Credit Information Sources
Information is king. The more we know about our customers’ financial health and historical payment performance, the better we can take the right risks while avoiding
loss.
Trade Confidence helps its clients find the right credit information strategies for their needs.
In determining which credit information sources to seek, five factors must be considered:
- Cost of securing information.
- Difficulty of securing information
- Reliability of the information
- Depth of information needed based on size of credit line
- Monitoring the information
Cost
Third party credit bureau data can be very useful as a baseline approach, especially when volume discounts can be secured. There are several different bureaus, and some excel more than others in different sectors and geographies. Bank account verification can also be a useful tool, but again only if the investment is justifiable. Consider aggregators like credit insurers and eliminate redundancies where possible.
Difficulty
Trade and bank references can also be valuable, but it can be pulling teeth to get information out of these third parties who view your inquiry as a nuisance and low priority task. You are essentially asking for a favor. Do not discount the soft costs of your employees’ time in chasing down these references or underestimate the poor customer service associated with taking 3-7 days to make credit decisions. This normally needs to be automated or eliminated.
Reliability
Misinformation is everywhere these days.
Consider the risks of
- Information provided by the applicant: They are cherry picking the references they are giving you and hiding the ones they do not want you to see.
- Fraud: Do names and addresses match exactly? Are we sure references are authentic and not the applicant’s brother?
- Anomalies: One ding on an otherwise clean credit profile may be an error, yet still deserves scrutiny.
- Lies: Sometimes people are afraid to give bad references for fear of repercussions.
- Few data points: The more robust your view, the more you can weed out the misinformation.
Depth
If a customer is asking for a $1,000 credit limit, perhaps the fact that they have simply completed a credit application with references and signature is enough diligence. You could easily erase your margins by investing too much time assessing the credit. If a customer is asking for a $1,000,000 credit limit, have the courage to ask them for financial statements. If done in a tactful manner, your customer should not take offense and respect your discipline. If confidentiality is a concern, sharing financials with an independent third party like a credit insurer can be a great way to keep private information private while facilitating the credit line that both buyer and seller need to grow their business.
Monitoring
Credit is not a “set it and forget it” proposition. For most problem accounts or bad debts, there was a time when they paid reliably. Consider a credit monitoring service for alerts on customers who have major changes in creditworthiness. And do not be lulled into a false sense of security purely based on how the custome pays your bills. You may be an important vendor of theirs. If they are having cash flow issues, they may prioritize paying you at the expense of others. You will not see warning signs until it is too late. Finally, having current credit scores on all customers can be incredibly useful for both sales and collections teams, helping them know where to focus.
Get in touch and let’s design a credit information strategy for your business.
Our Partners
What our clients say about Trade Confidence
“The online credit app has made us so much more efficient. And our salespeople and customers love it!”
AR Manager, Building Materials
“They delivered dramatic improvements to both the coverage and cost of our credit insurance policy.”
CFO, Metals
“Their post-sale service is second to none. They pick up the phone whenever I call and quickly address my questions.”
President, Paper