Why Your Business Credit Reports Need Transparency

Why Your Business Credit Reports Need Transparency

Transparency is one of the most important components of a reliable and accurate business credit report.

What is transparency in the terms of credit reports? In short, it means that the business credit bureau isn’t padding their reports to make it appear that their data is better than it really is. For example, a transparent business credit report is very clear about how current the credit data it contains is.

When you review a company's credit report you should have no question that the information it contains is up to date, be able to tell how the company pays specific industries and see a month by month breakdown of the data.

3 Components of a Transparent Business Credit Report

Does the report provide the most current information? 

A business’s cash flow situations can change overnight so it’s important that you’re looking at the freshest data available. For example, if a business recently lost a major customer, they’ll likely start having difficulty paying their bills. If the credit data you’re using is not current, you’re making a decision based off of information that may no longer be relevant.

It is vital that your business credit bureau shows how current their data is. Without this transparency, there’s no way for you to know whether the credit information is 2 months or 2 years old.

The bestway to know whether or not the information you’re looking at is current is to know what month the information was reported to the bureau. This is most easily seen in a month by month breakdown, where the number of contributors reporting that month is shown. See the first two columns below (Month and # of Co’s):

If your current business credit reports show aggregated data, or don’t show when the data was reported, how can you know whether or not the information is current or outdated?

How does the company pay my industry?

There are always some products and services that a business cannot function without. Since these vendors provide something that is essential to the operations of the business, the company will usually pay them first.

For example, a trucking company will likely pay its fuel provider before anyone else. How can they move their trucks without fuel? A restaurant will probably pay the food distributor before they pay anyone else. How can they feed their customers without food?

There are many industries that payment for a certain good or service demands a higher priority than others. Knowing how a company pays specific industries is therefore vital.

Imagine you’re an electrical manufacturer who produces commercial lighting. If you’re considering extending credit to a trucking company, would you rather know how they pay fuel companies or other electrical manufacturers?

A transparent credit report will always show you an industry breakdown. In this, you should be able to see how many companies, within that industry, are reporting and how they’re being paid.

Without this information, it is almost impossible to know how a company prioritizes their payments.

Is it a single trade line or a month by month breakdown?

It is extremely important to see how a company pays their bills month over month.

With a month by month breakdown, you’re able to predict their future payment trends. For example, if you look at a company’s credit report and see that over the past 4 months, their days to pay have gone from 31 to 33 to 36 to 41, you can likely deduce that for whatever reason, they are having trouble paying their bills on time. Such a payment trend should factor into your decision of extending the company credit.

Take a look at the graph below. Over the past 6 months, the company's days to pay haveconsistently increased (from roughly 40 days to pay to 70). If you saw the trend in the graph below, would you extend credit to this company?

In addition, many companies experience some seasonality and these seasonal changes can cause drastic ebbs and flows in their revenue. They may pay their bills on time when they're busy and fall behind when they’re not. By reviewing their monthly payment history, you’ll be able to determine if they experience any seasonality.

A reliable and transparent business credit report can greatly increase your chances of getting paid. Be sure that your reports have current, industry specific and consistent data.