Most businesses today rely on extending credit to its business account customers. Unfortunately, there is always risk involved in lending, and it’s up to the lending company to perform due diligence before extending credit. One good source for information that will help you analyze the risk for a potential credit customer is a credit reporting agency. These agencies rely on third-party information ― such as your company’s accounts receivable data ― to create a complete profile of a business’s financial health. Is your company doing its part in the equation?
What do business credit bureaus do?
The primary function of credit bureaus, also known as business credit reporting agencies (CRAs), is to collect and continually update information about a company’s financial health, including payment history and how much debt a company owes. Credit bureaus compile and analyze the data they collect into credit reports that give a business a credit score or delinquency score. These scores gauge how likely it is that a business will pay its debts. The bureaus sell these reports to any company or person that wants one, usually an entity considering doing business with the company. They are an important tool for helping credit managers make an informed credit decision for a business.
Why should you report data to credit reporting agencies?
CRAs rely on data from businesses such as yours to get a complete picture of another company’s financial health. Which, in turn, will help you make better decisions about extending credit to that business, and the more data they have, the better decisions you can make.
Not only will the information you provide warn other businesses about slow- or non-paying clients so they won’t suffer the same consequences as your company, it can also help reassure you that a particular business is a good bet. Data furnishers, as companies that choose to report data are known as, can also help newer businesses establish good credit by reporting their good payment history with your company. It can also be incentive for companies to pay their bills on time, if they know the lending company will report late payments to credit bureaus.
Any company that invoices another is eligible to report account data for that customer, and business credit reports don’t include the names of creditors that provide information.
How do you become a data furnisher?
There are three main credit bureaus that maintain credit reports on businesses: Equifax, Experian, and Dun & Bradstreet. Each of the business credit bureaus uses a different method for scoring business credit risk, with different score ranges, so it’s important to know which agency compiled the report. For example, Equifax collects public records and payment history, and uses that information to assign a business credit risk score, which ranges from 101 to 992 and predicts the likelihood a business will become 90 or more days delinquent over the next year. Experian collects data on a company’s collection and payment history, financial statements on public companies, public records, bankruptcy filings, and information about banking, insurance, and leases and uses that information to assign a business credit score using the Intelliscore Plus model. Scores range from 0 to 100, with higher scores meaning a lower risk.
To begin reporting business account data to CRAs, contact MSCCM to find out their requirements for furnishing data. For example, Experian furnishers must submit updates monthly, be able to export data into one of the following formats — TXT, CSV or XLS, and send data via electronic encrypted transmission. If your business is unable to report customer/supplier information for some reason, you can partner with MSCCM, who has relationships with CRAs and allows them to report bad debt information.