How to Use Credit Reports in M&A: 4 Best Practices

A thorough understanding of financial risk is essential for any successful merger or acquisition, and credit reports play a vital role in that process.

In M&A, these reports help acquirers assess a target’s financial health and risk profile, guiding key decisions on valuation, deal structure, and long-term success. Without reliable credit data, acquirers risk overpaying, inheriting hidden liabilities, and damaging their reputation.  
 
For more confident decision-making, this article explores: 

• Challenges credit professionals face during M&A  
• 4 best practices for credit report use in M&A  
• How Cedar Rose simplifies credit reporting for M&A decisions

Challenges Credit Professionals Face During M&A 

Credit professionals face significant challenges during mergers and acquisitions, amplified by the high-stakes and time-sensitive nature of the process.

One of the most pressing issues is accessing and integrating reliable credit data. This is often complicated by inconsistent data, potential fraud, cross-border operations, and incompatible financial systems. These factors create substantial barriers to forming a clear and accurate credit picture during due diligence.

After the merger, policy alignment becomes a priority, particularly when the companies involved have differing credit standards or risk tolerances. Coordinating teams, procedures, and staffing structures adds another layer of complexity, especially within larger organisations.

An overreliance on standard financial metrics can further obscure critical industry-specific or macroeconomic risks. Siloed processes and communication gaps often hinder effective collaboration across departments, while staffing uncertainty, including role changes or redundancies, can lower morale and disrupt operations. At the same time, cultural integration challenges, such as differing work styles or decision-making hierarchies, can cause resistance within teams.

Couple that with tight timelines, overly optimistic financial portrayals from sellers, and the risk of overlooking critical credit issues significantly rises. Tackling these interconnected challenges requires cross-functional collaboration, clear communication, and access to trustworthy credit intelligence, all essential for a smooth and informed integration. 

4 Best Practices for Credit Report Use in M&A

1. Integrate Credit Reporting within Comprehensive Financial Due Diligence

Credit data should be integrated within the comprehensive financial due diligence process, including Quality of Earnings (QoE) reviews. These insights can reveal red flags often missed in standard financial statements, like late supplier payments that contradict reported profits. This helps identify potential cash flow issues or hidden liabilities early on. It also facilitates accurate benchmarking against global industry peers and strengthens the overall assessment of the target company’s financial stability.  
 

2. Focus on Key Credit Indicators and Evaluate Supplier/ Customer Relationship Health 

Do not rely solely on the target company’s high credit scores; they can fluctuate quickly. Broaden your credit review by analysing payment behaviour with suppliers and customers. Investigate delays, overly generous terms, or irregular patterns that might indicate cash flow concerns. Also consult relevant public records, such as insolvency filings, liens, and registered charges, and incorporate independent risk ratings to better assess the company’s overall financial and operational stability.

Leverage credit reports for stronger deal-making. A positive profile can enhance financing terms, potentially reducing interest rates by up to 10%, and strengthen your negotiating position. Complement the score by reviewing financial statements, legal records, and ownership details to fully understand the target’s overall health. If the acquired business will continue operating independently, safeguard its long-term value through implementing continuous credit monitoring, acting promptly on warning signs, and ensuring timely payments.

3. Detect Early Signs of Financial Distress and Assess Cross-Border Risks 

Utilise credit reports as powerful early warning systems for financial distress.  
Look for indicators such as high leverage, poor interest coverage ratios, fully utilised credit lines, or payroll delays, as these often surface before appearing in formal financial statements. For cross-border transactions, account for significant regional variations in credit scoring methodologies, legal frameworks governing debt and security, and reporting standards. Partner with experienced global data providers to ensure consistency and help uncover potential international liabilities or complexities. 
 

4. Maintain Continuous Credit Monitoring Throughout the M&A Lifecycle

Implement real-time monitoring with alerts, recognising that a target's creditworthiness can fluctuate rapidly, even during a transaction. Use this system to proactively track evolving risks, make timely, informed adjustments to deal structure or valuation, and better manage post-merger integration challenges. Maintain this ongoing vigilance, particularly in dynamic or volatile markets worldwide, to gain essential visibility into the target’s financial health and support sustainable long-term success. 
 

How Cedar Rose Simplifies Credit Reporting for M&A Decisions 

Cedar Rose enables faster, more confident M&A decisions with trusted insights, especially in complex regions like the Middle East and Africa. 

Backed by over 25 years of specialised expertise and access to 250+ jurisdictions, millions of company records, shareholders, and UBOs, our CRiS Intelligence platform provides the precision, compliance, and control you need throughout the M&A lifecycle.

Assess credit risk instantly using our Scorecard, detailed reports, and real-time monitoring.  
Gain deeper visibility into key credit indicators, ownership, and leadership.  
Act on proactive alerts and integrate GDPR-compliant data into your workflows for streamlined decision-making. 

Contact us to secure your next move.  

Sources 

1. https://bcm.nacm.org/navigating-ma-challenges-for-credit-pros/  
2. https://blog.companywatch.net/resources/how-to-use-company-credit-checks-for-smart-ma-decisions  
3. https://eoxs.com/new_blog/credit-analysts-in-ma-best-practices-and-strategies/  
4. https://www.edq.com/resources/tip-sheets/the-critical-role-of-data-quality-in-mergers-and-acquisitions/  
5. https://www.corporatecomplianceinsights.com/when-money-is-not-cheap-due-diligence-go-deeper/