What are red flags and good scores in business health data?

Business health data helps an enterprise make sure they work with companies that fit their onboarding criteria

Before your onboarding team moves forward with a new small business customer (or a current client who may have data changes since you last connected), it’s essential to have a tool that checks and monitors this customer’s business health data

When we talk about business health data, we’re referring to things like business credit scores, business credit risk scores, and business risk classes. Red flags in business health data include financial distress and late payments, high debt-to-credit ratios, and high debt-to-income ratios.

On the other hand, good scores in business health data include good payment history, low debt-to-credit ratios, and low debt-to-income ratios. It’s important to use a business health data tool to assess these factors in order to ensure the best possible customer onboarding experience.

Before your team makes a decision on whether to onboard a small business, we’d like to share what they should keep their eye out for. This article will share some of the most common red flags in business health, as well as green flags that give your team the green light to move forward with the small business application.  

Red flags in business health data 

As an enterprise that works with small businesses, there is less use of demographic data and more firmographic data. Firmographic data and business health data are the bread and butter of any organization that has services and products for other businesses.  

Below, we’ll share a few of the most common red flags your team may find in business health data. Being aware of these things can help your team make the best decisions for your enterprise. 

Bad credit 

The biggest red flag is also one that might be obvious. Having bad credit (or no credit) is something that can give your team a lot of insight into how working with a small business might be. Make sure that the small business has a business credit score that your team feels confident about before offering credit. There are many ways to build or repair credit if that is something it wishes to work toward. 

Nonexistent cash flow 

If the small business has no cash coming in, it could be a sign that they are struggling or in serious financial trouble.

Make sure that the small business has enough money to pay its obligations and employees. Additionally, if the small business has not been in business for very long, it could be a sign that they are not yet established and may not have the experience necessary to handle working with a larger enterprise.

Your team wants to be certain that the small business can easily pay off whatever financial service you provide to it. If the small business has persistent negative cash flow, it might be a sign that it isn’t financially healthy or able to pay off what it owes.

You could work with the small business to identify ways to increase cash flow, such as reducing expenses, increasing sales, or refinancing any existing debt. Doing this will help the small business become a more reliable customer and partner, and it will also reduce the risk for your team. Consistent cash flow should be one of the things you prioritize as you move forward with new clients. 

Judgments or bankruptcy 

If a small business has had a recent judgment or bankruptcy, this is something to pay attention to. It’s especially worrying if it occurred within the last year. It’s one of the most obvious red flags that a small business could be a huge risk for your enterprise to work with.

Regardless of how much your company invests in small businesses, bankruptcy shouldn’t be glossed over, unless the company has proven successful since its setback.

Lack of collateral 

For enterprises that consider collateral, a lack of it can be a huge problem. If the small business doesn’t pay back the loan, your enterprise could be left eating the costs instead of being able to acquire assets that let you move forward. When collateral is included, things like credit history may be less important to your enterprise. However, it’s important to consider the amount of collateral available, especially with young companies. 

Inexperience as a business 

Another red flag in terms of business health data is how long the company has been around. It’s not uncommon for businesses to be turned away for credit or loans based on only being in business for one to three (or even five) years.

Industry experience is an important aspect of running a company, and there’s nothing wrong with expecting that from your clients. However, if your target is onboarding small businesses, you may want to waive this red flag and instead make sure the business has a good business credit score, credit risk score, and cash flow.

Green flags to move forward with a business customer 

Success onboarding with business health data

Green flags to move forward with a business customer include a good business credit score, credit risk score, and cash flow. A good track record of making payments on time and having a solid business plan are important considerations when assessing a business’s health and ability to pay back loans or credits.

Additionally, if the business has been around for a while, that could be an indicator of stability and potential success. Finally, a good customer service record and positive customer reviews can be an indication that the business is well-run and has a good reputation in the industry.

In many cases, business health data can also give your teams the assurance that a company is likely to be a fantastic customer. The more you see these “green flags,” the more likely that brand is one that your enterprise wants to be associated with. Below are a few of the most common signs that your team should move forward with onboarding a small business. 

A high business credit score 

The first green flag that a small business customer is a good bet for working with is easy to find. All your onboarding and monitoring teams need to do is take a look at its credit score. Any score of 80 or above is considered good.

  • If you see 100, your enterprise can expect payments to come in early or on time every pay period.
  • An 80 might indicate payments are always on time.
  • A score of 50 or higher has a higher risk of some payments being late
  • A score up to 49 is far more likely to be late by a long period of time. 

Utilization of credit 

You don’t want to see an endless amount of debt from a customer, but utilizing credit can actually be a good sign and create a better credit score. When a business shows that it is capable of taking out credit and paying it back appropriately, that bodes well for your company if you work with it. Watch to see if the score is high over time when credit is in play. This gives you an idea of whether the small business can keep up with payments over the long term. 

Appropriate use of trade credit 

One of the most important factors in business credit score is trade credit. This refers to the credit a business uses that is provided by suppliers and vendors. This is often required for a business to stay afloat, so you should pay attention to it when you look at business health data. Seeing that a small business can build great relationships with those who give it goods, products, and services will give you insight into how it might act as a customer. 

There’s nothing wrong with getting the basics from the simple numerical credit score but digging deeper will set your enterprise apart. Understanding business credit and the other factors involved in business health will ensure your enterprise works only with those small businesses that can handle debt and pay back what they owe.

Final thoughts 

There are many reasons to pay attention to the business health data of small businesses that want to use your products and services. If your company provides credit in any form, knowing the red flags for your onboarding and monitoring teams to watch for will put your enterprise in a better position to succeed. The green flags can also be useful when making any onboarding decision. 

If you’re wondering where to get all this data so you can use it to improve your company, Markaaz’s Enterprise Services are what you need.

Markaaz offers an automated Business Verification API Suite, which pulls firmographic, business health, and compliance/AML data from our extensive proprietary Directory of over 300 million global small businesses to automate and speed up an enterprise’s onboarding flow.

Markaaz also offers no-code Business Monitoring that allows your monitoring team to know when any data changes about one of your business customers.

Whenever your teams need to make a decision about credit or debt, make sure to look for both red and green flags before they move forward. Consider whether bringing on a small business as a customer will provide value to your own enterprise, and make decisions based on what you decide.  

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