Why do we credit check? Well, we do it so that we can reliably identify the riskier companies, and provide goods and services only to those we can trust to pay.
But not all credit-checking services are equal either, particularly if you rely on data collected in-house to help you decide who to trust.
A recent infographic from Experian shows the extent
to which ‘bad data’ is undermining good practice, with most businesses surveyed believing that over a quarter of their data is flawed in some way.
While the scale of this increase clearly depends on the size of the company – and of the investment – the global average increase in profits fell just short of £1 million per company.
Getting good data
‘Good data’ is about more than just accuracy; it is also about completeness.
In February 2013, Experian announced an industry first as it struck an agreement with Yorkshire Water to share customer records, allowing any late-paying water customers to be reflected as such in their Experian credit ratings.
Paul Vescovi, managing director of Experian’s credit services for the UK and Ireland, said at the time that the move will “not only reduce bad debt, but ensure that customers are treated fairly and responsibly”.
The collaboration is a two-way process; Experian will receive customer information from Yorkshire Water, but the water supplier – the first to join Experian’s Credit Account Information Sharing service – gains full access to customer data from other firms, including telecommunications providers and financial services.
Meanwhile, Yorkshire Water’s head of customer service Jonathan Harding cited “an increasing need for us to understand and gain insight into those customers who are facing financial hardship” as the driving force behind joining the CAIS service.
Reducing data risk
Carrying out professional credit checks when taking on new customers – or renegotiating contracts with old ones – is a key way to ensure that your exposure to non-payment is carefully managed using sound data.
By basing your credit decisions on detailed analysis of your potential clients, and not simply on gut instincts or your own possibly incomplete records, you can minimise the risk of bad data turning into bad debt, and keep your cash flow from falling into the murky waters of illiquidity.