Making a case for commercial credit reporting

Whether you are conducting an initial credit investigation on a potential customer or reviewing the credit line for a long-held account, commercial credit reports play an important part in the decision to extend credit to a customer. Despite their usefulness, many companies are hesitant to share their accounts receivable data to commercial credit reporting companies. 

Why it matters: Encouraging your company to contribute data to commercial credit reports not only helps the profession with the added data boosting the report’s quality but benefits your business and your professional relationships. 

By the numbers: While it can feel like an uphill battle getting your company to contribute trade data, just remember there are many other credit professionals in your shoes. According to an eNews poll, 60% of respondents found that their companies do not contribute trade data because they are concerned about company privacy. Another 19% cited the company not seeing value in contributing data and 16% do not contribute data out of a desire to avoid non-disclosure agreement violations. An additional 5% don’t because they lack the automation needed to easily transmit information. 

“We presently do not share information. Recently, our reasons have been due to concerns over data privacy and potential issues surrounding what constitutes ‘credit reporting,’” said Leila Wolfe, CBA, credit supervisor at Fender Musical Instruments Corporation (Scottsdale, AZ). “Historically, our company has never been keen on sharing information of any kind, so even being able to have a discussion about it is a win.” 

Advocating for your company to share data when they are steadfast in believing it’s a risky decision without clear benefits is a challenge, but as a credit professional you are in the best position to demonstrate the value of commercial credit reporting. “Contributing data makes you a cog in the wheel of responsible decision-making with lawful data sharing,” Wolfe said. “Credit managers can be good stewards of risk management by participating in the flow of credit data.” 

Contributing data to commercial credit reports is a way to give back to the credit community and help credit managers across the world by building a strong, well-rounded knowledge base. It will allow you to advise other credit professionals on potential payment delays while rewarding prompt-paying customers by allowing them to build strong credit histories. Regardless of concerns that sharing data would upset customers worried about privacy, it serves as an opportunity for customers to build good credit. 

“As a customer, a report can be a testament to your exemplary credit history with various companies,” Wolfe said. “It can also demonstrate resilience, growth and determination that show through the ebb and flow of high and low balances. The credit report tells a credit manager a story, your company and how you manage it.” 

It is hard to overstate the importance of commercial credit reporting when it comes to determining a credit limit for a new customer. “It’s pretty paramount for us, our credit policy says we have to pull a commercial credit report on every new customer,” said Matt McVay, accounts receivable manager for Evolus (Newport Beach, CA). “We have to look at each customer’s report and their risk level, so we really are using those commercial credit reports to see how a customer’s paying other companies and if it’s on time or late, and if there are any other red flags. We are heavily reliant on commercial credit reports.” 

Commercial credit reports do more than just assess a customer on their payment history. It offers a more objective look at a customer and their payment history that can help you evaluate troubling accounts. “There’s a bunch of extra information you get about your portfolio, so it helps manage collections going forward by showing which customers are performing well and which ones are not,” McVay said. “Maybe there is a customer that is paying other people on time but paying us late. These reports help us pinpoint those customers.” 

The bottom line: Commercial credit reports offer a unique glimpse at your wide customer base, letting you assess their payment habits before their first transaction. While your company may be hesitance, there is a lot of value that can come from sharing trade data, from the reward it offers customers for positive payment history to the wealth of information it provides you. Most importantly, contributing data allows you to give back to the credit industry and help build a strong, detailed knowledge base that assists credit professionals around the world. 

To learn more about the benefits of contributing data and about NACM’s credit reports, please contact your NACM Affiliated Association.