email