Are Credit Ratings just a Lottery?

On the 12th January The Times tan an article examining the wide divergence that can be found in the ratings by 3 surveyed companies, Experian, CreditSafe and Dun & Bradstreet, on the same subject company. The article relied in part on research conducted by Shelley Stock Hutter who described some of the findings as 'alarming'.

Readers were shown actual cedit scores that differed not so much on the value of credit to extend but on the question of whether the business was growing or heading for failure. Given the importance of reliable credit information to any business involved in trade credit or lending, this presents a serious problem for businesses.

Credit Information companies rely on a number of sources for information, but in the UK the base is accounts filed at Companies House, judgements and other proprietorial information on payment performance. Anyone examining the sources in any detail quickly realises the gaps in the raw data. Abbreviated accounts were introduced to cut red tape and reduce costs for SMEs, but the sketchy nature of the information and its actual age on the date of publication calls into question the worth of the data.

Payment performance is a useful additional layer of information but currently the number of sources for this information is relatively constricted. One suggestion is that rather than turn to regulation, Government should look at publishing records of slow HMRC NI Contribution payments.

Credit Insurance Underwriters such as Coface, who underwrite Credit Insurance Direct policies, add an independent perspective to agency reports. As a result of the strong link between Trade Credit Insurance and Trade Finance, they often hold more recent information provided on a private and confidential basis. By having your credit limits underwritten by a top global Credit Insurance Underwriter, you can trade with confidence that you have access to the most up to date and reliable information about your buyers.