Business Credit Check: How to Assess Risk

A credit check assesses the likelihood that a business can pay and fulfil its obligations. It is relevant before granting extended payment terms, entering a large supplier agreement, or becoming dependent on a single collaborator.

1. Confirm the correct legal entity

Verify the organisation number, name, address, organisational form, and status. A brand name might be used by a different company than the one issuing the invoice. In a group, you must identify the actual contractual party.

2. Read financial statements in context

Look at revenue, operating profit, annual profit, equity, debt, and liquidity over several years. One key figure is never enough. A positive profit can coexist with weak cash flow, and strong revenue growth can tie up capital.

3. Check for recent events

Investigate bankruptcy, compulsory liquidation, significant changes in roles, and available credit information. The date is crucial: an annual report can be many months old, while a register event can be very recent.

4. Evaluate ownership and dependence

Map out parent companies, ultimate beneficial owners, and key personnel. Find out if the company is dependent on group financing, a single customer, or a single leader. A parent company guarantee must be documented; group affiliation alone is not enough.

5. Adjust the credit terms

The result should lead to a concrete action: credit limit, payment deadline, advance payment, guarantee, or more frequent follow-up. Higher risk does not always mean no, but the terms should reflect the risk.

Privacy and Legitimate Need

When conducting credit assessments of individuals and sole proprietorships, privacy regulations can become particularly relevant. Datatilsynet (the Norwegian Data Protection Authority) states that the recipient must have a legitimate need and a valid legal basis when processing personal data. Businesses should establish documented procedures.

Credit Check in Proffi

Proffi should compile the sources into a dated control report, show what data is missing, and allow the user to document the decision. A score must be explainable by underlying factors and should not replace professional judgment.