How many people reading this either own a business or know someone who does? Of the 20+ million businesses in the US today, only 6 million actually have employees. Within that figure, less than 15,000 are publicly held, and about 600,000 go out of business each year, averaging roughly 2,000 per day. These numbers tend to be alarming to companies who rely on purchases from other businesses in order to make profit. Trade credit is the glue that holds B2B transactions together, and in recent years the determining factors of credit worthiness have changed, arguably becoming more complex. The bottom line is this: businesses need better insight into the companies they interact with in order to stay afloat.
If You Want to Understand a Business, Take a Look at its’ Behavior
If you really want to understand a business, you have to take a look at what their behavior is indicating. Traditional business credit scores based solely on payment behavior are a thing of the past. Those type of reports contain data and information from past that doesn’t satisfy the big picture as to what’s going on beneath the surface. The most detailed and accurate reports need to incorporate data on purchase and payment behavior combined. The differentiator is that rather than focusing on the past, purchase behavior focuses on the present. This is real-time spend data, and it’s changing the way credit professionals make major financial decisions.
Long live the days where one payment rating would be enough to determine the financial health of a company and how risky it is to do business with them. Just like consumers, businesses can be defined by their behaviors, and sometimes their priorities change. Purchase behavior data has proven that companies will pay their key suppliers fastest. The more valuable a supplier is to the growth of a particular business, the more quickly that supplier will get paid; thus creating purchase behavior patterns. Analyzing these purchase patterns gives credit professionals a leading indication as to whether or not a company is growing and if they should extend trade credit to them.
Growing Businesses Will Purchase from Key Suppliers Most
A company’s key suppliers will vary depending on the industry. For example, a restaurant will likely value their food and beverage suppliers most while a construction company will probably value their manufacturing materials providers more. Once these factors are understood, it’s easy to draw a connection as to which businesses are most likely to purchase from certain key suppliers and how quickly those key suppliers can expect to get paid. Consistency is important here; any changes in the behavioral trends should raise a red flag. In other words, if a company stops making purchases from their key suppliers, it is a likely indication that they are headed for demise.
Until recently, information on private companies has been extremely limited and difficult to access. Cortera is here to change that. Currently throughout the US, over $2 trillion sits in B2B trade credit. These interactions rely heavily on the understanding and accessibility of private company information. So how can you put this information to work for you? Contact us today to schedule a demo or learn more about our products and services.