Paying a Vist Pays Off

The question was raised, how do you determine credit risk? The most common methods are credit reports, credit scores and credit references. None of which are a big help, really. The expectation of a Dunn and Bradstreet report is that you will get in a few pages all of the pertinent facts, statistics, biographies of the principals, payment trends, company history, net worth, legal filings and anything and everything about the company. Thus equipped one can make an educated prediction about the applicant’s ability to pay, a reasonable credit limit, and available capital and assets in the unlikely event of default. What you actually get is maybe verification that the company exists, it is a legal entity and that they may or may not be keeping current with their office supplier. You are being asked to qualify the customer for a $100,000 credit line and the D&B reports a high credit of $1,000 with printer or a trucker. Based on this, D&B gives the company a Paydex score of 75. Pull an Experian or Equifax report and perhaps you’ll learn how current they are with Chevron and Penny’s Department Store, not to mention any outstanding bank loans. It’s all good stuff, but does it really help you with that $100,000 decision?

References are valuable if they are a like business or at least similar credit lines. More importantly, if they are reliable and accurate. I recall a reference who stated the account’s high credit was $20,000 and paid as agreed. Sounds great until the reported terms were stated. They were C.O.D. It is always good to check references, despite their inadequacies. Sometimes, a customer will submit anything they have, hoping you won’t check. Since so many references are loath to say anything negative, they too often will not reveal slow pay trends. When in doubt it is always best to try to speak directly to the credit manager representing the applicant. That’s the only way to get the real “scoop”.

The most overlooked means to finding out the truth about a potential credit account is the personal visit. While sales reps are required to visit personally, at least the largest customers and to establish a personal relationship, credit departments are expected to determine risk based on incomplete credit reports and inaccurate reference data. A picture is worth a thousand words. A personal visit to a customer’s place of business is worth a thousand credit reports. You can simply learn so much. If nothing else, you can look the principal in the eye while he lies to you about what a good customer he is going to be. You may be able to get a tour of the business, see how efficiently it runs, who else is supplying goods, how busy the business is. Often you can ask questions that are not on you application. In short you can get a real feel of the operation which may either increase or decrease your comfort level. Just in meeting the principals and establish a rapport can give you an edge when it comes to collecting later. You have an “in” with the boss you can use to your advantage if an accounts payable clerk becomes obtuse.
If a company wants to look beyond simply trying to make “safe” credit decisions and instead, is motivated to expand its market, getting intimate with customers in credit matters enables the creditor to take on a higher level of risk. It allows for more comprehensive negotiations in matters of payment terms, limits, conditions, dispute resolution all sorts of areas ignored during a normal credit check. This is where Strategic Credit Management Solutions can help. We know how to build relationships, ask the tough questions, help you make profitable credit decisions. Just really what it’s all about. See our website at http://powerscredit.com/. Your comments are welcome. Email us at patrickpowers@sbcglobal.net.