The importance of performance benchmarking cannot be overstated, especially when you’re in the business of extending credit to private companies and small businesses. Whether you’re comparing to the market, specific industries or your peers, the right benchmarking data can provide essential insight into customer-related trends, behaviors and trajectories. Plus, it can reveal emerging risk and opportunity occurring within your portfolio(s). The thing is, many organizations aren’t sure how or where to start a benchmarking routine. Here are a few ways to get started.
When considering a source for benchmarking data, be aware of the information that matters to your business.
If commercial credit scores are important to your business, which they likely are, be sure the third-party benchmarking data you access contains this information—and make sure it’s high quality. Start by knowing the source of the business information, as well as what’s included, and what’s not. For example, does the data include general credit information, or does it also include specialized, niche data or alternative data? The availability of expanded data can help broaden your view so you can reliably score more businesses, particularly smaller companies that may not have a traditional business credit profile.
Other factors important to your business research and performance benchmarking, include:
· Industry breakouts. This helps you understand how you compare with others in your industry and provides deeper insight into the performance and trends of the industries where you are extending credit.
· Financial proxy. Use financial health indicators, such as purchasing and payment behaviors, as a guide for assessing the performance of privately-held companies.
· Firmographics baseline. Performance can vary greatly depending on location, company size, ownership and other variables. You will want components most important to your organization available for benchmark segmentation.
· Trended data. Having a view of the same data points over an extended time period can reveal emerging trends and point to future performance trajectories.
Size matters, as does currency.
To get the most accurate benchmarking view, it’s important to ensure you’re accessing a significant sample size that mirrors your customer base or portfolio. Generally speaking, larger data sets with regular content updates deliver the most reliable results. You can address this issue by confirming the depth and breadth of business coverage with the third-party data provider, and just as importantly, confirm the provider’s commitment to refreshing the data. Likewise, be sure the data also reflects the same time period covered by your customer data.
If you’re looking for more than a one-off or annual analysis, consider establishing a routine benchmarking program. Inquire about the automated delivery of monthly benchmarking data, since some providers offer this option. Monthly performance benchmarks can improve business agility by helping you quickly identify change to adjust strategies, adapt credit decisions and mitigate risk.
Make it meaningful with data visualization.
Raw benchmarking data is often difficult to absorb. However, when the data can be converted into easy-to-read charts and graphs, that’s a game-changer. It puts everyone—from the executive team to credit managers and IT—on the same page by clearly illustrating behaviors and trends, as well as potential issues and opportunities. When you can see these things, you can quickly act on them to further optimize the impact benchmarking has on your day-to-day business. Let’s say, for example, you can see that your risk levels are too high or too low compared to your industry. Using this insight, you can intelligently adjust your models and scores to keep your business credit decisions continually optimized.
At Cortera, we understand the importance of performance benchmarking. It’s why we offer our Industry Monitors, which provides an “at-a-glance” look at credit performance within seven key supply chain industries. If you have questions about benchmarking your business credit risk, or you’re interested in learning more about a differentiated source of business data on private companies, call 855.667.8594 or submit a request.