Credit Reports – What’s the Point?

Strange question, you may think, from the Managing Director of a Business Intelligence agency widely known amongst other things for its credit reporting in the MENA region! But, I have to admit, it is a question I have asked myself with regards to inclusion in our client on-boarding procedures. Should we order or create a credit report for every new client? After all, how do we know if it is going to be worth spending around €100 to find out more about our new customer or prospect when we don’t know yet how much they are likely to spend with us? Will it be a waste of money? I’m sure it is a question many Credit Managers, Sales Managers and business owners ask themselves too.

Well, here’s my conclusion…

  1. It takes around an hour of a fully trained, experienced and qualified Business Researcher’s time to compile a credit report on a company, provided that the researcher is given the correct contact information to begin with. If not, it could take considerably longer. They usually need to speak the client’s first language fluently in order to conduct a thorough investigation. And then, an Analyst will check the information collated and provide a credit opinion based on years of experience doing the same (if your credit report provider is a reputable one). Alternatively, a highly complex scorecard will be used to calculate the credit opinion automatically based on a multitude of data fields. Unfortunately, I have neither the language skills nor the time to do this myself for every new client.
  2. An established credit reference agency will probably already have some information in their database on the subject company, giving historical background to the facts they uncover. They will be able to see whether this is a growing company in terms of employees and turnover, production capacity, ownership of assets, etc or perhaps they will notice a decline. This information will all be included in the report. It could take me a very long time to find the historical information on a company – even their own employees or management might not have it to hand and their credit file may be the only place this data is recorded.
  3. A good credit reference agency will also link data on the subject company to other companies and people they are connected to. Perhaps they are part of a large well established group of companies, or affiliated to or owned by companies or people that you wouldn’t perhaps want your company to be associated with. These facts are important to know if you are extending large amounts of credit. The client isn’t going to provide you with negative information about them, their shareholders or the groups they belong to, but the credit report could.
  4. A useful credit report will also provide the registered name of the company as well as alternative trade names that the company uses – so you can be sure that you are trading with a legally registered entity, knowing exactly what it is called at the Commercial Register – in the native language too if the agency is really proficient. This information would be crucial should any future litigation be necessary. One thing you should always do as part of your on-boarding process is to ask your clients for a copy of their Certificate of Incorporation, so that you have this information to hand on their file. In some countries obtaining this information from the official sources can be costly too and a reputable agency will check the registration status of the company as the basis of their investigation – this is all included in that circa €100 price tag.
  5. A credit report will also give you an indication of the size of your new client. Are they a small sole proprietorship with one or two employees – or a huge organisation with factories, workshops and offices throughout the country? This will help you to know how much effort your sales team should put into re-selling to the client and which of your products could be the most useful to them – but of course is also crucial in setting your own in-house credit limits. After all, no matter what the credit report says your client is capable of paying, you should only ever extend enough credit that your company can afford to risk waiting for.
  6. The best agencies will contact the trade references too, to see if they can obtain payment information such as whether the client adhered to the agreed terms and which method they used to make payment. This is important especially in regions like the Middle East and North Africa where there is very little financial data available due to a lack of mandatory financial filing laws.
  7. Specialised credit reporting agencies often report on the same customer for several clients, so they can inform you if something has changed since you last purchased a report and provide you with an update through company monitoring if something changes in the company’s credit record.

So, what’s the point of credit reports?

Having (at least) the correct contact details of my client including the name in the local language, registration name and numbers, trading names, PO Box address, legal status, registered capital, ownership details, management information, trading and filing history, former names, trade references, bank name and address, number of years established, number of employees, turnover, affiliations, trading activities and the UKSIC or NACE code for them, import/export activities, registered debts or bankruptcies, the brands they sell, certifications they hold, a brief about the country risk, an indication of whether they are growing, declining or steady and the informed credit opinion of a specialist.

Okay, I convinced myself. It would be €100 well spent. And if I’m prepared to wait a week or two, it could even cost much less.

Oh, and by the way, Cedar Rose now offers monitoring as an addition to our credit reporting services so our clients are sent an updated report if something changes to their customer’s credit files during the year. Contact Nicole Konstantinou or email if you would like to know more (and did you know we won the Export and International Category Credit Excellence Award?!). Just saying…

If you need (somehow) more convincing on the importance of credit reports, then make sure to check out this article.

Written by Christina Massaad, Managing Director

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***

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