Business Information
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There are those that fall back and rely entirely on ratings
and guidance provided by Business Reporting Agencies to guide them in terms of
credit provision. There are others that effectively outsource their credit risk
entirely to Credit Insurers and others that use this business information in
tandem with their own risk management assessments.
Each to their own of course but the reality is that a
business report on the same client from half a dozen agencies will result in
varying suggested risk guides, suggested credit line or probability of distress
rating; this, despite all effectively using the same publicly available
information save for a handful who may have links to clients receivables
payment data.
So, is one wrong and the other right? The answer is of
course neither; they are simply offering an objective analysis based on
information available to them using their own parameters in calculating risk.
The true measure of any business reporting agency rating
guide are the statistics one can draw from simple database analysis and
experience of actual bad debt or payment default and the timing between default
and the last rating supplied.
There are many that will show or suggest they pick out
potential defaulters or buyer insolvency. I recall some years ago being called
by one agency which had seen our name appear or a list of unsecured creditors,
effectively saying they could have saved us the loss. I’m not sure how he felt
when I told him we were OK with the loss value but not with the report they
themselves had provided us just 6 months earlier that gave a higher rating than
the year before.
The point is this, bad debt is not necessarily bad, it’s the
inevitable consequence of trading on open credit terms and one responsibility
Credit has it to balance this and control it so that the business can trade and
grow profitably.
Accuracy in ratings and guides however are important, not
only in warning you about potential default but showing you when and where you
can exploit business opportunity.
Insurance company ratings are no different. I recall
reviewing ‘traffic lights’ reports of our client base, those lovely red, amber
and green categories where invariably our highest trading accounts sat in the
amber or even red section. Sadly, almost 80% of our insolvencies arose out of
accounts listed in the green tab....!
Risk as they say is relevant but one source of business
information I came across in around 2004 readily stood the test of time and
raised my spirits substantially in its ability to rate companies correctly and
come up with accurate probability of distress. They were pretty good in terms
of suggested credit lines too but in truth, no business rating agency on earth
is ever likely to match the credit lines a B2B Credit department offers its
clients.
Company Watch, at
the time a relatively young business information provider approached me and
demonstrated their system. I was astonished, not only in terms of the quality
and flexibility it offered but also the functionality. The creation of my own
and my teams segmented portfolio analysis of database clients, the variable
data selections in portfolio management and the unique ability to insert
management data into the system and create ‘what-if’ scenarios proved an
absolute clincher. It helped of course too that their use of spreadsheets and
charts and graphs mirrored much of my own analysis on profitability, asset
management and funding of assets.
The diagnostic nature of the tool and its functionality far
exceeded anything else on the market and to a large extent still does. Not only
that, the H-Score risk rating carries value and accuracy as does the risk
rating and probability of distress.
Our management of bad debt and payment default was always
pretty good but Company Watch allowed us to hone this into a fine art in
segmenting and analysing data more closely, accurately predicting where we
could apply brakes or more crucially, step on the gas.
Business data is generally a personal choice but
I heartily recommend anyone who may perhaps be seeking alternative choices to
give Company Watch a call. Nothing in my 35 years of risk management and
business continuity comes close to matching what they offer. If you are serious
about risk, I would urge you to take a look at http://www.companywatch.net/
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