What Is a Credit Investigation (Credit Check)? Basics of Investigations and Tips for Cost Reduction | Blog

What Is a Credit Investigation?

A credit investigation involves evaluating the reliability and creditworthiness of a business partner or individual by examining their financial status, management conditions, and transaction history.
Investigations primarily conducted to assess a partner's reliability and solvency are referred to as "Credit Screening," while investigations to ensure there are no ties to anti-social forces or criminal organizations are known as "Anti-Social Force Screening."

To maintain stable business operations, it is essential to investigate in advance whether a business partner has the capacity to pay and whether there is a risk of a sudden decline in their creditworthiness. Furthermore, involvement with anti-social forces can negatively impact a company's reputation and credibility, and may lead to significant legal risks. Therefore, the primary purpose of conducting credit investigations is to proactively verify that there are no potential negative impacts on your company.

Risks of Not Conducting Credit Investigations

Credit investigation is an essential process for evaluating the reliability of a counterparty and maintaining stable business operations. Proceeding with business activities without conducting credit investigations can lead to various risks.

Financial Risks

If a transaction is initiated without clear information regarding the business status and financial health of the counterparty, there is a risk that the counterparty may face insolvency. This could lead to outstanding accounts payable or receivable, negatively impacting your company's cash flow and operational funding.

Supply Risks

If a business partner falls into financial distress, there is a risk that service supply may be disrupted, leading to sudden production halts, supply shortages, or a decline in quality.

Reputational Risks

If a business partner is found to be involved in fraudulent activities, corruption, or associations with antisocial forces, your company's reputation could be severely damaged. Should you become involved in legal issues or litigation, the resulting costs, time, and effort would place a significant burden on your organization.

Methods of Credit Investigation

Credit investigation methods are broadly categorized into four types: Internal Investigation, Direct Investigation, External Investigation, and Outsourced Investigation.

Internal Investigation

Internal investigation, also known as in-house research, involves conducting credit checks by leveraging information and data held within your own company. This process utilizes internal databases to collect historical transaction records and payment delay logs for credit evaluation. In some cases, it may also involve direct communication with the target company to gather information regarding their reliability and risk management policies to assess creditworthiness.

Direct Investigation

Direct investigation is the process of gathering information directly from the target company. Primary methods include surveys, inquiries, and dialogues conducted via telephone, fax, or email. This approach is used to gain a more detailed understanding of the target's financial status and credit value.

External Investigation

When gathering information, external investigation methods—such as government agency research and internet-based research—are used to obtain data from sources other than the target company itself. Government agency research involves obtaining information from commercial and real estate registries, while internet-based research involves collecting data from online media and other digital sources.

Outsourced Investigation

Outsourced investigation refers to commissioning a third party, such as a specialized credit reporting agency or credit research firm, to investigate the credit information of a business partner. This method is particularly useful for obtaining information that is difficult to acquire independently, thereby helping to mitigate transaction risks.

Credit investigations are conducted by combining the necessary elements from the four methods described above. By utilizing multiple approaches whenever possible, you can achieve a comprehensive and highly reliable evaluation, effectively minimizing credit risk.

Advantages and Disadvantages of Using Credit Reporting Agencies

Credit research agencies are specialized organizations that collect and analyze corporate credit information and provide it to various companies. It is widely known that professional credit research agencies are utilized when conducting credit investigations or anti-social force checks. This article explains the advantages and disadvantages of using credit research agencies.

Advantages of Using Credit Research Agencies

The primary advantage of using a credit research agency is the high reliability of the credit information obtained. You can acquire a wide range of corporate information, including basic details such as capital and number of employees, as well as payment delay information and credit ratings.

Disadvantages of Using Credit Research Agencies

While using a credit research agency allows for the collection of extensive credit information with high precision, it incurs investigation costs. Especially when it is necessary to investigate many companies, the investigation costs must be taken into account.
Additionally, for new investigations where the target company is not registered, it generally takes about one month or more, and in some cases, additional fees may be required to shorten the investigation period.

What Is a Primary Check in Credit Research?

There are steps your company can take before engaging a credit research agency. This is known as a primary check for credit research. To reduce costs, conducting an internal primary check before requesting an investigation by a credit research agency is essential.

Confirming the Corporate Registry

Because it is legally impossible to include false information in a corporate registry, it serves as a highly effective source for verifying a company's creditworthiness. Methods for checking the registry include requesting a certified copy of the registry at a Legal Affairs Bureau counter or by mail, and using the online registry information service. Since both methods incur costs, it is necessary to select and obtain only the required information based on your objectives to keep investigation costs down.

Conducting Internet Research

Research can be conducted by searching using industry-specific negative keywords. Searches are performed by combining the company name or representative's name with keywords such as "organized crime," "arrest," "reputation," or "violation."

Since there are various types of negative keywords, it is necessary to establish rules for the keywords used during investigations and share them internally. While research is conducted by referring to official websites and industry news pages, if interpreting the information obtained through internet searches or making self-judgments is difficult, you should consult with a professional organization.

Conducting On-Site Visits

There is a method of conducting research by actually visiting the target company. This has the advantage of making it easier to grasp the actual situation, as you can directly observe the demeanor of senior management and employees, as well as the condition of office equipment and facilities.

If future business transactions are expected, maintaining current trust is important, so meticulous care and consideration are required during visits or interviews to ensure that the target is not aware they are being investigated. Additionally, direct visits become difficult if the target company is located far away.

Utilizing Corporate Databases for Research

There is a method of credit research that utilizes corporate databases. "uSonar," based on the LBC, the largest corporate database in Japan, enables simplified credit research by combining proprietary ratings with a database of companies requiring caution.

The Importance of Primary Checks in Credit Research

Primary checks in credit research are essential for reducing cost and time. If you outsource all investigations of companies you wish to research to a credit research agency, it will not only cost money but also consume significant time. By first conducting an internal primary check and then requesting the credit research agency to investigate only the information that could not be covered, you can conduct credit research efficiently.

Furthermore, data shows that very few companies actually go bankrupt even if there appear to be issues with their credit.
When using uSonar's database of companies requiring caution and ratings during a primary check, establishing internal rules and proceeding with transactions based on the primary check judgment for companies above a certain rating is one effective approach.

Features of "uSonar," Which Reduces Risk Check Costs by 90%

When conducting credit research on business partners, accurate and efficient primary checks are indispensable.
"uSonar" is a groundbreaking service that accelerates primary checks in credit research and significantly reduces costs.

uSonar's database is composed of a wide range of information sources, including commercial registration information, corporate data, administrative action history, and newspaper and news data from the past 30 years or more. This makes it possible to discover potential risks of business partners early and take appropriate measures.

Furthermore, through analysis utilizing AI technology, signs of risk are automatically extracted from vast amounts of data. This significantly reduces time and costs compared to traditional manual research.

By using "uSonar," you can achieve highly reliable primary checks while reducing risk check costs by up to 90%. Each company can conduct efficient and safe transactions.
Please check the details below.