Unfortunately, there are many business credit report providers out there and each have their strengths and weakness; so how do you decide which provider is best for you? Perhaps you are already using or have used business credit reports in the past but were unhappy with the product, service, or price you were paying. Finding a provider that meets your needs at a price you are happy with can be frustrating so here are the seven most important things or the “7 deadly sins of business credit reports” to look out for when selecting a provider:
1. Old Data
The primary purpose of credit reports is to provide useful quality business information and if the information is old or inaccurate it has no value. The quality of data is the most important factor when selecting a provider. When you look at a credit report always check the date the report was updated. There are some providers that simply resell old reports from that they had purchased from other providers. Though these providers may offer reports at a highly reduced price the report could be several months old and do you really want to make a financial decision on old data? Many providers give their customers a “portfolio” which stores each credit reports that you pull so the next time you go to check the same credit report it will be the same report from when you originally pulled. If you want a fresh report, you will most likely have to pay for it. Providers update (or should be) their reports as often as they receive new data so there really is no reason you shouldn’t be looking at a “live” report on their website.
2. Bias Data
Let’s assume you have a found a provider that offers you “live” reports, do you know where the data is coming from on the reports? Many providers offer “self reporting” services that allow companies to submit their own company’s payables to help build their credit report, but some allow you to just submit the payables that will improve your report which results in an artificially inflated credit score. Similarly, some providers allow companies to report a “one off” trade file which is where a company reports one or two past due invoices to a credit report provider which then negatively affects the other company’s credit report. Both methods skew the information on credit reports (for better or worse) which is why it is better to find a provider that will only accept complete trade files so that the data on the reports is as unbiased as possible.
3. Pay-Per-Report or Expensive Packages
For the most part, providers have offered reports on a “pay-per-report” basis or some sort of bundle such as a pack of 5 reports. Some providers offer contracts with varying amounts of reports up to an advertised “unlimited.” No provider offers a truly unlimited contract and in most cases even the “unlimited” packages are fairly limited. Some companies may only need a handful of reports a year so a pay-per-report or bundled package might seem to make sense; however, are such packages really worth the high price providers have historically enjoyed? And what about the companies that require a high volume of credit reports, is the price they pay for their annual subscription an accurate representation of the value of the information they are receive or have the providers simply too long enjoyed a price above market equilibrium? Before the internet revolution, gathering, maintaining, and distributing business credit reports was labor intensive. However, in the last 20 years the industry has seen continued decreasing overhead costs due to the advances in technology. Much is now automated and communication and distribution with customers has never been easier because of technology. To put it plainly, quality business credit reports should not be expensive anymore!
4. Poor Quality or Expensive Internationals
In a growing global economy where the world seems to be getting smaller by the day, doing business internationally should not be the risk or high cost it once was. For most companies, extending credit to their international customers is just too much of a risk so they keep their international customers COD. Perhaps they had consulted an international credit report in the past and it as too expensive or the data quality was poor. Most if not all providers will offer international reports but they will be expensive or not even worth the effort. If your company plans to or already doing business internationally, make sure you find a provider that has strong international presence, that way you will know you will get quality information at a reasonable price.
5. Poor Search Function
One of the things one would expect from their credit report provider is that the database would at the very least contain a report on a current or prospective customer. Finding information on a business can be very frustrating and time consuming which is why having a user-friendly and powerful search function is so important for a credit report provider. More often than not one has very little information about the company they are searching for which is why a search function needs to be flexible and “intelligent.” Perhaps you only have the phone number, address, or owners name; the search function should give you the freedom to search by whatever information you have.
There are many unscrupulous business owners in the world which is why something as simple as checking a credit report can save your company from unnecessary bad debt. Unfortunately, it is too easy to hide bad debt and the most common method is to simply move or create a new business name. Because of this risk, it is important for a credit report to include all “possible links” to the company you are researching. These links should include companies with the same name, phone number, address, website, and owner. With these linkages included on a credit report, it becomes much harder to hid bad debt.
7. Different and Confusing Scores/ Report levels
Some providers include multiple scores on their reports and for the novice or average person, understanding each score can be difficult. Should you really need an instruction manual to understand a credit report? There are many different types of business credit reports out there and some providers offer different levels (or quality) of reports. You can get anything from a very basic report that essentially tells you that a company is still in business to a comprehensive report that contains every facet of information you could desire including risk rating, DBT, credit limit, legal filings, linkages, and financials. I suppose you could make a business decision from a basic report but the information that will empower you to make a well informed business decision to reduce your company’s risk is only available on the top tier of reports. Of course price comes into play but I refer you back to sin number three.
Business credit reports have long been a staple in the finance departments of large companies, but their high cost has prevented many small businesses from using them in the past. Fortunately, as innovation and competition drove down the cost of reports in the last ten years or so, many small business owners, concerned about protecting themselves from getting stiffed by customers are starting to use business credit reports to minimize their risk of unpaid invoices.