As reported in the previous post relating to NACM’s development of a ‘Fact Sheet’ on commercial credit we would like to point out to our member some of the disturbing reasons which lead to NACM’s initiative.
NACM began to develop the fact sheet earlier this year in response to reports from its membership and certain state legislators that many small businesses were falling prey to aggressive sales tactics from commercial credit monitoring services. Salespeople from some of the companies that provide such services have called small- and micro-business owners and unwittingly fooled them into believing that they needed to pay for a product that would improve and address errors in their company’s commercial credit report.
BIIA believes that the majority of the credit information industry does not condone such practices. BIIA applauds the efforts of the NACM to support the small business community in their plight to have access to trade credit and bank finance. The president of the NACM, Robin Schauseil stated: “Much like in the consumer credit world, companies have the right to view and address discrepancies in their credit report for free. More than that, they have the right to not be taken advantage of by unscrupulous salespeople trying to scare up business by making false claims.”
BIIA also applauds the NACM’s initiatives to promote the value of information sharing of commercial credit transactions and to educate the small business community to be able to differentiate consumer credit from commercial credit
We recommend to read the NACM fact sheet and NACM’s response to various press reports on this subject (click on the respective links) For expediency NACM’s response to various negative press reports is published below:
NACM’S RESPONSE TO ASSOCIATED PRESS ARTICLE ABOUT CREDIT REPORTS AND SMALL BUSINESSES
10 June 2013.
The following is NACM’s official response to an Associated Press article about credit and small businesses that ran in several mainstream media outlets last week.
Dear Associated Press Editors,
An AP article that ran in several news outlets, titled “How small businesses can avoid loan rejections” and written by AP small business reporter Joyce Rosenberg, had good intentions and a considerable amount of important information for small businesses seeking to improve their commercial credit standing. However, while it focused on the relationship between small businesses and their banks, it completely ignored the important relationship between small businesses and their suppliers. It is this relationship that defines the commercial credit score for all businesses.
Further, the article missed the fact that Dun & Bradstreet Credibility Corp. (DBCC), whose CEO provided all of the article’s quotations, is a by-product of a greater problem regarding consumer and commercial credit. The problem, in short, is that not many people recognize the vast differences between how consumer credit and commercial credit are extended, as well as how consumer creditors and commercial creditors are assessed for creditworthiness.
Regrettably the article failed to note that DBCC’s primary product is a credit monitoring service which is sold to businesses for a fee. It’s a carbon copy of countless other credit monitoring services offered to consumers by credit bureaus, financial institutions and other companies. While both consumers and businesses can monitor their own credit reports and address discrepancies for free, what DBCC’s business model represents is an attempt to take a consumer product, and apply it in a commercial setting.
While this is logical, it’s also dangerous because it further blurs the important lines separating the world of consumer credit from the world of commercial credit. If providers of commercial credit reports begin to treat the subject of their reports as though they were consumers, soon enough, legislators will too. Any law or regulation that threatens commercial credit reports will threaten the free and open exchange of credit between businesses, ultimately exacerbating what’s already a critical lack of information on company creditworthiness.
There is a data vacuum that exists about businesses in this country, especially small ones. When companies consider providing goods or services to another business, they use whatever information they can to determine whether or not this potential customer will pay its bills on time. These suppliers sell on unsecured terms, meaning they often take no collateral for the goods and services they supply and are the last ones to be paid in the event of their customer’s bankruptcy. This makes the financing they provide to small businesses considerably less expensive than traditional lending, and also creates a symbiotic relationship between the supplier and their business customer.
What these companies rely on most before selling to a small business is historical payment data, which answers the question “does this company pay its bills on time?” This data is included in a business’ credit report and factored into their credit profile, but often there’s too little information to really be of any use in making a decision, especially for small- or micro-sized businesses.
The problem is that too few companies report the payment activity of their customers to providers of commercial credit reports. This is a process that can be done electronically and anonymously, posing little risk to the company providing the information and to their customer. This lack of information sharing has created a scenario where small businesses can’t even get a credit profile, let alone a bank loan, and all because no one is reporting their business’ behavior.
Instead of paying a fee for a monitoring service that helps a company know and improve its credit report, the companies that sell to other businesses should be reporting their customers’ payment history and accounts receivable data to the companies that create these reports. The more businesses do this, the easier it is for their business customers to create a credit profile and, hopefully, acquire more financing to expand. While some of the information in the article is useful, the piece ignores the real problem that’s keeping loans out of the hands of America’s job creators: the lack of available payment data.
Robin Schauseil, CAE
National Association of Credit Management (NACM)