Credit data providers are the third of the three main sources of credit information. In a world dominated by credit transactions, it is important for those involved in providing credit (creditors) to have a formal and reliable way of accessing the borrower’s (debtor) creditworthiness. For commercial borrowers, the creditor has at least four sources for credit information, namely: 1. The company’s financial information (Income Statement, Balance Sheet and Cash Flow Statement) 2. The company’s bankers and the information they may provide regarding the company’s banking history. 3. Credit Data Providers 4. The company's competitors and other suppliers trading with the customer or potential customer (Trade references). The first two sources are covered elsewhere on this website. Credit data providers will provide credit related information for either personal accounts or commercial entities or both. The commercial data provider will depend on information (referred to as trade tapes) from companies willing to provide it with info, and will organize this in a form that creates value for creditors and potential creditors. The typical trade tape will include information such as: 1. Total invoices issued to each customer for the month 2. The payment received from each customer during the month 3. The age of the each customer’s outstanding invoice and the age of the invoices paid 4. The customer’s name and address 5. Customers placed for collection 6. Date of last sale This kind of information is collected from many companies; cross-matched and organized in a manner that gives it value to potential creditors. Credit data providers depend on companies to provide it with data, and is therefore placing their confidence and trust in the accuracy of the company’s data maintenance system. Before too much importance is given to the information provided by credit data providers, the following should be considered: 1. What proportion of the industry (whichever industry you’re reviewing) is supplying data to the data-provider? 2. How consistent is the flow of information to the data provider? 3. How organized is the data provider in safeguarding the purity of the data? 4. How independent is the data provider from the companies providing it with data? Dunn & Bradstreet (D&B) is maybe the most easily recognized of the many companies providing trade credit data. D&B has existed in one form or another since 1841, however the company now known as Dun & Bradstreet came about in 1933 with the merger of two top competitors R.G. Dun and The Bradstreet Companies. The nature of the credit data industry is such that the more history the company has, the larger will be its database, and the larger the database the greater the company’s ability to gain the respect of the market. This works well for D&B, as it possesses both the history and the database size. So influential is D&B in the market place, that its own internally generated numbers (D-U-N-S® Number) introduced in 1963 is now considered a standard business identifier in most of Europe and the United States. For the credit analyst not able to review the financials, D&B provides a number of reports that will add value to the credit decision process. The Business Information Report (BIR) is maybe the most popular; mainly for its diverse content and complete dataflow. The BIR provides D&B specific information such as the PAYDEX score and the D&B Rating. The PAYDEX score is derived from the company’s database of payment information on the particular customer, and provides a score indicating the customer’s payment history. This information is based solely on past payment history and is therefore more of a collection report, than a credit report. The D&B Rating (which is available on most BIR) extends beyond just collection information. D&B develops the rating from information on the company’s balance sheet and other credit related information, including collections data. The rating is of the type: 5A1 where 5A represents the size of the company based on net worth (representing worth $500K and greater) and 1 represents the company’s overall “composite appraisal”. By composite appraisal, D&B is referring to the company’s overall creditworthiness. The composite appraisal ranges from 1 to 4. Another D&B report that is heavily used is the Commercial Credit Score Report. This report seeks to predict the potential delinquency of a customer based on payment information in the D&B database. D&B and other companies providing similar services can be an important source of credit information that serves to reduce the risk involves in the credit decision. To gain maximum benefit from such reports, the creditor must develop rules (parameters if you will) governing the use of the reports. Most companies will require additional financial information as the exposure increases, so there will more than likely be a cut off point after which additional credit will not be issued based solely on info from credit data providers. Establishing the cut off points is usually the difficult part and a certain level of overlap is expected and usually occurs. Given the fact that significant value can be derived from the information provided by credit data providers, it is important that creditors maintain access to these reports. The reports however should not be given more value than they deserve. The prudent credit decision maker will understand his/her customer base and determine (in as scientific a manner as possible) when to rely on the info from the credit data providers, when to request banking information, and when to request financial information. Bank and trade information are usually used at the first stage of the credit decision- making process. Low-level credit decisions requiring very little analytical skills are made from these two information sources. As more and more credit is required, the credit decision maker will then pull information from the credit data providers. At higher credit requests, the credit decision maker will request the company's financial statements and may want to have more formal discussions with the company's financial management team.