How to Check If a Company Is Going Bankrupt

You’ll need to begin by getting access to the company’s business credit report. At Creditsafe we offer business credit reports on companies worldwide. Our business credit reports are tailored to allow quick credit assessments, whether you're extending credit, offering leases, or renegotiating contract terms. You can also set up monitoring for tailored alerts to help you keep track of any significant changes in a company’s credit status. 

Once you’ve accessed the report, you’re ready to dig in and uncover the insights it offers into the company’s financial stability. There a few key metrics you should analyze. 

The first metric to look at within the business credit report is the credit score. This score, ranging from 1 to 100, reflects the company’s overall creditworthiness. A higher score indicates lower risk, while a lower score could signal potential financial distress.

At Creditsafe our scoring system is here to help you quickly and easily understand a company's financial stability. We use advanced techniques and key indicators to predict about 70% of company bankruptcies up to 12 months ahead, so you can avoid the stress of bad debt.

We consider several important factors, like how well a company pays its bills, public records, industry trends and other performance data, to create this score. To make things even easier, we've color-coded the scores: green means low risk and red means high risk.

Keep an eye on any sudden drops in the score. A declining credit score is often one of the earliest indicators that a company is facing financial challenges. 

Next, dive into the company’s payment behavior. This part of the report shows you how timely the company is in paying its bills and suppliers.

• Days Beyond Terms (DBT): This metric tells you how many days late the company is on average in paying its invoices. If you see a high or increasing DBT, it suggests that the company may be struggling with cash flow issues.
• Payment Trend: Check for any shifts in payment behavior over time. A company that was once prompt in paying its bills but is now consistently late might be sliding into financial trouble.

Consistent late payments can be an early warning that the company is running out of cash, a common precursor to bankruptcy.

Another critical step is to review any legal filings associated with the company. Legal filings in a business credit report can provide insight into a company’s financial troubles, such as bankruptcies, liens and judgments.

• Bankruptcy Filings: If the company has filed for bankruptcy, this will be clearly documented. This is an immediate red flag that the company is in severe financial distress.

• Liens: Liens indicate that the company has unpaid debts or obligations, often from creditors or government entities. Multiple liens or a recent spike in lien filings can signal serious financial instability.

• Judgments: Court judgments against the company are another indicator of financial trouble, especially if they involve significant amounts. Judgments suggest that the company is facing legal battles over unpaid debts, which could lead to bankruptcy. 

Credit utilization refers to how much of the company’s available credit is currently in use. In the business credit report, this is an important metric to gauge how heavily the company relies on debt to fund its operations.

High Credit Utilization: If the company is using a large percentage of its available credit, it could be over-leveraged. This means it may have taken on more debt than it can comfortably manage, which is a major risk factor for bankruptcy.

A company with high credit utilization and a low or declining credit score is especially vulnerable to financial collapse.

Creditsafe reports often include a comparison of the company’s financial health against industry benchmarks. This analysis helps you understand if the company’s performance is in line with its peers or if it’s lagging behind. 

Industry Risk: If the company is performing worse than its industry peers—especially in terms of payment behavior and credit score—it could be a sign that the company is struggling more than others in the same sector.

Understanding how a company compares to its industry can provide valuable context about whether its financial issues are isolated or part of a broader trend.

If you see multiple red flags in a company’s business credit report, it’s time to reconsider your involvement with the company. Whether you’re investing, partnering, or extending credit, staying informed about the company’s financial status will help you make better, safer decisions. In the world of business, knowledge is power—use it to safeguard your financial future.

By following these steps, you can effectively assess whether a company is on the brink of bankruptcy. Staying informed about the financial stability of the businesses you work with is key to making smarter, safer decisions. When you notice multiple warning signs, it's important to act quickly to protect your investments and avoid potential losses. Remember, the more you know, the better prepared you'll be to navigate any financial challenges that come your way.