Checking a Customer's Credit in Cyberspace
Which of the three big online players digs deepest?

No chore of entrepreneurial life is more loathed than making collections. How to wring payments from deadbeat companies without alienating them? (They're ostensibly your customers, remember.) Your first defense should be preemptive: Run a business credit check, which will present a variety of financial-health pulse points -- data on a company's previous trade relationships, bankruptcies, tax liens, and basics on the company's history or management.

Although such information has been available for decades, it was stored in bureaucratic clearinghouses and often took days, even weeks, to obtain. Now the credit-check companieshave moved into cyberspace, making credit data available at the drop of a keystroke. All the usual faces are online -- Dun & Bradstreet, American Business Information, and Experian. There is also a newcomer, CreditFYI, that promises boiled-down, low-cost reports for small businesses that want to check up on other small companies.

What do these online services deliver -- and for how much? Business Week Online took an informal tour of three credit-check sites in cyberspace. Here's a report on the credit reporters, using a Southern restaurant franchise company with the fictitious name "Whitestone" as an example.

D&B is the best-known name in the business, with more than 10 million business information reports that serve a dual purpose as both sales leads and credit dossiers. Its online services provide two levels of reporting.

Twenty dollars buys a Business Background Report, which describes a company's business history, operations, and "special events," such as a name change or reorganization. D&B advises that this report is best used as "first-level business research." In the case of Whitestone, it also provided biographies of both the president and the operations manager, as well as information on the number of Whitestone's employees and the size of its headquarters ("rents 1,200 square feet in a three-story frame building"). The level of detail is impressive here, but it's enough only to make the most general inferences about a company's credit worthiness. We learn, for instance, that Whitestone has been in business for 13 years, but this report won't mention any current financial woes.

Direct information on credit appears in D&B's more costly offering, the $85 Supplier Evaluation Report. Here, you can view summaries of court actions and judgments (Whitestone had none), and whether the company receives special minority or women-owned classification from the federal government. Most useful for credit scouts is a section on payment trends. Using payment experiences reported by other creditors, D&B constructs a so-called Paydex score. This score rates the timeliness of a company's bill paying compared with that of others in its industry. Based on 12 reported trade experiences, Whitestone comes out pretty well within its industry -- between the median and upper quartile.

Some caveats: D&B's electronic interface can get confusing. The company offers so many products, each with its own registration and sign-in procedure, that it's sometimes hard to tell exactly what you're getting -- or what you need. You may find yourself buying an industrywide status report rather than a company-specific credit profile.

And you're likely to get less information on companies that have been in business for a relatively short time -- which may make the steep price a turnoff after a few bum searches. Still, if you want a detailed, facts-only portrait of a company, this is a good place to start.

A newcomer, CreditFYI ($14.95 per use) combines the credit-rating reports of Experian (formerly TRW) with the analytical credit-scoring software of Fair, Isaac, a consultant to bank loan officers and credit-card companies. CreditFYI's goal is simplicity, with its one-page reports offering a digest of a business's vital stats: payment timeliness (measured in days), the number of filed tax liens, years in operation, and reported bankruptcies. Most central to a CreditFYI report is the company's final credit rating, which is expressed in terms of low risk, moderate risk, high risk, or very high risk. CreditFYI then puts that ranking into a percentage, stating that a company is more likely to pay its bills than, say, 46% of U.S. small businesses.

Unfortunately, there was no listing for Whitestone's head office in the CreditFYI database, only for company franchises.

One franchise report showed that the retail outlet had been, on average, 23 days late with payments to seven trade-credit partners. That was significantly higher than the nine-day industry average, which explained why the retail outlet was deemed a "moderate risk" and more likely than only 35% of other small companies to pay on time. This simple framework will probably work best for small-business owners who still use intuition, rather than financial data, to make their credit decisions. But for companies that have typically relied on more detailed analyses, the CreditFYI data will seem thin. Of course, it helps to know how many tax liens are filed against a company or how many times it has gone bankrupt. But this site provides none of the specifics behind the aggregate numbers. The final credit rating, whether "high risk" or "low risk," may be accurate -- and that's highly possible given the solid reputation of Fair, Isaac -- but one can't see the behind-the-scenes calculations that made it so. What will please customers is CreditFYI site's ease of use. Finding the company whose credit profile you want is simple, and the site moves briskly through the credit-card verification process. Tutorials are well thought out, too. Given some time, the service may blossom into a well-rounded, low-cost credit tool. For now, it still needs some meat on its bones.

Cheap, cheap! For just $5, American Business Information turns out a bare-bones report on a given company. The profile covers the company name, address, and names of top executives. It also issues a "credit code," a rating ranging from very good to good to satisfactory. The evidence behind that credit code, however, is less than sufficient. The site acknowledges that the credit rating is not based on past credit experience, but rather on somewhat incidental factors -- how long the company has operated, number of employees, and another category called "barriers to entry." Although the ABI credit rating manages to look official, it does not have the quality of information to make it truly authoritative.

An interesting sidebar to most ABI credit checks is the small, regional list of competing businesses that's included in almost all new reports. Inputting Whitestone, for example, turns up five or six rivals. All this seems a perfect tool for making new sales, rather than assessing the credit of an existing customer.

You might also feel queasy about the site's privacy policies. You can, of course, order credit checks through a secure online server. But the site, with its cast of cloying cartoon characters, also encourages nonencrypted transactions. That could be a big no-no for today's privacy-obsessed Netizens. What's worse, navigation is clunky, taking the user to countless screens before there's an information payout.

Be careful: Don't think of the ABI report as your one and only credit resource. But if it's basic information you're after -- perhaps the few tidbits that could help land a sale or make a new lead -- $5 seems a suitable, or at least affordable, price to pay.

By Dennis Berman in New York

This article was originally published in the Sept. 14 print edition of Business Week's Enterprise.

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A Credit-Check Sampler


A Credit-Check Sampler
Business Background Report $20 Company history, executive bios. Clunky interface.
Supplier Evaluation Report $85 Court actions, payment trends. Also clunky, and data thin on newer companies.
CreditFYI Evaluation $14.95 Bankruptcies, tax liens, a rating of payment timeliness. Few specifics to support rating.
Business Profile & Credit Report $5 Address, business type, local competitors. Bare-bones info with cartoonish icons.

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