[Collections & Credit Risk - Table of Contents] February 2002

Commercial Credit Bureaus:
Keeping an Eye on Business

By Peter Lucas

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The commercial credit reporting industry has made great strides in providing better commercial credit reports quickly and at a low price - much to the delight of credit managers.

Commercial credit reports are now readily available online, offering instant access. Many files are updated in real time—that is, new information is added when received so files are as current as possible. New providers of commercial data have emerged providing important competition, and price pressure, for the traditional commercial reporting companies. New scoring and portfolio management products are becoming available. And overseas, more information is being gathered in a more consistent manner making it possible to make better risk judgments from afar.

The advances have come at a critical time for credit and risk managers. Today executives face the need to access top-quality global credit data because foreign markets have become important outlets for U.S. goods. Concerns about customer identity amid worries of money-laundering operations have become more pronounced after the terrorist attacks of Sept. 11. Credit managers want to know who their customers are.

Probably even more important, a shaky economy both here and overseas has made sound credit intelligence a necessary component of doing business.

“The appetite for information is tremendous,” says Dann Adams, senior vice president of sales in North America at Equifax Inc., Atlanta. “But the dynamics of the market have changed.” Last fall, Equifax introduced its small business financial exchange. Developed at the behest of lenders that sought better information on small companies, the exchange tracks proprietary data on small business loans, leases, and other financial obligations.

Internet Impact
Certainly, the biggest change has been spurred by the introduction of commercial credit reporting via the Internet. Both Experian and Dun & Bradstreet, the two big commercial reporting entities, have offered online reports for several years. “Our goal is to provide products in the simplest, quickest way that is convenient,” says Roger H. Lisabeth, vice president and general manager of the business information solutions division at Orange, Calif.-based Experian, a subsidiary of U.K.-based GUS plc. Lisabeth says: “Clearly, many customers want Web-based products. “

At Murray Hill, N.J.-based Dun & Bradstreet Corp., traditional commercial credit reports are getting a total remake in 2002. Online reports will link credit managers to a variety of information sources, such as SEC reports, stock quotes, and business websites. “The report will act as a kind of portal on that particular company,” states Dan Meder, leader, risk management solutions at D&B;'s office in Parsippany, N.J. The changes are being gradually phased in and should be in place this April, Meder says.

Affiliates of the Columbia, Md.-based National Association of Credit Management have jumped on the Internet bandwagon, too - albeit more cautiously. NACM/Tampa now acts as an application service provider for seven commercial credit reporting bureaus, providing online access to credit information and owns Creditworthy.com, which functions as an in-house credit bureau via the Internet for a handful of NACM affiliates. “Speed is the name of the game,” says William D. Meeker, president and chief executive of NACM/Tampa.

Others agree. “Credit managers want to stay at their desks and pull reports. They want the information as quickly as possible,” says E. Pat O'Brien, president at NACM-Ohio, Dayton. The Ohio association, which also covers Northern Kentucky and Southeast Indiana, announced plans to introduce Internet-based service to its members in January. And O'Brien says there's talk again of creating a single national NACM database accessed via the Internet. (Several previous attempts to create a national database failed.) “It makes sense,” says O'Brien. “A premium-type report would include information in our database, but also combine with the information from other [NACM] databases.”

Strides are being made to offer overseas information online. For example, commercial credit reporting is available on more than 31 million companies in 230 countries at SkyMinder, an Internet product of Cribis Corp., owned by the CRIF Group. The service was recently launched in the United Kingdom, with credit scores for 400,000 U.K. companies, according to Silvia Cappelli at CRIF Business Information Services Spa, Bologna, Italy. SkyMinder includes credit and financial information, as well as company data, executive lists, news, and statistical data. (Content providers include Standard & Poor's, D&B; Worldwide, and SourceMedia, publisher of Collections & Credit Risk).

Still, credit reports on overseas companies require a critical review, industry executives say. Local laws may prohibit the gathering of certain information. And in some areas of Africa and the Middle East information can be almost impossible to find at any price.

Foreign reports that detail payment patterns should be evaluated in context, according to Philip Mellor, senior analyst at D&B; Europe, in London. “Payment terms are different across the continent,” he says. For example, the standard repayment pattern in Italy is 120 days, but 30 to 40 days in the U.K. and Germany.

Consistency of overseas information remains a big concern. “Outside the United States there is still a lack of transparency in financial reporting,” says Kenneth F. Garrison, president and chief operating officer at FCIB, the international subsidiary of NACM. The adoption of international accounting standards could improve the quality of overseas reports, Garrison thinks. “It would be excellent for reporting,” he says. “There would be easily comparable standards from country to country.”

But the movement to adopt international standards has met with resistance. The European Union has agreed to accept the standards by 2005. China and some Latin American countries have said they will accept international accounting standards. But the U.S., U.K., and Japan don't want to change procedures they consider adequate, Garrison says.

The emergence of online commercial reporting has also opened new competition for the big bureaus, helping to reduce prices in some cases. The new sources of online business reports also provide easy access to different types, and more general, information.

More Competition
Business Credit USA, for instance, offers an online report for $5, available for 12 million U.S. companies, as well as companies in Canada. Service is also offered via CD-ROM. “Our niche is the low dollar [under $1,000] transaction,” says Troy Peterson, general manager at the Omaha-based service. “For $5, you can perform some due diligence on a small customer that you might not have previously bothered with.”

The company sold about 300 reports a day via the Internet last year, but now sells about 600 reports daily. “Credit managers are looking for ways to cut costs. They love the fact that you can 'pay as you go,'” notes Peterson. The reports do not include payment histories, but the service does provide a so-called credit rating code based on an algorithm similar to those used for credit scoring.

Another online reporting service making a run at established bureaus is CreditRiskMonitor.com, based in Floral Park, N.Y. The service compiles data on just under 1 million companies, including 11,000 public companies, according to company Chief Executive Jerry Flum. The company also has information on 10 million foreign businesses. Files are updated in real time as information is provided. Users can get a credit score that rates the company in comparison to its industry competitors. Annual service, with unlimited access, costs $3,500.

Despite the emergence of online services, credit managers in large part still rely on paper reports. At Experian, for instance, about 80% of the reports sold are paper copies. The largest distribution network is CPU-to-CPU, accounting for about 50% percent of reports sold.

Not all credit managers have online access, according to Experian's Lisabeth. He guesses that only about 40% of companies give their credit departments Internet access. “It's a surprise,” he says.

Enhancements have become an important part of commercial credit reporting. Third quarter 2001 results at D&B; showed that revenues for traditional credit products, including the D&B; Business Information Report, were flat when compared with the prior year period. But value-added credit products including credit scores increased 8%.

A new version of D&B;'s risk assessment management product was introduced last September. It evaluates risk across a portfolio. “We are trying to educate our customers about how to use these tools to manage their portfolios,” says Meder at D&B.; The system tracks risk factors such as lawsuits and liens along with account-aging data to determine the true risk of a particular account or group of customers. “A prompt payment record doesn't look so good all of a sudden if there are liens against the company,” notes Meder. He adds that D&B; introduced its new global access product in 2001. By mid-2002, that product can be married with an enhancement for large companies to centralize credit operations in order to gauge risk among different divisions across the globe.

Industry groups remain an important source of credit information. Still, reliance on online reporting may have lessened participation. Richard Kaufman, president of CMA Business Credit Services, NACM affiliate in California, says that could affect the quality of decision-making in the long run. “Automation seems to offer a real alternative to networking arrangements,” he says, “but that may be illusory.”

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