Magazine article Business Credit

Credit Event Monitoring: More Powerful, Flexible and Easier to Use

Magazine article Business Credit

Credit Event Monitoring: More Powerful, Flexible and Easier to Use

Article excerpt

When the economy falters, credit managers face trying times--and there's no doubt that this is one of them.

After years of cheap and readily available funding, businesses are finding credit harder to come by. For example, U.S. structured financing--the financing behind financing--went from more than $300 billion per month in June 2007 to less than $50 billion per month in November 2007. Rising prices have put upward pressure on the cost of doing business. Consumers are tightening their belts in the face of a rising cost of living, a decline in home values and fears of a sharp economic slide being stoked by the press.

For the moment, one downturn seems to lead to another, and businesses--large and small, across virtually all sectors of the economy--are feeling the squeeze. While the overall business bankruptcy rate is climbing, small businesses--particularly those whose owners used home equity or personal money to fund their enterprises--are battling for survival and at risk of delinquency or default.

Credit managers face two challenges under such conditions. First, extra vigilance is required both to quickly spot businesses at risk for late payments or failure and to reduce exposure accordingly. Second, it's vital to maximize existing portfolios at a time when new business growth may be stagnating.

Credit monitoring is a key tool in managing risks and maximizing revenue. Often, being the first to know about financial distress can help creditors ensure collection of their assets from distressed accounts. The converse is also true. Quickly spotting accounts on their way up provides opportunities for growth that may not be there for latecomers. Monitoring systems employ event-based notifications, or triggers. Effective use of triggers can help credit managers partner with customers who are on the way up and limit exposure to those on the way down.

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Like most technological solutions, credit monitoring systems are getting more powerful, flexible and easier to use. On the one hand, credit monitoring systems are delivering more, with an increasing array of alerts, including scores and positive changes indicating accounts on the rise. On the other hand, they are delivering less. Thanks to advancing filtering capabilities, they're providing fewer needless alerts that clog the system and waste resources. Last, the power to customize where and how alerts are delivered is increasingly done by credit managers as interfaces become more user-friendly.

Delivering More

One measure of a monitoring system to consider is the breadth and depth of credit data elements and scores that may be observed--the more, the better.

Very few data elements in isolation are slam dunks in terms of predictive capabilities. Experian case studies show that independently, some triggers don't reveal much about the likelihood of future payments. However, when they are used in conjunction with certain other data elements, they can be powerfully predictive.

For example, say an account in the last three months shows two liens, a derogatory comment and high credit balances that increased by 50%. In isolation, any one of the indicators may mean little. If there's a derogatory comment, it may be the business's fault or it could stem from an error on the part of the business's supplier. But all three indicators around the same time probably indicate trouble, and the need to resolve the matter quickly increases dramatically.

With monitoring tools, it's impossible to overstate the importance of reviewing credit data for changes, particularly among the more volatile small businesses. Data that may be monitored includes:

* Credit scores: significant changes for better or worse

* Credit balance attributes, such as high credit, total balance, percent current or credit utilization

* Payment behavior: paying more slowly or in less time

* Major derogatory events such as bankruptcy, collections, judgments and liens

Advanced targeted trigger systems provide timely alerts so credit managers don't have to wait for problems to occur before acting. …

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