Article Risk & Credit

Black sheep: With which companies you do not want to make business under any circumstances

All of a sudden, no payments are coming anymore. Suddenly your business partner goes bankrupt. Suddenly he's trying to trick you. Although everything seemed to be perfect in the beginning. But now the business relationship flies around your ears. There are always black sheep among business partners. But: You have a chance to figure that out before it comes to a close. The cue: high risk triggers and special events. In this article we will introduce you to them and show you how to accurately identify the rotten eggs among your business partners.

Has it happened to you yet? New business partner found, business concluded - but after some time you realise that something is wrong with the company. It pays poorly or does not adhere to compliance guidelines. Clearly spoken: The deal was a bad decision. But it looked so promising. You wish you would have known in advance who you were dealing with. And that you would have already checked the company before the deal and thus noticed the warning signals.

Wait a minute! Exactly that is possible!

You just need to know where to look. The buzzwords are: high risk triggers and special events. If something is not right with a company, then this is reflected here.

More and more data - less and less time - more and more complex decisions

Reading the right insights from an overwhelming amount of data and making credit decisions in a short period of time is a dilemma in which many companies find themselves today. Everything must run quickly and efficiently, otherwise you will soon feel the management on your back.

Especially when it comes to adding a new customer to the portfolio, a fast and lean process is required - one with a low fault tolerance.

This is where data comes into play, more precisely credit reports. They contain a lot of information and seem almost mystical at first glance. But they aren't - if you know how to read them and what information to look for.  Two of the most important information are the so-called high risk triggers and special events. If a red light illuminates during the test, extreme caution is required. With these companies, there's usually something very crude going on. You should therefore sort them out immediately and never conclude a deal. If it is, then a loss is actually already in sight.

Overzealous owners, dubious company history

Okay, you have contacted a new customer or supplier and are considering a business partnership with them.

But not so fast: Is the owner of a company extremely overzealous? Can he hardly wait to get credit from you? Has your credit department received an unsolicited order requesting it to release a large amount of money on the same day? Does your business partner tell you that he has been in business for decades, but you can't find a story about the company on the internet? No sign of any business?

Yes?

Good, because now at the latest all warning lights should light up red. We have finally arrived at the high risk triggers and special events. The check of a potential business partner always starts with these criteria. If there's something wrong here, you'd rather cancel the deal than suffer a loss or get into trouble.

Special events:

First of all, always take a look at the special events, for example:

  • Bankruptcies
  • Revenue declines
  • Embezzlements
  • Change of business partners
  • Fires
  • Natural disasters
  • Discontinued operations
  • Criminal activities

The examination of these criteria gives you very quickly the clarity whether you want to enter into a partnership with this company or not. These are not necessarily obvious warning signals, but it is a must to take a close look at them. It becomes more obvious when the potential business partner has a change of name and owner behind him or if there are merger and acquisition activities. In these cases it is essential that they find out who is legally obliged to pay the invoices.

High risk triggers

We have already discussed these indicators at the beginning of this article. Here are once again the most important in an overview:

  • Overzealous owner
  • Unclear business start
  • Splendid company name
  • Extremely robust financial report
  • Untypical payment experiences
  • Payment experiences from only one sector
  • Business activities of other failed or fraudulent firms known
  • “Too good to be true" companies for their size and time in business

The same applies here: If something dubious appears during the examination of this information, then further clarifications are necessary in any case. Only then will you understand who is behind the company and whether you can trust the new business partner or not. In case of doubt, it is better to keep your hands off this company and not enter into a partnership. 

Business Credit Reports from Dun & Bradstreet

Are you faced with a multitude of credit decisions? Then it's worth taking a closer look at the D&B Business Credit Reports. They compress many raw and individual data into easy-to-understand and meaningful credit scores. With them you can make better credit decisions - and even save time. You minimise your credit risks, but at the same time manage to exploit the hidden potential in your portfolio.