Making an enlightened credit decision

I observed with great interest the various posts and recommendations of many in relation to risk and portfolio management. It’s abundantly clear many experienced individuals have a good grasp of requirements in either Bank lending or commercial trade credit.

A decade ago, I came to the conclusion that use of third party data, that is to say the typical business report provided by major companies such as Dun & Bradstreet, Experian and others preceding them would become less relevant in the context of determining risk as users would demand faster and cost effective solutions in a context of data provision along with greater flexibility and functionality, preferably online and with greater percentage accuracy.

The range of services offered has definitely widened but the underlying quality of data, the way in which it is presented, and the overall objectivity in terms of interpretation, remain very much the same for many.

Provision of financial data and ratios are still clinical and while some work with clients to integrate ERP data downloads giving information on payment trends, this was never a total commitment by all and nor was the data aligned to industry sectors to give it real meaning. In any event, my experiences have always been that payment on time is not necessarily an assurance of a clients standing or health; indeed, on the contrary, in the world of IT distribution, some 85% of bad debt experienced as a consequence of insolvency arose when the debt sat in the current column. In Engineering and manufacturing, it usually resided in the 90+ column. No-one at the end of the day pays their principal suppliers slowly or late and if they did, you’d know it.

What I sought for many years was a provider that would deliver a consistent approach to data; one that could demonstrate tangible research into the solution offered and which could demonstrate a really good track record of identifying both risk and opportunity.

I found this in Company Watch (http://www.companywatch.net/) a business effectively set up by people who were previously at the coal-face in commercial bank lending but who felt traditional tools at their disposal, including the well known Altman Z-score rating system were not quite good enough in delivering consistent sound lending decisions.

Company Watch offers the H-Score, a comprehensively tested scoring system, a probability of distress rating, a credit rating (almost identical to that of Credit insurers) and a suggested credit guide (for those purists).

What attracted me to this service was the financial modelling facility of editing financial information; this allows the insertion of new periods and interim financial information (thereby creating new scores at the press of a button) and also the creation of “what if” scenarios. Add a comprehensive and limitless portfolio management system, emails updates and the usual ability to obtain any UK filed information or that of global publicly quoted businesses and I found my “nirvana”.  The systems functionality alone was worth the annual licence fee and I have absolutely no hesitation in recommending Company Watch to anyone who is serious about portfolio management as a tool to manage risk and note growth opportunity.