Financial Insight

You've got a credit policy in place, and you know how to enforce it. You check your customer credit scores, and you understand the factors that influence commercial credit risk. When it comes to credit, you like to go strictly by the book.

But sooner or later, you'll consider making an exception to the rule.

Maybe your decision involves a family member or friend. Maybe you're dealing with a long-time business partner whose credit recently took a turn for the worse. Or maybe your gut instincts simply tell you something different than what a customer credit score is telling you.

Here's the thing: Bending the rules isn't always bad. I know that life can be messy and complicated, and even the best customer credit report may not tell the whole story.

Yet that doesn't mean you should simply throw caution to the wind and fly by the seat of your pants. There are times when you can and should make exceptions to the rules. But you should still treat your credit decisions for what they are - risk management exercises.

Here are three specific things to consider when you decide whether it's time to bend your company's credit-granting rules.

1. Look at the customer credit history. A customer that hit a rough patch and then got its act together is a very different case than one that seems to be headed straight off a cliff. The first is a great example of when bending the rules can pay off. The second is, well, a great way to throw away money.

2. Weigh financial risk against the intangibles. Maybe your credit decision could affect an old friendship or even your family ties. Or maybe taking a chance today could lead to tremendous business opportunities in the future. All of these concerns are important, but you have to decide whether they really outweigh your potential exposure to financial risk if a credit decision goes bad.

3. Understand your options. A credit decision doesn't always have to boil down to saying "yes" or "no." Perhaps you could suggest that a customer put up their inventory or future receivables as collateral. Perhaps you could simply offer a lower credit limit or more restrictive terms than your customer suggests. The key here is to look for alternatives that minimize your risk while maximizing your ability to say "yes" when a customer asks you to bend your credit rules.

Finally, no matter what you decide, remember that ignorance is never bliss when it comes to making a credit decision. Always perform a customer credit check, look at their payment histories, and gather as much information as possible before you decide. You won't eliminate your risk, but at least you'll be able to make an informed credit decision.

Business credit reporting is a booming industry these days. Some of the major names in consumer credit reporting, including Experian and Equifax, now offer services that cater to businesses.

For most businesses, however, Dun & Bradstreet is still the first and most important source of business credit risk-assessment data. And for Dun & Bradstreet users, the company's Paydex score remains the single best method for evaluating a firm's business credit score.

You're probably already familiar with the FICO scores used to assess consumer credit. Paydex is similar in that it quantifies business credit risk. Unlike FICO, however, Paydex looks only at whether a business makes its payments on time, according to the agreed-upon terms.

Here's what you need to know about how a Paydex Score works:

• A score can range from 0 to 100 -- the higher the score, the lower the credit risk.
• Scores of 80 or above generally mean that a business pays its bills early or doing the early-payment discount period.
• Scores of 70 or above reflect a company that pays its bills consistently on time and according to agreed-upon terms.
• Scores of 70 or below reflect a history of late payments -- lower scores may indicate payments 120 days or more overdue.

Like I said, Dun & Bradstreet's isn't the only business credit-scoring system in use. It is the most prevalent, however, and it's crucial for any small business that wants to establish and maintain a strong credit history.

Conversely, it's important for businesses to understand how they can use other companies' scores to assess their business credit risk; decide upon loan, trade credit, and payment terms; and monitor business credit for potential changes or signs of trouble.

Finally, you should know that while a Paydex Score is a good way to assess business credit risk, it's not the only tool available. In a future post, we'll look at some of the other business credit data sources a company like Dun & Bradstreet can provide.

The Wikileaks saga is absolutely fascinating.  If you have not been following the action; Julian Assange, a sometimes hacker and global gadabout launched a website called Wikileaks with the vision of exposing patronage and related corruption across governments and other major institutions through the dissemination of their private documents.  Wikileaks offers an anonymous vetting, publishing and promotion platform for people with the goods – be they whistle-blowers or haters.  Over the past year, Wikileaks has published secret documents from the Iraq and Afghanistan wars as well as worked to support an Army whistle-blower who leaked classified US military video depicting the indiscriminate slaying of over a dozen people in the Iraqi suburb of New Baghdad -- including two Reuters news staff.

Now, Wikileaks is currently embroiled in a major release of documents titled Cablegate:

“On Nov 28^th, 2010, Wikileaks began publishing 251,287 leaked United States embassy cables, the largest set of confidential documents ever to be released into the public domain. The documents will give people around the world an unprecedented insight into the US Government's foreign activities.”

At the same time, transparency activists, rational thinkers and globalist do-gooders cheer on the release of documents and embrace the bigger picture changes that Assange’s creation portends.  Admire Assange or revile him, he is the prophet of a coming age of involuntary transparency.

Interestingly, Assange has committed to turning his sights to corporate graft, patronage and indolence.  He has recently promised to release a trove of documents from a major US Bank in the new year.  He promises strategies, bribes, internal fights, embarrassing memos … basically where the bodies are buried.  Nobody is talking details, but Bank of America stock did take a dip following the news.

We are headed into an era of limited privacy expectations.  Any organization of sufficient size can expect that their private deliberations may be made public.  Will that be detrimental?  Will anyone care about your strategy?  Will revelations cause further snooping?  That actually depends more on the decisions you make running your organization.  Keep it honest and efficient, and Wikileaks will pass you by.

The following post was contributed by Chuck Richard, vice president and lead analyst at Outsell, Inc. – Ed

"These days data seems to be on the lips of every player, principal, enabler, provider, intermediary, and hustler in digital media. There's no question that the decoupling of media from data is a dislocation that creates opportunity or disaster for publishers.... With the emergence of DSP's [demand-side platforms], the buy-side of digital media has, almost overnight, armed itself with increasingly sophisticated tooling for segmentation, real-time bidding, and ROI analytics. Publishers, meanwhile, are left with dated platforms architected to manage ads, not data."

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The following post was contributed by Jason Cother, Sr. Editor at Hoover's.  - Ed

The old idiom you can’t judge a book by its cover has applications in many areas, including business information. Specifically, you can’t always judge an executive by his or her title. Over the years, Hoover’s search editors have seen a wide range of … let’s see, how to put this … less than helpful executive titles. For every simple and straight-forward title (yep, Tesco’s Rhubarb Buyer does exactly that), there are titles that are vague and confusing or, as we like to say, gently eccentric (check out Recommended Reading’s Trouble-Maker-in-Chief or TrueTalk’s Chief Idea Officer). If our customers don’t know the meaning behind a title, they can’t work as efficiently and effectively as they need to.

One way Hoover’s editors help illuminate the truth in these situations is through the use of job functions. We have dozens of general function categories (ranging from Administration and Operations to Quality Assurance, Purchasing, and Legal) that further break down into hundreds of more specific functions like Account Executive, Warehouse Manager, and Database Administrator. These job functions are assigned to executives as appropriate, regardless of the official title. So customers can search or refine by job function on our site and see, for example, that the Chief Idea Officer and Trouble-Maker-in-Chief both serve as CEOs of their respective companies.

More often, however, job functions are used to provide additional information beyond a traditional title. Did you know CCA Global Partners‘ CFO also oversees the information technology function? Or that Transocean‘s marketing function is the responsibility of the EVP of Global Business? You do if you use Hoover’s because our editors go beyond the cover to tell the complete story.