5 Stats Most Often Overlooked in Business Credit Reports

Once you’ve looked at the DBT score for your customers, you should then look at the DBT Peer Analysis in their business credit report to see how they pay their invoices compared to others in the industry. If you’re in talks with a potential customer and their business credit report shows that they have a DBT of 25 days, while the industry average is much lower at 3, that should be a clear sign of a few things. Not only is the potential customer a high risk and could end up depleting your cash flow, but there are likely other similar companies you could pursue for a deal who won’t put your business into financial trouble. That’s the kind of insight you should be using to make business decisions. It’s far more reliable than gut instincts or hope. 

So, if you’re a food manufacturer and want to sell your products to a large grocery chain like Whole Foods, you’ll want to do your due diligence first and see how strong (or weak) their finances are. Because if you sell to them and they have all sorts of financial and legal issues, that could affect how quickly you get paid. And you count on that money to pay for your ongoing expenses. So, you want to protect your cash flow whenever possible, right?

What’s interesting about Whole Foods is that they have an exemplary low DBT of 3 – meaning they tend to pay most of their invoices on time (with the occasionally few days of lag). This contrasts with the industry average DBT of 7 days.

This makes the supermarket giant an outlier because it’s a large company that pays suppliers on time. But interestingly, it recently asked suppliers to reduce their prices – causing some to wonder if the popular grocery chain could be in financial trouble. But when you consider how low its DBT score is compared to other grocery chains, that’s not likely to be the reason.

Matthew Debbage, CEO of the Americas and Asia for Creditsafe, weighs in on why Whole Foods made this decision.

“I’d say the reason Whole Foods Inc. is doing this is to be proactive in de-risking its supply chain and to make sure it doesn’t fall into the same situation as other retailers who are filing for Chapter 11 bankruptcy and defaulting on loans. It’s a smart and very strategic move. 

Of course, some suppliers might not like this request or might not agree to it. But if it means getting paid the full amount of invoices and on time, as opposed to getting paid late or not paid at all, I think many of Whole Foods’ suppliers would be open to reducing their prices.”

But not all companies are in the same strong financial position as Whole Foods. Take cosmetics giant, Revlon Inc., for example. It had an average DBT of 18, which is considerably high and likely had a multitude of cash flow and financial management issues going on in the background. So, it isn’t all that surprising that Revlon filed for Chapter 11 bankruptcy in June 2022, stating that being $3.5 billion in debt made it too hard to settle its past due invoices for creditors.

Revlon wanted to secure a $1.4 billion loan as a way out, causing creditors to object in the face of a US bankruptcy judge letting the company seek the loan. According to our data, they were right to be up in arms, as Revlon had an average DBT score of 18, while competitors had a lower DBT score of 13.

Another underrated stat in business credit reports is the total percentage of past due payments. Think about it. There’s a huge difference between a company that only occasionally pays invoices late compared to a business that is consistently unreliable.

To return to the comparison between Whole Foods and Revlon, we discovered that in 2022 the percentage of late payments was like night and day. Whole Foods had an impressive track record of paying 92% of its suppliers on time, while Revlon struggled with 41% of its payments past due to suppliers.

If you’re considering working with customers that have a high percentage of past due payments, you’ll want to think long and hard about it before you put your company at risk.

But if you’re already signed a contract with a customer, you need to remember that no company’s financial health will stay the same for the entire time you work with them. Things will change – sometimes within week or possibly months. With the current economic downturn, a lot of companies are seeing customer spending drop, which is leading to a decline in order volume and revenue. This could all put a strain on a company’s cash flow – especially if they have other expenses to cover like operational expenses, infrastructure costs, materials, suppliers and employee wages.

So, you need to monitor the business credit reports of your existing customers regularly – I’m talking weekly. The last thing you want is to be caught by surprise if one of your customers all of a sudden files for bankruptcy – leaving you in the lurch and less likely to recoup any of that debt as there could be other lenders and creditors that take precedent, especially if they have Uniform Commercial Codes (UCCs) filed against them.

Data tells the best stories – I always say that. And one data point in business credit reports that does this really well is the total amount past due (in dollars). It’s one thing to see how many invoices a company has not paid, but it’s another thing to see what that equates to in hard dollars.

If you were to see on a customer’s credit report that racked up $10 million in past due payments, it tells a very clear and dismal picture of that company’s financial health. It also indicates that there are likely other issues going on in the business. For instance, it may not be generating enough volume in sales. At the same time, it could be overspending despite the fact that its customer demand and sales have declined for a considerable period of time.

Of course, this is all speculation. But when you see a company with both a high percentage of past due payments and a large amount of owed, these are the kinds of things that are often going on in the background.

Party City is a prime example. In March 2022, everything seemed to be on the up and up with the decorations retailer reporting a “quarter of top line growth with a sales increase of 1.4% and brand comp sales growth of 2.1%.” Adding to that impression was the consensus that Party City had been a success story in a sector that was being gutted by social distancing and lockdowns in the COVID pandemic. It’d been able to adapt quickly by launching new technology to improve customer deliveries and innovative party kits.

But then things took a turn for the worse more recently, with the company filing for bankruptcy in January 2023. And our data shows that Party City had $1.9 million in past due payments, which was likely a contributing factor to its financial downfall alongside a tightening economy and inability to expand beyond a core offering of party supplies.

This story goes to show that data transparency is critical for businesses to stay afloat, a lesson Jason Braidwood, Global Head of Credit & Collections for Creditsafe, urges you to apply.

“Remember to share your trade payment data. I know all American companies don’t need to file their accounts. But sharing your payment data will help you get a real-time view into how your customers (existing and potential) pay their debts. You can also use this data to benchmark your customers against others in their sectors so you can get a true sense of which customers have a better track record of making on-time payments and which customers repeatedly pay their invoices late. 

The more you know about your customers’ payment behaviors and credit risk, the more equipped you’ll be to make the right business decisions like cutting off ties with a late paying customer or renegotiating payment terms.”

The last thing you want to do is work with a company that’s embroiled in legal trouble and 2022 was a worrying year for this exact problem. Our data reveals that over 2.7 million legal filings were recorded against American companies in 2022. While the professional services sector topped the list with 538,099 cases, retailers took the brunt of it – losing $10.28 million alone.

Now, imagine what could happen if you work with customers who have legal filings that cost them billions of dollars. That’s money that may have been earmarked to pay for other expenses, like your invoices, but now are going to pay for legal fees, admin costs and hefty court judgments.

That’s why it’s so important for you to understand what legal filings are and how they could affect your own cash flow.

• Lawsuits: This could include employee lawsuits for wage disputes, discrimination and sexual harassment as well customer lawsuits for data breach and privacy violations, among others.

• State tax liens: Used as a legal claim against a business property to recover unpaid state tax. 

• Federal tax liens: Used by the government as a legal claim against a business property, which protects its interest in real estate, personal property and financial assets. 

• Uniform Commercial Codes (UCCs): A creditor filing and public declaration of their right to seize assets to offset a loan. 

• Court judgements: Money owed by a business on a court order. 

Legal filings aren’t just a legal hassle and frustration; they’re a serious drain on a company’s cash flow.

As Matthew Debbage explains, “While legal filings don’t directly cause bankruptcies, they can add to the tall pile of problems pushing the business towards bankruptcy. And they’re often seen as a major red flag by lenders if you’re trying to secure funding or get approved for a business loan.

But that doesn’t mean there aren’t things business leaders can do to anticipate and prevent legal filings. The first step is to make sure you have a thorough understanding of all the legal requirements. I’m talking about employment/labor laws, tax laws, compliance laws, financial reporting requirements, data privacy laws and any other laws that are relevant to your business.

A big part of getting this right is hiring people with the right skillsets internally to stay on top of all financial, legal and compliance matters that impact the business. And if you can’t afford to hire these roles in-house, you need to hire financial consultants, corporate attorneys and compliance specialists who can help protect your business.”