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The Social Network Approach to Small Business Risks (Business Credit Magazine)
October 7th, 2009
Matt Carr, Business Credit Magazine
The small business sector is continually hailed as the driver of the U.S. economy and the lynchpin to recovery. At the same time, it is recognized as the largest and riskiest sector to do business with. About 99% of businesses in the United States are considered small firms, representing some 26 million enterprises, but their payment behaviors are often a mystery, going uncaptured by the nation’s credit bureaus.
A double-edged dilemma is forged from this lack of transparency: small businesses are seen as less attractive potential partners while small businesses themselves are made more vulnerable to risks.
Firms, both large and small, are failing from coast-to-coast at alarming rates. Business bankruptcy filings have surged more than 65% over last year and consumer bankruptcy filings continue to race toward 1.4 million by year end. Delinquencies from small businesses have increased at mind-numbing rates since the middle of 2007, and accounts sent for collection have arched upwards just the same demonstrating that commercial creditors must be monitoring their customers and utilizing tools like credit scoring.
“Traditional credit bureaus tend to go to larger companies that have a lot of customers; big accounts receivable (A/R) trade tapes,” explained Jim Swift, CEO, Cortera, Inc. “And they build their data repositories with that information and then they build their scores on top of that data.”
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