Business Credit Check vs Credit Review and Why Your Company Should Do Both


Empower your entire organization to do their best credit decisions

One of your responsibilities as a manufacturer or distributor, or any seller for that matter, is to conduct a business credit check on your buyer to assess their creditworthiness and help you reduce your credit risk. In other words, you need to make sure that your buyers are legitimate, financially stable businesses with the ability to pay you for the goods and services you’ve provided before you sign a contractual agreement. 

In this blog, we will break down the differences between a business credit check and a business credit review and outline how you should conduct both properly. 

What is a business credit check?

A business credit check is a catch-all phrase that explains the process of determining the creditworthiness of a buyer looking for credit. Sellers pull a bureau credit report, check their buyer’s credit score and, most importantly, have the buyer complete and sign a credit application. Asking a client to fill out and sign a digital credit application is the first step to offering credit terms. Once the credit check has been completed, the seller will have information regarding the health of the buyer’s finances, including verifying the buyer’s bank account and checking vendor payment history -- as well as verifying the company’s corporate details. 

What is a business credit review?

A business credit review, also known as a credit assessment, is a periodic inquiry into a buyer’s past payment history and creditworthiness, and a deep dive into how the buyer’s creditworthiness may have changed since the initial credit check, or the last credit review.

There are five main purposes for why sellers should conduct a credit review:

  • The initial credit check is really establishing a baseline for credit history. That includes a credit application and credit report. This is done to assess the buyer’s creditworthiness and to ensure that the buyer will be able to make all the necessary payments on time.
  • Creditworthiness can change over time. For existing business relationships, conducting an ongoing review allows the seller to maintain their confidence in the buyer’s creditworthiness. As a seller, you need to see where the buyer started and where they are later.
  • Many sellers will do periodic credit reviews. A full credit application doesn’t need to be signed again, unless the terms and conditions have changed dramatically. The key here is to analyze any changes that have taken place since the initial credit application or the last credit review.
  • If there’s been a negative change in the buyer’s payment history -- say a handful of late or short payments -- it’s time to do a credit review. These tell-tale signs could be an indicator of more bad news on the horizon. It’s time to do a deep-dive credit review to understand the buyer’s financial situation.
  • What if the buyer asks for a higher credit limit or extended terms? One of the most obvious reasons to do a credit review is if your current client asks for more credit. Look for any change that may negatively impact the buyer’s ability to pay, such as any new bankruptcy filings, a change in debt-to-income ratios, or bad financial judgments. This allows the seller to amend terms and conditions with additional clarity.

Differences between a credit review and a credit check

Although the purpose for why sellers conduct a business credit check and a business credit review is the same (i.e., to determine the creditworthiness of the buyer), they are not quite the same thing. 

Here are some additional differences between a credit check and a credit review:

How to conduct a credit check and a credit review properly

To conduct a proper business credit check, you, as the seller, need to ask the buyer to fill out a credit application. Before signing a sales contract with your manufacturer or distributor, we recommend using a digital credit application so you can get a clear picture of the company’s creditworthiness and financial standing, and verify the company’s identity. This is always the first step.

A credit application also allows you to check vendor references of the buyer, verify bank accounts and get a clear financial picture of the buyer. All of this information is critical to have as part of the initial credit check process. 

More importantly, you need to make sure that the information you gather is accurate. One way to gain more accuracy through your credit reviews is to switch to a digital credit application as they allow you to verify the company name and bank account information easily. Additionally, you can also avoid minor mistakes or missing key information, and have a digital audit trail with records that can stand up in court. 

It’s important to understand that the creditworthiness of any company changes over time. A company can go bankrupt, fall back on its payments to other vendors, or even go into greater debt as a result of bad decisions. All of these factors impact the company’s ability to make regular payments. 

So, once the initial check is complete and the buyer signs the Terms of Conditions of Sale with the seller, you still need to continue doing regular credit reviews. 

But, how often should you conduct a proper credit review? As mentioned above, we recommend doing them annually, when there’s a negative change in a buyer’s payments or when a buyer asks for more credit or different terms. By doing so, you’ll be able to get the most updated information on your buyer and decide if you want to change the credit terms when the time comes, or if you want to amend the contract in any way. 

Conduct business credit checks and reviews with Nectarine Credit

Instead of sending Microsoft Word documents or PDF templates to buyers for a credit review, we recommend streamlining the process by using a digital credit application software like Nectarine Credit. 

Nectarine Credit allows sellers to conduct automatic vendor reference checks to reduce delinquencies, manage all your credit applications in one dashboard to reduce the credit approval time, and verify banking details with cash flow reports securely.

Schedule a demo for Nectarine Credit to learn more.