What a UK company due diligence report covers, and how to read one

Most people who go looking for a due diligence report on a UK company are not buying a business. They are about to take on a supplier, sign a contract, extend credit to a new customer or grant a lease, and they want to know whether the company on the other side of that decision is sound before they commit to it. The legal sense of due diligence, the months of document review that comes with an acquisition, is a different exercise for a different audience. This guide is about the everyday version: a report on one company, read before one decision.

What a UK company due diligence report is

A due diligence report on a UK company is a structured summary of what the public record says about that business, organised so that someone who is not an accountant can reach a judgement from it. Its job is to answer a practical question, usually some version of whether this company can meet the commitment you are about to rely on. A supplier that cannot pay its own bills may not deliver. A customer that owes more than it owns may not pay you. A tenant whose accounts are already slipping may not see out the lease.

The report does not replace your own judgement about the relationship, the price or the people. What it replaces is the hour or two of reading filings that most businesses intend to do and rarely get round to, because the information is public but turning it into an answer takes time and some familiarity with how accounts are laid out.

What it draws on: the Companies House record

Every UK limited company has to keep its record at Companies House up to date, and that record is the foundation of any due diligence report. The most important part is the filed accounts, which show what the company owns, what it owes and, for larger companies, what it earned. Alongside them sit the filing history, which shows whether those accounts and other statutory documents arrive on time, and the officer records, which show who runs the company, when they were appointed and what other companies they have been involved with.

One limitation is worth understanding before you read any report. Most small companies file under the small companies exemption, which means no profit and loss account appears on the public record, so you will often not see turnover or profit at all. That sounds like a serious gap, but the balance sheet every company must file still carries most of the warning signs that matter, as our guide to checking whether a company is financially stable explains.

What the report covers

A useful due diligence report on a UK company covers four areas, and each answers a different part of the question.

• Financial health. Whether the company owns more than it owes, whether it can cover the bills falling due over the next year, and how those positions have moved since the previous set of accounts.
• Filing history. Whether accounts and confirmation statements are filed on time. A single late filing is common and usually means little, but a pattern of lateness, or accounts currently overdue, tells you something about how the business is run.
• Directors. Who is on the board, how long they have served, how often the board has changed, and what the directors’ records look like across their other companies.
• Risk indicators. Specific signals that change the picture on their own, such as an application to strike the company off the register, an auditor’s warning about the business continuing, or liabilities that exceed everything the company has.

What a CompanyIQ report returns

A CompanyIQ report is a due diligence report in this everyday sense. It reads the company’s filed accounts directly, together with its filing history and officer records, and returns a CIQ Score out of 100 built from five parts: financial health, worth up to 40 points; filing compliance, up to 10; director quality, up to 20; market position, up to 20; and a risk adjustment of up to 10. Each part comes with the evidence behind it, so you can see why the score is what it is rather than taking a number on trust.

Every full report also counts five warning signs, each a plain yes or no against the filed accounts: whether the company owes more than it owns, whether it can cover the year’s bills, whether its safety margin is very thin, whether it has a pattern of late filing, and whether the analysis found multiple serious risk signals. These are the checks that stacked up in the companies that later failed when we scored the final accounts of 100 insolvent companies: 81 of them were already showing serious warning signs on the public record. You can read what each one means on the How It Works page.

Who uses due diligence reports, and for what

The people who use these reports are rarely specialists. A business deciding whether to give a new customer thirty days’ credit uses one to set the limit and the terms, which is the method in our guide to checking a company before extending credit. A buyer taking on a new supplier uses one to make sure the business will still be there to deliver in six months. A landlord uses one before granting a commercial lease, because a tenant that fails takes the rent with it. A business signing a significant contract uses one because the contract is only worth the counterparty’s ability to honour it.

What these decisions have in common is that the cost of getting them wrong lands later, and the information that would have warned you was usually available at the start. Our guide to reducing bad debt makes the same point from the creditor’s side: most of the customers who eventually stop paying were already showing signs when they were taken on.

How to read one

Start with the overall verdict, because it tells you how much attention the rest deserves. A strong score with no warning signs means the public record gives you no reason for concern, and your decision can rest on the commercial merits. A weak score, or several warning signs together, means the record is telling you something, and the detail is where you find out what.

In the detail, look first at the two balance sheet questions: does the company owe more than it owns, and can it cover what falls due this year. Those two facts did more to separate failing companies from trading ones than anything else we have measured. Then look at the filing history and the directors, which add context but rarely change the answer on their own. Finally, read the warning signs as a set rather than one at a time. Plenty of sound businesses show one, because a tight year is normal; it is several arriving together that marks a company as fragile.

Then let the report change what you do. A sound company gets your standard terms. A weaker one might still be worth the business on a smaller credit limit, a deposit, a shorter lease break or a staged contract. The report is most useful when it turns a yes or no decision into a decision about terms.

What a scored report adds over reading the filings yourself

Everything in a due diligence report on a UK company is public, so it is fair to ask what a scored report adds. The first answer is time: reading two years of accounts, the filing history and the officer records properly takes an hour or more per company, and that hour is the reason most checks never happen. The second is consistency, since a scored report reads every company the same way, so a supplier you check today can be compared fairly with one you checked last year.

The third is interpretation. Raw filings show you the numbers but leave you to decide what they mean, and the meaning is the difficult part, particularly for small companies that publish no profit figure at all. A scored report does that work and shows its reasoning, so you get the conclusion an analyst would reach along with the evidence that supports it.

If you are about to take on a supplier, sign a contract or grant a lease, you can run your first report at company-iq.co.uk, or see what an intelligent company check looks like first.