Getting Ahead of the Next Downturn with Stress Testing and Forecasting

How to improve your credit forecasting and stress testing

By Brodie Oldham, Experian

I have been on the road meeting with clients at advisory events, forums, and industry thought leadership conferences, and what I continue to hear is a concern about forecasting the upcoming recession. The drivers of the next recession are up for debate but the consensus is that it is inevitable. The U.S. Economy is complex and the signals are mixed as to where the greatest impact will be felt. Protecting your business, whether consumer or commercial focused, is dependent on the stability and strength of your lending criteria and customer engagement practices. You want to protect your customers as well as your business in the case of a market stumble.

You are laser focused on making the best possible decision when reviewing credit applications and setting loan terms, however, financial situations change over time for both individuals and companies. This is especially true when a recession hits and unemployment begins to rise, consumers stop spending, and commercial delinquencies begin to rise. When these macroeconomic changes occur, the credit you have extended to your portfolio might be at under market stresses and at a stronger risk of nonpayment, and this can affect your business’s health and sustainability.

By stress testing your portfolio, you can determine what may happen, when stresses are exerted, by a receding economy, on your portfolio. You can use credit information, macroeconomic data, and alternative data to build models that forecast what is likely to happen in the future and how stresses, will affect the ability for people or businesses to pay their bills. While larger regulated companies may be required to perform forecasting and stress testing, lenders of all size can benefit from the process.

Gathering the Right Data for Accurate Stress Testing

The accuracy of your stress test depends on the type and quality of data used for forecasting. Recessions are cyclical and likely to re-occur every few years, it is recommended that companies use historical data from the 2008 recession for analysis and to make accurate predictions. Young businesses may not have complete historical data going back to the 2008 recessionary time period. A partner like Experian can create look-alike business samples, from the vast holistic data, to simulate the likely impact of macroeconomic scenarios.

For example, a financial services firm has been providing small business loans between $50,000 and $100,000 for the past three years and wants to predict future losses. To gather the data for loss forecasting, you need to create a business and product profile identifying loans or businesses with similar characteristics, to stress and forecast performance. These profiles are used to build a look-alike sample of businesses and loan products that look and perform like your current portfolio and will add the sample size and retro time periods needed to create a statistically viable analysis sample.

Selecting a Forecasting Strategy

Once you have the historic credit, macroeconomic, and alternative data on your portfolio or look-alike retro sample for modeling, you need to stress test the data. Most stress test analyses start with a vintage based analysis. This type of analysis looks at the performance of a portfolio across different time periods (Example: March 2007, March 2008, March 2009, etc..) to evaluate the change in performance and the level of impact environmental stresses have on the portfolio’s performance. Once you have this high-level performance, you can extrapolate into the future performance of the portfolio and set capitalization strategies and lending policies.

Identifying Loss Forecasting Outcomes

Regulators and investors want to know the business is solvent and healthy. Loss forecasting demonstrates that your company is thoughtful in its business processes and planning for future stresses. For regional lenders that are not regulated as closely as large national or global lenders, forecasting shows investors that they are following the same rules as larger regulated lenders, which strengthens investor confidence. It also demonstrates effective management of capital adequacy and puts you on a level playing field with larger lenders. Companies with limited data can start with credit data for look-alike sample development and add historical data and alternative type data as they grow for a holistic portfolio view.

Setting up Governance

Business policies and macroeconomic stresses change over time, it’s essential to set up a governance schedule to review forecasting processes and documentation. Your stress testing and forecasting will not be accurate if you design it once and do not update it. Most companies use an annual schedule, but others review more frequency because of specific circumstances.

Effectively Documenting Loss Forecasting

The key element of loss forecasting is effectively documenting both sample and strategy taken in the evaluation of your portfolio. A scenario you might face is when a regulator looks at the analysis performed and you have selected sample data at the business level instead of the loan level, documentation should capture the explanation of why you made the decision and the understood impacts of that decision. While the goal is to have complete data, many companies do not have access to high-quality data. Instead of foregoing loss forecasting, the use of documentation to note the gaps and build a road-map for the data can be of great value.

Here are additional key points to include in the documentation:

  • Data sources
  • Product names
  • Credit policies
  • Analysis strategy
  • Result summary
  • Road-map and governance schedule

By creating a stress-test analysis strategy for forecasting loss, your company can make sure its portfolio and financial status remain as healthy tomorrow as they are today while maintaining transparency and investor confidence. The next recession is out there, this is a great time to strengthen processes for future successes.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Integrating Credit Decisions with the Back Office

Experian is a CMA partner
Back office credit decisioning and why it matters

By Carl Stronach, Experian

When you’re launching a new product, business line, or starting up a business, you’ve got to move fast and break things.  This means taking a minimum viable product (MVP) approach, where you’ve got to sacrifice scalability by implementing manual processes to support the early stage business.  Commonly, a manual process will be in place for credit applications and approvals – pulling the credit report, reviewing the data against a scorecard or policy and then making the decision. Since this likely takes a day — or often longer — the process decreases your customer’s experience, and can hurt your ability to scale and grow revenue the longer you wait to automate.

To grow the business and take it to the next level, you need to migrate away from the paper-pushing approach. The next step is to move toward an automated solution that integrates credit decisions with the back office, such as an ERP, CRM, or other custom system, employing APIs.

Using an Application Programming Interface (API) to Connect to Your Decision Engine

An API, or Application Programming Interface, is many things. It’s a set of instructions and technical documentation for developers. It’s a collection of services which allow you to interact with a product or service. And it’s a way for businesses to open-up and allow for new kinds of innovation – allowing for new business models and application development that wouldn’t be possible without APIs.

In the last decade, APIs have become system agnostic, meaning they plug-and-play into nearly any system because they are standardized and popular amongst the development community.

Because of this popularity, APIs make it easier for the business to get buy-in from the IT department, which is essential to automating the credit decisioning process. Without an API, the IT department must devote significant resources to the project because more infrastructure to host large database will be required. APIs allow you to pull data in real-time only when you need it, reducing system complexity and decreasing application development costs.  Reduced complexity also means less risk because you are more assured that your IT department will be successful with the integration. Often, when IT departments are presented with information about the API, their response is “No problem, this is standard. We have integrated with a very similar API before. We can do this.”

How does your decision engine interact with APIs? You can use APIs to get the raw data elements your credit policy or model needs to render a decision, no matter if the data is internal to your business or provided by third parties.

Taking Decisions to the Next Level with Machine Learning

According to a recent Harvard Business Review project, the key to successfully utilizing machine learning isn’t to get caught up in new and exotic algorithms, but to make the deployment of machine learning easier.  There are many use cases where machine learning can be employed, but use cases where data-driven decisions are being made, as in the credit approval process, are archetypical.

During the early stages of the machine learning process, you train the model by feeding it data from past applications. Then, as you use the engine for real-time processing, the engine learns from past decisions. If the engine was originally approving applications with a borderline credit score, but found that these applications often ended up being poor risks, the model would then begin turning down these applications.

The key ingredient in making machine learning start to work for your credit department is to have domain experts, credit managers, help the IT department focus on the key variables that can help the machine learning model to predict key outcomes – credit losses, bankruptcies, and business failures, and to put the models through many rounds of testing and validation before putting them into real-life practice.

Now is the time to move your manual processes online using an API and machine learning. According to Mary Meeker’s Annual Internet Trend Report, 60 percent of customers pay digitally compared to 40 percent in the store.  And it’s likely that the gap will continue to grow. The longer you wait, the further ahead your competitors will be in digitizing the customer experience — and the harder it will be to regain your footing and catch up.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

anscersX Commercial Credit Report Adds Ansonia, International Data to Multibureau Report

CMA’s anscersX report now offers up to four domestic credit bureaus, Dun & Bradstreet, Equifax, Experian, Ansonia Credit Data, and a comprehensive International report spanning 18 countries on demand. No contracts or minimum purchases required.

CMA’s anscersX report now offers up to four domestic credit bureaus, Dun & Bradstreet, Equifax, Experian, Ansonia Credit Data, and a comprehensive International report spanning 18 countries on demand. No contracts or minimum purchases required.

September 18, 2018 – Las Vegas, NV – In response to requests for easier access to information and a growing preference for transactional reports over credit reporting contracts, Credit Management Association™ (CMA), in partnership with Trade Information Exchange (TIE), has enhanced the anscersX combined Commercial Credit Report. The report will now include otherwise difficult-to-obtain results from small- to medium-sized businesses from Ansonia Credit Data, complementing data from the big three bureaus. An additional international report option is also now available, with data from 18 countries.

“Since it was launched in 2012, the anscersX Credit Report has been among the most popular of CMA’s member benefits. Many of our members, which are small to medium-sized companies, have told us that they prefer to pull reports on a transactional basis without having to sign a long-term contract. Larger companies, with contracts with one of the bureaus offered, can take advantage of the on-demand access to one or more of the other bureaus (if extra due diligence is warranted),” said CMA President and CEO Kim Lamberty, CAE. “This adds to the overall array of benefits that CMA offers its members and transactional customers by allowing them to select the specific bureaus they need on a case by case basis. Prices for the reports can fit any budget.”

Combining data from D&B, Equifax, Experian, CMA and Ansonia Credit Data is a unique approach developed by TIE. “The main advantage of the anscersX Report is that it combines data from up to four major providers giving them a more complete picture of their customers on one report. We put a lot of effort into combining the data from multiple data sources in an easily understandable way. The anscersX reports provide the data and scores needed for most credit decisions,” offers Robert Shultz, the TIE Managing Partner.

The new international anscersX report spans companies in 18 countries, including detailed company information, complete financial statements, key ratios, credit score and contact information for companies: United Kingdom, Belgium, Denmark, France, Germany, Ireland, Italy, Luxemburg, Netherlands, Norway, Sweden, Cambodia, Malaysia, Myanmar, Thailand, Vietnam, Mexico, and Afghanistan. Since the report is web based, companies with offices throughout the world can access anscersX as well.

The anscersX Report is helping credit departments with limited time and resources gather credit information quickly. “It is worth it to get an answer in minutes as opposed to calling all the trade references on a credit application,” says anscersX user Mary Donaldson, Office Manager, Worthen Equipment Inc.

Judy Bennett, Credit Manager, Brown-Strauss Steel,also likes the ease of use, “I have pulled several anscersX Reports and have been pretty happy with the results. We will continue to order anscersX Reports.”

“CMA members and customers tell us that maintaining multiple contracts with providers can be time consuming and expensive. We needed to make access to information easier and less expensive by offering a one-click combined report,” shares Lamberty. “anscersX Combined Business Credit Report attempts to solve that issue.”

anscersX is one in a variety of credit reporting and other solutions that are aimed at making a credit professional’s job easier. For more information about CMA or its services, visit www.CreditManagementAssociation.org or call 818-972-5300.

The domestic anscersX Combined Business Credit Report is available on a transactional basis, online, by registering on CMA’s services site anscers.com. Pricing ranges from $12.95 to $97 or depending on the data sources you choose. All international reports are priced at a flat rate of $40 per report. There are no contracts, no minimums, no hassles and instant access.

CMA’s anscersX report now offers up to four domestic credit bureaus, Dun & Bradstreet, Equifax, Experian, Ansonia Credit Data, and a comprehensive International report spanning 18 countries on demand. No contracts or minimum purchases required.

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About Credit Management Association™ : Credit Management Association (CMA) is a non-profit association that has served business to-business companies since 1883. CMA helps credit, collection, and financial decision-makers get the information and support they need to make fast, accurate credit decisions. In addition, CMA assists insolvent companies with workouts or liquidation through cost effective alternatives to bankruptcy.

Contact: Alan Dicker – adicker@emailcma.org – 818-972-5344; www.CreditManagementAssociation.org
or www.anscers.com

About Trade Information Exchange (TIE): TIE provides the technology to gain instant access on demand to trade credit report products and services for the manufacturing, distributing, and construction industries. With TIE, the promise is faster, less expensive, more accurate, industry-specific credit information on companies. The company has years of industry-specific experience and a small-company attitude toward customer service.
Contact: Robert Shultz – 805-520-7880

How Changes to Consumer Tax Lien Data Impact Commercial Credit Profiles and Scores

By Gary Stockton, Experian

Last year the three primary credit bureaus; Experian, Equifax, and TransUnion announced and implemented enhanced standards for the collection and timely updating of public record data reported on consumer credit reports. This was done in accordance with the National Consumer Assistance Plan requirements. Part of this work involved the partial removal of consumer tax lien data from Experian’s consumer credit reporting database.

With the complete removal of remaining tax lien data scheduled for April 16th, some of our clients have asked how these changes might impact commercial credit reports. In this business Q&A I ask Brodie Oldham for some clarification.

What is NCAP and how did it impact Experian’s core credit data?

Brodie Oldham: Gary the NCAP is the National Consumer Assistance Plan and it was put in place by the three U.S. credit reporting agencies Experian, Equifax and TransUnion in response to the U.S. attorney general’s request for clarity and transparency in consumer credit data.
The data that was the main focus was data that did not meet completeness or freshness requirements of data furnishers to the credit reporting agencies. The data that had the most impact from the study was public record data; judgments and liens for consumers that weren’t updated or didn’t have all of the personal identifying data necessary to meet the guidelines. This data is planned to be removed in April of 2018.

Was there impact to Experian’s commercial credit data?

Brodie Oldham: No Gary not an impact to our commercial credit data collected at Experian. We continue to collect that public record information for use in evaluating small businesses through our commercial credit scores. The impact with the public record information is really when we’re evaluating a business owner guarantor using the consumer credit information where public record data has been removed.

What was the impact to commercial blended scores?

Brodie Oldham: The impact is when we’re evaluating small business owners or guarantors using their consumer credit information. When we look at segments where commercial-only data is used there is no impact there because we’re not changing the way that we collect public record information on the commercial side of our business?With the blended scores you would expect that if we remove some of the consumer derogatory information in public records that the score would go up. And we saw a mean lift to about .03 percent, so very small. In the performance of the blended generic credit scores in their evaluation and capture of those delinquent accounts. We saw a very insignificant lift, so the scores are very stable and working well even with the change that we’re having with public records.

To view a video of the interview, click here.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Why Financial Institutions Need an Analytics Sandbox

Experian is a CMA credit reporting partner.

The appetite for businesses incorporating big data is growing significantly as the data universe continues to expand at an astronomical rate. In fact, according to a recent Accenture study, 79% of enterprise executives agree that companies that do not embrace big data will lose their competitive position and could face extinction. Especially for financial institutions who capture and consume an incredible amount of data, the challenge becomes how to make sense of it. How can banks, credit unions, and other lenders use data to innovate? To gain a competitive advantage?

This is where analytics sandboxes come in.

A sandbox is an innovation playground and every data-consuming organizations’ dream come true. More specifically, it’s a platform where you can easily access and manipulate data, and build predictive models for all kinds of micro and macro-level scenarios. This sounds great, right? Unfortunately, even with the amount of data that surrounds financial services organizations, a surprising number of them aren’t playing in the sandbox today, but they need to be. Here’s why:

Infinite actionable insights at your fingertips
One of the main reasons lenders need a sandbox environment is because it allows you to analyze and model many decisioning scenarios simultaneously. Analysts can build multiple predictive models that address different aspects of business operations and conduct research and development projects to find answers that drive informed decisions for each case. It’s not uncommon to see a financial services organization use the sandbox to simultaneously:

  • Analyze borrowing trends by type of business to develop prospecting strategies
  • Perform wallet-share and competitive insight analyses to benchmark their position against the market
  • Validate business credit scores to improve risk mitigation strategies
  • Evaluate the propensity to repay and recover when designing collection strategies

A sandbox eliminates the need to wait on internal prioritization and funding to dictate which projects to focus on and when. It also enables businesses to stay nimble and run ad-hoc analyses on the fly to support immediate decisions.

Speed to decision
Data and the rapid pace of innovation makes it possible for nimble companies to make fast, accurate decisions. For organizations that struggle with slow decision-making and speed to market, an analytics sandbox can be a game changer. With all your data sources integrated and accessible via a single point, you won’t need to spend hours trying to break down the data silos for every project. In fact, when compared to the traditional archive data pull, a sandbox can help you get from business problem identification to strategy implementation up to 30% faster, as seen with Experian’s Analytical Sandbox:

Analytical_sandbox


Cost effective analytics

Building your own internal data archive with effective business intelligence tools can be expensive, time-consuming and resource-intensive. This leaves many smaller financial services at a disadvantage; but sandboxes are not just for big companies with big budgets. An alternative solution that many are starting to explore is remotely hosted sandboxes. Without having to invest in internal infrastructure, this means fast, data-driven decisions with little to no disruption to normal business, fast onboarding, and no overhead to maintain.

For financial institutions capturing and consuming large amounts of data, having an analytical sandbox is a necessity. Not only can you build what you want, when you want to address all types of analyses, you’ll have the insights to support business decisions faster and cheaper too. They prove that effective and efficient problem solving IS possible!

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Why Data Models Matter More Than Ever

By Brodie Oldham, Experian

Are the credit models you are using to make lending decisions more than 2 or 3 years old? If so, you are likely making less than optimal credit decisions. You may be turning down a customer who is a good risk — while taking on customers who are more apt to default on their obligations.

Every year a model isn’t updated, its accuracy decreases. The economy changes. The consumer’s or business’s financial situation changes. Updating your models, using the most current data and attributes available, you can have confidence that you are making good credit decisions.

To make the most accurate credit decisions possible, many businesses are now turning to data-driven decisioning models that are powered by artificial intelligence (AI) within machine learning engines. While the standard regression model works well in some industries, the lift in predictive value from using AI data models can be very important in other industries, such as retail, fraud and marketing. These models use sophisticated algorithms to predict the customer’s future ability to repay their obligation, which means a much more accurate decision than traditional models.

Starting with High Quality Data

Primary-Experian-Violet-data-iconWhile data has always been at the core of credit decisions, models using machine learning are even more dependent on data. These models can be very accurate, but their accuracy depends on having the necessary data to understand what happened in the past and present behavior to make a prediction for what will happen in the future. The more data provided, the higher the accuracy of the decision. Here are three things to consider when building your data-driven decisioning model:

 

Clean Data – As innovation spurs business and technology to run faster and more efficient, the quality of the data underneath all of that innovation becomes even more important. Machine learning becomes smarter the more data it consumes. This means the accuracy of the credit decisions made by the model is largely dependent on the quality of the data provided. Data from third-party sources often contains mistakes, missing fields, and duplicate information, which results in less accurate credit decisions.

Correct Data Points – The accuracy of the results depends on considering the right criteria in the form of data points in the model. When you use machine learning and AI algorithms, they can predict which specific data points will help increase the performance of the model for the specific customer and the specific type of credit decision. Often, data points that you may not consider are the ones that can make a big impact on the accuracy of the decision.

Real-Time Data – In the past, there was often significant lag time between collecting and being able to use the data. By using real-time data with machine learning models, you can get a clear picture of the most current view possible and see changes in the different data points as they occur. This lets you make a much more accurate prediction of what will happen, with the consumer or business, than was previously possible with a traditional credit decisioning process.

Using Alternative Data to Get the Full Picture

Primary-Experian-Violet-profile-iconOften, additional data — typically referred to as alternative data — that is not readily available from traditional data providers is used to enhance the accuracy and predictive ability of a model. While the model can seem complete without this information, the model may provide suboptimal results without it. Machine learning models can predict the situations and exact type of alternative data a model needs to produce an accurate decision. Experian offers a wide variety of alternative data that clients can use to improve decision models.

For example, a business owner may be taking out short-term loans to increase her cash flow, which makes her a much higher credit risk than she appears to be without this data. Weather information is also a common type of alternative data; a business located in Tornado Alley may need higher cash reserves to be a good credit risk. On the other hand, businesses located in an area impacted by a recent weather event, such as a hurricane, may be a good credit risk even with a lower score because both their business and local economy is recovering.

Regularly Evaluating Your Data Model

Primary-Experian-Violet-calendar-icon
You must build in governance and make sure you are evaluating how the model is working on a regular basis, like having an annual checkup with your healthcare providers. Once you begin using a data model, you can’t simply set it and forget it. Ask the following questions to periodically evaluate your models:

  • Are there changes in the outcome of the models? You need to verify that your attributes are still predicting the same outcomes as intended, as well as capturing the same data. For example, say you have an attribute in your model that counts the number of credit lines open for a small business. If the attribute changes and those types of credit lines are no longer reported by the data provider, that number can go from three or four to zero, without there being a change in the number of credit lines open by the business. Because the data that goes into your model has changed, your model is not accurate unless you update the attribute.
  • Is your model stable? You need to make sure that degradation hasn’t reached a point where the predictive value is no longer accurate. For example, scores before the 2008 recession have a different meaning than afterwards, due to the changes in the financial system.

The future of your business depends on making accurate credit decisions. Instead of using outdated models, use the latest technology and methods available by using machine learning data-driven models. It’s simple. It’s quick. And most importantly, data-driven models are accurate.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

How Small Business Owners Can Avoid Post-Disaster Recovery Scams

By Gary Stockton, Experian

Avoiding Construction Scams During Disaster Recovery

When a small business is damaged by a natural disaster — be it a hurricane, flood, earthquake, tornado, or fires like the ones in California recently — recovery presents its own set of hazards. There is, of course, the immediate cost of lost business. There are both short- and long-term physical dangers posed by weakened walls and ceilings, exposed power cables and mold. And then there are the threats posed by skilled disaster recovery scam artists who see small business owners as easy prey.

Kenneth Citarella, CFE, knows all about these post-disaster scams. A former New York state prosecutor, Citarella now works for Guidepost Solutions LLC, which provides investigations, compliance, monitoring, and security and technology consulting solutions for clients in a wide range of industries. In the wake of Super Storm Sandy, which devastated large sections of coastal New Jersey, Brooklyn and Staten Island in 2012, Citarella served as a Guidepost Solutions “Integrity Monitor,” making sure contractors were in fact performing the work for which they were being paid.

“The days and weeks following a natural disaster are times of great stress and confusion,” Citarella said. “This is the perfect breeding ground for scams of all kinds. Small business owners need to be aware of how they may be targeted and how to avoid being a victim.”

How Fraudsters Find Their Marks

While natural disasters are horrific events, they’re great for contractors and restoration companies for whom such events are their bread and butter. As soon as a disaster occurs, it’s not unusual for construction companies to descend on the affected site, blanketing the area with pamphlets and brochures, and stuffing mailboxes with business cards. While many contractors are legitimate, there can be a good number of storm chasers who are just out to make a fast buck. At a time when construction labor is at historic lows, small business owners may find themselves working with a firm with less than stellar credentials

“The more enterprising scam artists will take the time to go door-to-door, offering low-ball prices or even offering to cut the business owner in on the fraud,” Citarella said. “For example, they’ll offer to do the $75,000 worth of restoration work that is actually required, bill the business owner’s insurance company for $100,000, and then split the difference. This is an obvious solicitation of fraud and should be reported immediately to the local police.”

Common Types of Post-Recovery Fraud

In addition to the insurance scam described above, Citarella discussed other forms of fraud a small business owner might encounter following a major disaster.

“The most common type of recovery fraud involves a contractor who shows up to do the first two or three days’ worth of work, and then just disappears. Another type involves the use of lower-grade or otherwise substandard materials,” Citarella said.

Citarella also noted that otherwise well-meaning contractors may buckle under the pressure a natural disaster creates, leaving the business owner out thousands of dollars and still unable to operate.

“A small contractor can easily get in over his head,” Citarella stated. “He may not be able to get enough workers, have problems with his supply line, or be managing too many projects at once. There may be no criminal intent here, but the outcome is the same.”

How to Avoid Contractor Fraud

Find reliable, licensed contractors and validate their businesses before hiring them to help you rebuild. Experian’s ContractorCheck.com/Hurricane is being offered as a free resource to those affected during this time of recovery. This website enables you to find contractors and easily check the critical components of a contractor’s business background, including license, bond and insurance data (if an when available from state licensing boards). Click here to see a sample report.

Also, the Better Business Bureau (BBB) offers a list of recommendations to business owners and anyone else looking to hire a construction contractor, among their recommendations:

1. Ask for Recommendations. Ask friends, relatives and fellow business owners to recommend contractors they have previously hired.

2. Check Their Track Record. Use bbb.org or other business review websites to get customer reviews, complaints and any notices of criminal violations.

3. Verify the Business License. Make sure the contractor under review has a valid license to do business in your state.

4. Get Multiple Quotes. Always get at least three quotes for any particular job. Any quote that is unusually low is probably one to avoid. Remember the old adage, “If something seems too good to be true, it probably is.”

5. Look for Signs of “Professionalism.” A reputable contractor will arrive in a vehicle that is clearly marked and branded, and may wear a uniform bearing his/her company name.

6. Request References. Ask the contractor for a list of previous customers you can contact and discuss their satisfaction with the contractor’s service.

7. Check Professional Affiliations. Ask if the contractor belongs to any trade organizations. Such companies are usually bound to operate according to a strict code of ethics.

8. Avoid Large Up-Front Payments. Pay by check or credit card for added protection. Avoid paying in cash.

9. Get Everything in Writing. Demand a written contract, and make sure to read it carefully, especially the fine print. Make sure the contract includes the contractor’s name, street address, telephone number, email address and state license number. Fill in any blank spaces. Don’t sign anything you don’t understand.

“Document every step of the reconstruction progress,” Citarella added. “Take pictures every day to record the contractor’s progress. Smartphone pictures can be invaluable in the event of contractor misbehavior or if there is a challenge by your insurance carrier.”

Citarella described four “gears” that run any reconstruction machine. “There’s the business owner, the adjuster, the carrier and the contractor. All four need to work together to get a job done right. However, the only one who has a stake in effective cooperation is the business owner. So if you have a business that needs post-disaster repair, take the time to make sure it’s done right.”

If you are in the process of rebuilding following Hurricane Harvey or Irma and need to check the contractor you are working with, go to www.contractorcheck.com/hurricane to receive up to 15 free reports.

Also, Sam Fensterstock of Credit Management Association published an excellent article titled “How To Assist Your Customers To Stay In Business After Natural Disaster“, it contains lots of great information about disaster preparedness and working with your customers if they are impacted by a natural disaster.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Benefit of the Month: anscersX Multibureau Trade Credit Report

Have you checked out CMA’s exclusive anscersX multi-bureau trade credit report that contains the key factors about your customers payment habits from the top three credit reporting bureaus?

The anscersX multi-bureau commercial credit report combines key elements of the data from the largest trade credit reporting agencies (D&B, Experian, Equifax, Ansonia plus CreditSafe International), giving credit managers the most complete payment story available. The report is affordably priced, which is based on the number of reporting agencies you request. Better yet, anscersX Reports are available on a transactional basis – no contracts, no minimums, no hassles!

For more information on the report, click here.

Five Things You Need to Know About Your Customer Before you Extend Business Credit

All business customers are not created equal. Even companies that look solid at first glance can hide festering problems that eventually can impact your bottom line. Successful credit management requires you to carefully evaluate the financial health of every business that asks for credit terms. According to Experian, here are 5 questions you should be able to answer before extending business credit:

1. Is the business what it claims to be?
Sometimes, companies needing credit will provide inaccurate information to win approval. Before opening an account, you need to confirm the applicant‘s bona fides, including its location, size, number of employees, annual revenue, years of operation and similar financial indicators.

2. What is its payment history?
Although past performance does not guarantee future results, a company’s payment history is often a strong indicator of how it is likely to behave in the future. Pulling a business’ credit report can easily provide you a snapshot of an company’s payment history as well as other risk measures.

3. Are there hidden factors that could affect its ability to pay?
Are there pending judgments, lawsuits, bankruptcies, regulatory citations or other “red flags” that could make it difficult for the applicant to meet its obligations in the future? This is another area where a business’ credit report will be a key factor in helping you uncover a potentially risky business.

4. How much credit should you extend?
All credit contains an element of risk, but you can mitigate that risk by limiting the amount of credit you extend based on factors such as the customer’s sales volume, debt to-asset ratio and similar aspects.

5. Under what terms should you extend credit to this customer?
You can mitigate risk further by carefully calibrating the combination of interest rates, minimum payments and other contract terms based on each customer’s individual financial metrics.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission. 

Experian Expands International Alerts

In this global economy, one of the biggest challenges for many businesses is being able to detect financial duress by monitoring companies’ whose headquarters are outside of the United States.

Early identification of negative activity helps your company prevent lost revenue and service interruptions, it also helps minimize reputational damage caused by doing business with a company in violation of U.S. laws. These early notifications can also help mitigate the effects of changing economic conditions while growing new business opportunities with lower risk.

Experian has announced that its commercial alerts now enable you to monitor more businesses in more countries with greater precision.

Experian now offers 25 alerts on 8 countries in Western Europe, with 8 more countries coming soon! These international alerts offer the ability to stay up to date on changes such as: change in ownership, business name and address, as well as changes in credit limit, balance sheet information, and company status and much more.

Proactive notifications empower you to act quickly and mitigate risk, collect on overdue amounts and retain your best customers.

Want to know more? Contact your CMA rep today at 818-972-5300 so we can start helping you reduce the risk in your growing business.

Two Billion Reasons Why You Need to Know the anscersX Multibureau Trade Credit Report, by Bob Shultz

anscersX Report

Do you have to make tough credit decisions quickly? How would you like to have the power of over two billion trade credit experiences available to you from the three most reliable sources on the planet? What about having credit scores and valuable facts on a company’s history at your fingertips immediately when the credit request lands on your desk?

In today’s competitive environment, informed credit decisions must be made quickly to get product out the door. Your company expects credit to support Sales and drive revenue. At the same time, credit decisions must be within your company’s risk tolerance with a likelihood of prompt payment.

This was the thought behind CMA’s anscersX Multi-Bureau Trade Credit Report. anscersX provides all the above and more from Dun and Bradstreet, Experian, Equifax, Ansonia and international data from CreditSafe International. You choose which bureaus you want to see. You pay only for what you get. The report is online and delivered to your workstation within seconds of ordering it.

anscersX provides all of the information you need to make most credit decisions. A Paydex Score from Dun and Bradstreet, Intelliscore from Experian and a Business Risk Score from Equifax, along with over two billion current trade lines, trends, details about the company and public records of suits, liens or judgments.

There is a side benefit to those of us in credit who must defend our decisions. Using powerful information such as the anscersX report will help justify any decision you make. If there are questions or push-back, you are locked and loaded to illustrate why you came to the conclusions you did.

Consider the anscersX report if any of the following are true:

  • Your monthly requirements do not justify a costly contract with one or more of the bureaus.
  • You are looking for a more efficient and cost effective way to order reports from multiple bureaus.
  • You have a contract with one of the major bureaus but want reports from additional sources.
  • You have a limit on the number of reports you can order from a bureau, anscersX can conserve usage.
  • A multi-bureau report will give additional insight into a higher risk prospect or customer.

The best thing you can do for yourself today is to go to anscers.com and check out anscersX, or read information about it here (including sample reports). It is brought to you by Credit Management Association for the benefit of the credit management community.

Robert S. Shultz is a Partner at Quote to Cash Solutions (Q2C) LLC, and a frequent speaker at CMA-sponsored and other credit events.

Top regulatory priorities for the commercial lenders

Tony Hadley of Experian
Tony Hadley of Experian

by Tony Hadley

Senior Vice President, Government Affairs and Public Policy, Experian

 

In many cases, business lenders often rely on the commercial credit of the enterprise coupled with the personal credit of the business owner when making lending decisions. This is especially true for sole proprietorships and partnerships. To that end, regulatory action and public policy initiatives aimed at consumer credit often times can have a direct impact on commercial lenders. This blog takes a look at some of the top regulatory priorities for business lenders within the credit ecosystem.

Ensuring the accuracy of credit data
Over the past two years, the Consumer Financial Protection Bureau (CFPB) has taken several actions to make clear that it believes data furnishers — including lenders — are responsible for ensuring the accuracy of the credit data that they report to credit reporting agencies (CRAs).

The CFPB issued two bulletins — in September 2013 and February 2014 — reminding data furnishers of their responsibilities under the Fair Credit Reporting Act (FCRA) and the need to properly conduct investigations when a consumer disputes an inaccuracy.

The CFPB backed up these bulletins with an August 2014 enforcement action against a lender that it said failed to fix flaws in its software system that were causing it to report inaccurate credit data to the CRAs.

Debt collection practices remain in the spotlight
Another top focus of regulators that may overlap with small business lending is increased scrutiny of the debt collection market.

Within the collections industry, the CFPB has focused on problems related to how information about a debt is transferred from a first party to an outside agency or debt buyer, as well as the standards and timing of when a collections item goes onto a consumer’s credit report. To that end, in December 2014 the CFPB announced that it was requesting the national credit bureaus to provide regular accuracy reports that highlight key risk areas, including disputes, for consumers. The CFPB will use these reports to help prioritize their work on accuracy metrics, including: furnishers and industries with the most overall disputes; and furnishers with high disputes relative to their industry peers.

The CFPB also released an Advanced Notice of Proposed Rulemaking (ANPR) in November 2013, covering a wide array of complex issues within the debt collection market. It’s expected that they will release the first version of its proposed rule for the collection market in late 2015 – early 2016.
Policies boosting financial inclusion are also critical for business lending

Commercial lenders should also pay attention to efforts by policymakers to improve financial access for the more than 60 million American consumers that either have a thin credit history or no credit data at all. In the case of an entrepreneur, a thin or no hit credit file would make it much more difficult to access affordable capital.

One way to improve the ability for unbanked individuals to access affordable credit is through the reporting of on-time payments made to utility, telecommunication and rental companies by consumers — often referred to as “alternative credit data.” While they have long made pricing decisions based upon the full-file credit data furnished by creditors, historically telecom and utility companies have only provided negative data — i.e. late payments or if an account is in collection.

Including both positive and negative data from these sources will enable tens of millions of thin-file consumers — and small business owners — with a proven record of meeting financial obligations to access fair and affordable credit. The CFPB weighed in on the importance of including alternative data in a 2013 report on financial empowerment. Bipartisan legislation has been introduced the past two sessions of Congress that would clarify federal law to encourage utilities and telecom providers to report positive credit data to the nation’s credit bureaus.

Coming soon: CFPB data collection on women and minority owned businesses
Small business lenders are also keeping a close eye on the development of the new data collection requirements under the Dodd-Frank Act. Despite the CFPB being primarily focused on consumer lending, the agency was tasked with implementing a provision of the Dodd-Frank Act that required lenders to ask small business applicants if the business was women or minority-owned.

The problem is that this question is currently prohibited under Equal Credit Opportunity Act (ECOA), as a creditor cannot inquiry about the race, color, religion, ethnicity or sex of an applicant. The CFPB will ultimately have to provide guidance to help resolve the conflict between these two laws.

While this new sweeping data collection mandate will not become effective until the CFPB adopts the necessary regulations, it’s easy to see how this could ultimately impact small business lenders.

As many have said before, small businesses are the lifeblood of our economy, but they need funds to grow. We’ll want to keep a close eye on each of these initiatives, as the regulatory impact can be huge for small business lenders, and the ability for small businesses to access capital.

Tony Hadley is Senior Vice President of Government Affairs and Public Policy for Experian. He leads the corporation’s legislative, regulatory and policy programs relating to consumer reporting, consumer finance, direct and digital marketing, e-commerce, financial education and data protection. Hadley leads Experian’s legislative and regulatory efforts with a number of trade groups and alliances, including the American Financial Services Association, the Direct Marketing Association, the Consumer Data Industry Association, the U.S. Chamber of Commerce and the Interactive Advertising Bureau. Hadley is Chairman of the National Business Coalition on E-commerce and Privacy. For information about reports available from Experian, contact Terry Campos at 818-972-5361.

Announcing the New anscersX Report that combines key data from D&B, Experian and Equifax into one Business Credit Report

The anscersX multi-bureau trade credit report combines key factors from the three largest trade credit reporting agencies (D&B, Experian and Equifax), giving credit managers the most complete payment story available. “We spent time reviewing all the elements on each provider’s business credit report to determine what would give anscersX clients the best insight into their customers’ credit worthiness,” says Robert Shultz, Managing Partner of Trade Information Exchange. “By using an anscersX Report, you have covered the necessary bases at a much better cost and a tremendous time savings.   The anscersX Report provides a quick review of the information needed for most trade credit decisions.”

Credit Management Association® and Trade Information Exchange are proud to announce that they have produced the anscersX Report, a single report that contains all the key elements about your customers’ paying habits needed to make most credit decisions.
Credit Management Association® and Trade Information Exchange are proud to announce that they have produced the anscersX Report, a single report that contains all the key elements about your customers’ paying habits needed to make most credit decisions.

The report, which is available now at www.anscers.com, ranges in price from $29.95 to $64.95, depending on the number of reporting agencies the user requests. Users control which reporting agencies are accessed for the report.

“The anscersX report offers some real advantages to anyone making a credit evaluation,” said CMA president Kim Lamberty. “Single-source Business Credit Reports are made up of accounts receivable data that has been contributed by companies, public record data and scores generated from the combination of this data. Since most companies that contribute accounts receivable data only send it to one provider (D&B, Experian or Equifax), using one report may only provide a piece of the payment habit story.”

The anscersX Reports are available through CMA’s web-based platform anscers.com. “The anscersX Report is a significant proprietary credit offering to our customers,” Lamberty added. “A key feature is the summary section that displays scores from all three providers, plus other key data. This makes the anscersX Report easy to read and comprehend so users can make faster credit decisions. There are other advantages as well. This is a web-accessed report that can easily be ordered and received at the user’s workstation in seconds, all at a low cost. There are no minimum purchase or contract requirements. The users order what they want, when they need it and only pay for the reported results.”

Several CMA Members have already used the anscersX Report and have had positive experiences with it. “We got an answer in minutes as opposed to calling all the trade references on the credit application,” said Mary Donaldson, Office Manager, Worthen Equipment Inc. Grating Pacific Inc.’s Stacy Henry added: “The enhanced anscersX Report is very intuitive and easy to read. The “Summary” section at the top of the report included all the information I needed to make my decision whether to extend credit. That saved me a lot of time.”

To learn more about the program, visit www.anscers.com or call 800-541-2622.

CMA Poll Results – Business Credit Reports

CMA Member Poll: Your thoughts on business credit reports? (463 responses)

  • They are a valuable resource 18%
  • They are necessary but not always valuable 17%
  • They are not a valuable resource 1%
  • We carry a contract for reports 17%
  • We order reports as we need them 19%
  • We use more than one brand (D&B, Experian, Equifax etc.) of report 17%
  • We use only one brand of report 9%
Other comments:
“more valuable for private companies”
“Wish more companies would report more accts.”
“We find that D&B reports are totally outdated and wrong information. We belong to a local credit group which is very helpful.”
“We rely on our on trade data reports”
“We don’t use them hardly at all but probably should”

 

 

 

 

 

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