Making credit decisions without third-party credit information is risky. However, many businesses, particularly smaller companies, have thin credit records or no credit record at all in the databases of the major business credit bureaus.
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Large companies include a line in their budget for credit losses, knowing a certain percentage of the credit they issue will go unpaid. Smaller and medium-sized companies typically don’t have a budget for bad debt.
Business credit scores come in a variety of flavors from many different sources. All of the big business credit bureaus – Experian, Dun & Bradstreet and Equifax – provide complex statistical models designed to predict how a customer is likely to pay you in the future. There are even industry-specific scores for many industries.
Small business is the backbone of America. The economy has created a surge in the small business growth in recent years. E-commerce and online business-to-business (B2B) transactions have expanded the need for commercial credit checks to include small businesses. With more companies doing business with smaller firms, obtaining credit information on those businesses is more in demand and important today than ever.
The Credit Department’s primary function is to maximize credit sales with a minimum of risk. Managing bad debt expense is a tightrope that all credit professionals walk every day. Too little bad debt expense might be indicative that not enough reasonable risk is being taken and selling opportunities are being left on the table. Excessive bad debt exposure can bring your company to its knees.
Every deal hinges on getting complete and accurate credit information to evaluate a company’s ability to pay. Having a set approach on how and where to get this information will help you determine the appropriate financing and terms for the client, the appropriate credit bureau to use and whether the deal is even worth your time.
While the information carried by the three consumer credit bureaus – Experian, Equifax and TransUnion – is very similar, the same doesn’t hold true in the business credit world. Each of the three major business credit bureaus offers a different perspective on each of your customers. In order to get the complete picture, you need to leverage all three.
We’ve all been there. You take a credit application from a small business that may not have been in business for a long time, or perhaps the owner has not made the effort to establish a separate credit record for his or her business. When it comes time to run their business credit report, you find that your credit data provider has little or no information on your applicant. Frustrating right?