Business Credit Magazine – December 2009 Issue – Cortera
If you step back and think about the countless ways technology has changed consumer and commercial behavior over the last decade, it is truly amazing. When evaluating potential jobs or partners, we network with our fellow professionals through LinkedIn. Seeking the hot toy that will make you a hero in your 4-year old nephew’s eyes? Amazon’s product reviews have the answer. Need a can’t miss restaurant for that important client dinner? Look no further than Yelp. Desperately in need for some fresh tunes for that long road trip? Check out the most popular downloads on iTunes. And when you finally find a spare week to take the family on a well deserved vacation, a quick visit to TripAdvisor will guide you to the perfect hotel and location at the best price available. Each of these sites has supplemented its core offering and made itself better by tapping into perhaps the oldest and most trusted means of influencing decisions: the collective word of mouth experiences of people with similar needs and interests. But is a “wisdom of the crowds” approach right for other critical decisions? Could – or should – it be applied to something such as credit decisions? The online answer may lie in decades of offline behavior and the ability to overcome historic technological limitations.
All Credit is Local
The early pioneers of credit management in the 1800s had it right. The gathering of information at the local level from merchants captured the real-life experience of all types of businesses, from the largest to the smallest, and deposited them into a central repository for the benefit of all companies—then called the Mercantile Agency and later Dun & Bradstreet. Later in the 1800s, the National Association of Credit Men (NACM) took this approach a step further and organized the credit profession that thrives today. With the industrial expansion of the 1900s and moving forward into the modern era, this local touch continues in the form of credit group meetings held around the world.
However, many of the benefits of this local approach have been lost as companies have standardized on traditional commercial credit reports or adopted software automation, commercial scoring, and better business intelligence packages. The erosion of the local approach to credit reporting is felt most deeply by small businesses—which make up the vast majority of US businesses—that lack dedicated credit managers because they have lost their voice in credit reports on businesses of all sizes, and especially in credit reports on large companies.
Outdated technology forced compromise, silenced small business
So how did one of the best examples of community-organized information lose its way? Oddly, it can be traced back to the best available technology at the time. With the rise of large scale computer systems and electronic databases in the 1970s and 1980s, the business community standardized the reporting of commercial credit information. But, in the process, the reporting of commercial credit information became sterilized and limited to those that could easily submit their experiences. This shift immediately tilted the contribution of payment experience toward the largest organizations that had the most number of customers – companies in the telecom, business services, wholesale distribution, transportation, and utility industries that have tens of thousands of customers. The requirements of standard trade tape layouts caused many of the smaller organization contributions to be lost in the process, evidenced by the fact that credit reports about small businesses generally fail to include any payment experiences from other small businesses. The only exception to this trend has been at the local NACM chapter level, but contributions still remain a tedious process. At local NACMs, you will see a robust exchange of credit experiences between smaller organizations, but those experiences are often missing from the databases of the national commercial credit reporting bureaus.
Credit Pros are Social
Credit is, after all, about relationships. Credit professionals attend credit group meetings to share payment experience in their industry, attend NACM events to share best practices and learn from their peers, and dutifully exchange trade references daily without question. All of these actions are done for the greater good of the credit community. These actions help provide a more current view of a prospective or existing customer; however, often times these insights are completely missing from a credit report. Trade references, despite the ongoing debate as to whether they remain relevant in the modern age, still survive today because they fill an information gap.
It is clear that this incredibly social and tight community could benefit from many of today’s Internet technologies to make these interactions more easily accessible all the time. As a credit professional, there is the opportunity to spread the values and mission to all decision makers, not just those that carry the credit manager title.
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