January 2001

Getting a Line On Lending

Commercial credit bureaus are adapting to the online world, meeting the demand for instant information on companies of all sizes, public and privately held, both inside and outside the U.S. But how are they coping with the keen competition?

By Elayne Robertson Demby

The theme song for the commercial credit reporting business probably should be Bob Dylan's "The Times They Are A-Changin'."

With more companies doing business with smaller firms and companies overseas, obtaining credit information on those businesses is more important today than ever. Customers are demanding more information faster, and in a format that allows them to make rapid-fire decisions about whether or not to grant credit. And greater competition has not only led to competitive pricing, but to a new "have it your way" attitude - slicing and dicing data to suit the customer instead of insisting on a one-size-fits-all approach. "The days of traditional credit reports are coming to the end, and they are being replaced by information on the Internet," says Carl L. Garner, president of the San Diego Credit Association, a not-for-profit, commercial credit association affiliated with the National Association of Credit Management.

For years, if a U.S. company needed a credit report on another U.S.-based firm, there essentially was only one place to get it: Dun & Bradstreet Corp. held a virtual monopoly on commercial credit reporting. D&B; maintains a database on almost 60 million public and private businesses worldwide. But the emergence of the Internet means that increasingly many forms of public data, including commercial credit data, are available from a number of sources at low or no cost.

Dun & Bradstreet acknowledges the new competition, stating in a financial filing that alternative, lower-cost providers of business credit information have had a negative impact on its profitability. That's because basic commercial credit reports contain mostly generic information with little other value-added analysis, so anyone who can assemble the same data at a lower cost can undercut D&B;'s pricing. The cost of credit reports have not increased in at least five years, Garner says, because competitive pressure holds prices down.

But D&B; still enjoys some competitive advantages. There are only about 8,000 publicly traded companies in this country, yet D&B;'s database includes 12 million U.S. companies, says Daniel V. Rucker, assistant vice president in the business development group for Dun & Bradstreet Corp.'s Global Data and Operations, based in Bethlehem, Pa. Furthermore, he notes, D&B;'s public record information is often collected at the local court level and not readily available on the Internet. Additionally, its database contains payment experience for the majority of the companies it covers, as well as financial information on private companies. Matching that depth of data is not an easy task.

One company now competing with Dun & Bradstreet is CreditRisk-Monitor.com, an Internet-based credit reporting firm. Its website provides customers with up-to-the-minute data and credit analysis in real time. For $3,500 a year, a customer can get information on 10,000 public companies and their competitors.CreditRiskMonitor.com not only analyzes the company the customer is asking about, but also looks at it in relationship to its competitors, says Jerry Flum, chief executive of the Floral Park, N.Y.-based firm. "If a company is performing better than its competitors, that gives you a lot of perspective as to how it will do in the long term," he says.

Although CreditRiskMonitor.com was founded in 1997, it already has an impressive list of customers including 3M Corp., Archer Daniels Midland, Alcan Aluminum Corp., BASF Corp., Bic Corp., Bristol Myers Squibb, Champion International, Colgate-Palmolive, Georgia Pacific Co., Polaroid Corp., Schering Plough Corp., and Smithkline Beecham - just to name a few. In 2001, the company plans to begin offering credit information and analysis on private companies, and has signed a letter of agreement with Graydon America, an international credit reporting agency, to provide information on foreign companies too.

Commercial Credit Trend
Another readily identifiable trend in the commercial credit reporting industry is a new emphasis on furnishing information about small businesses. The 1990s saw a significant growth in the number of entrepreneurial firms.

Many businesses now want to market and sell to these young companies, but they need assurances that they will be paid. "There are a lot more small businesses today and a lot more entrepreneurs, and they are the opportunity markets for our customers to sell goods and services to," says D&B;'s Rucker.

Scott Bronstein, director of marketing, Experian Information Solutions, Orange, Calif., agrees. Businesses cannot ignore these small companies or not extend credit, he says, because they represent an increasingly larger share of the marketplace. Experian has developed a tool to evaluate the risks in extending credit to them. The Small Business Intelliscore essentially combines business information with information on the owner of the small business and generates a risk score, indicating the likelihood that the company will pay its bills. Small firms cannot be evaluated in the same way as larger ones, Bronstein points out. If they are, they won't qualify for credit because they don't have the history that larger companies do. "Typically when you do a commercial transaction, you are relying on the business' experience," he says, "but with small companies you need the owner's rating as well. In the past, business information was predicted through business experience, and consumer information was predicted through consumer experience. Now you can take into account both sets of information simultaneously."

Think Fast, Faster, Fastest
Another trend in the commercial credit industry mirrors one in the consumer credit segment - the demand for obtaining information and making decisions quickly, if not instantly. To do that, commercial credit grantors need more than a basic credit report. "There's a trend to providing more actionable information, such as scoring, as opposed to just providing the data and letting the customers make their own decision," D&B;'s Rucker says. Credit granting organizations, he says, are trying to streamline their operations - to make decisions faster with fewer people and at a lower cost. So instead of getting a large volume of data to sift through, customers now want the credit reporting company's evaluation to make a decision.

A lot of credit executives like to use this type of outside analysis to make credit decisions, because it makes their job easier, and there are a lot of competitive pressures to make credit decisions quickly, Garner says. But he cautions that a credit rating system is only as good as the data it is based on. If there is incorrect information in the system, then a credit manager may either grant or deny credit to a company erroneously.

And, Rucker says, while five or ten years ago the customer would wait a few days to get a report in the mail, now they want the information immediately, and expect it to be up-to-date. "Customers expect data to be the freshest available data," he says. "We're updating our database close to one million times a day."

Furthermore, he says, there are now many more ways to buy the information. While five years ago customers generally got one standard credit report, they can now purchase reports specifically tailored to their needs. The information also can be delivered onto customers' existing software, he says.

With the globalization of the economy, more credit bureaus are offering credit information on firms in other lands. Any expansion in the U.S. credit report industry, Garner says, will come from U.S. companies seeking information on foreign businesses.

At least one new player is entering the U.S. market for foreign commercial credit reports. Up to now, consumer credit giant, Atlanta-based Equifax Inc., has not offered commercial credit information in this country. While its presence in the U.S. commercial reporting arena has been minimal, Equifax actually has a strong commercial credit reporting business, which averages more than $100 million per year, with its strongest business in Canada, the United Kingdom, Spain, and Brazil, says Robert Hilles, Equifax's vice president of global development. And the international operation is not new. "Our commercial credit reporting business in the United Kingdom goes back to the mid-1800s," he says.

In all, Equifax provides commercial credit reports on companies operating in more than 200 countries via third parties. "Equifax is a global player looking to do business on a more global scale in commercial credit reporting," Hilles says. The company plans to start offering U.S. customers access not only to reports from its database, but from the countries where it has contacts.

EquifaxBusiness.com, a new website, is scheduled to be launched for the United States in early 2001. A similar site will be launched for the UK and other countries before the end of the year. In developing the new website, Equifax says it is following its customers. "Our customers," Hilles says, "are moving globally, and we need to go where our customers are taking us."

The same may be said for the entire industry.

"Directory Assistance, Please"
Electronic Directory Assistance Services
Company Location Website Services
ABC Companies Inc. Buffalo, N.Y.www.abccompanies.com Provides a platform for industry-group credit information.
BusinessCreditUSA.com Omaha, Neb.www.businesscreditusa.com Provides company profiles on more than 11 million American and Canadian firms.
CreditRiskMonitor.com Lake Success, N.Y.www.creditriskmonitor.com Canadian firms. Offers online company credit reports, plus real-time news and e-mail notification services.
Creditworthy.com Lake Oswego, Ore.www.creditworthy.com Offers Credit Club members business and consumer credit reports, public records, and credit investigation services. Internet Industry Credit Group members can exchange trade experience data electronically.
DebtWatcher Inc. Mount Laurel, N.J.www.dnb.com Online, interactive search-and-alert system for commercial credit and collections managers.
Dun & Bradstreet Corp. Murray Hill, N.J.www.debtwatcher.com Provides business information and decision-support services, drawn from a database of nearly 60 million firms worldwide.
Equifax Inc. Atlantawww.equifax.com New website, due to launch in early 2001, will offer U.S. firms credit reports on companies in 200 foreign countries.
Experian Information SolutionsOrange, Calif.www.experian.com Experian Business Profile indicates a firm's ability and willingness to pay; and Commercial Intelliscore and Small Business Intelliscore identify a business' credit risk.
Global Credit ServicesNew Yorkwww.globalcreditservices.com A team of analysts for each industry delivers research, analysis, and opinions to optimize the credit decision process.
Graydon America Inc.New Yorkwww.graydonamerica.com Services include business information/credit reports, commercial collections, market research, country profiles and credit educational products and services.
National Association of Credit ManagementColumbia, Md.www.nacm.org NACM and its affiliates provide members with business credit reports and sponsor Industry Credit Groups for exchanging trade experience information.

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