Commercial credit reporting is the compilation and reporting of the credit histories of commercial enterprises. While most people are familiar with consumer credit reports, many are unaware that a similar reporting system exists to assess risk in extending loans to businesses, underwriting insurance risk, purchasing or investing in businesses, and shipping goods to businesses on credit.
Every country in the world has commercial credit reporting agencies, which allow foreign exporters to asses the risk in shipping goods to a wholesaler in that country. Governments also use commercial credit to regulate businesses and collect taxes.
The information age has changed the gathering of commercial risk information. Before telephones and the Internet, the only way to gather risk information on a business was to visit the business owner in person. Credit reporters would ask business owners for the names of the companies that supplied them on credit terms, what banks they dealt with, how many workers they employed, and so on. It took days, even weeks, to fulfil a request for a commercial credit report.
This time-consuming process is no longer necessary. Credit Report Australia can now be compiled in seconds, without a business-owner’s knowledge. Suppliers are now asked to supply commercial credit-reporting agencies with frequent trial balance downloads on all their accounts receivable.
These trade-payment experiences are linked in order to show how a business pays its suppliers. Collection agencies share this information with credit-reporting agencies.
Publicly available information—bankruptcy filings, lawsuits, lease registrations, and judgements, for example—is also gathered. As this flood of information accumulates over a period of years, trends become apparent, making it possible to track a business’s cash flow.
Companies that are frequently unable to pay their suppliers are quickly identified. Computerised monitoring systems tell suppliers when to restrict credit to unhealthy businesses. These comprehensive, detailed reports are reduced to two-digit scores that enable automated credit approvals and rejections.
Commercial credit is more volatile than consumer credit. Few businesses remain unchanged five years after their founding; all businesses face constant competition for clients and markets. And the granting of credit by businesses is very much market-driven. Retailers buy goods on credit in the hope that they will be able to sell them at a profit before being required to pay for them.
Retailers who are required to pay for their inventories in cash on delivery—due to their inability to obtain credit from suppliers—are at a serious competitive disadvantage. Most businesses, unlike consumers, are oblivious to the risk-reports being compiled on them, and may never discover why they are unable to obtain credit from their suppliers.
The strict laws that govern consumer credit-reporting agencies rarely cover commercial ones. Despite this lack of oversight, complaints about the accuracy or completeness of information in a commercial credit report can potentially harm an agency’s reputation, so they do take complaints seriously.
Global Credit Solutions Australia (www.gcsaustralia.com) is recognised as a leading supplier of global commercial credit reports.