CREDIT STRATEGIES FOR TURBULENT TIMES

Since the last two big economic downturns in the Uk (the industry led "Thatcher" recession of 1979/81 and the consumer led "ERM" recession of the early nineties,) the stable ,relatively calm economic waters have been good to UK credit managers.

Due largely to the computerisation of bulk credit data in the nineties, the barriers of entry into the credit information market have come down, and as a result, credit managers have more choice of agency at far lower prices.Some agencies offer very low prices based on the regurgitation of public record data from the CRO with an appended credit rating. And in the prevailing calm conditions in the last fifteen years, whatever agency was selected, the predictive qualites of credit reports were perceived by the market as "much of a muchness."

The predictive quality of credit reports didn't even seem to be affected by the deterioration in the quality of financials filed at Companies House. As I write, 85% of accounts at CRO are abbreviated and unaudited. To make matters worse, criminals have read the disclaimer on the CRO website saying that accounts lodged there are received "in good faith" and are not validated or verified, and have bombarded Companies House with fictitious documents in order to perpetrate frauds.

The new breed of credit manager has been brought up on this diet, and many have no appreciation of what past generations of credit managers saw in their credit reports, unless of course they continue to use the services of traditional agencies like D&B, Graydon and Experian who still add trade payment data, edit trade magazines, and interview companies to add value to their products.

In turbulent times, a credit report must surely be more than a revamped Companies House image document with an automatic  rating attached? The low cost, no added value credit report has bloomed in "fair weather" conditions over recent years, but will it do the job in bleaker conditions like the ones we are facing now?

Identity theft- A case of demography or geography?

At least us Brits are not alone in facing an identity theft epidemic. In the USA, it's the country's fastest growing crime. The Federal Trade Commission in the States undertakes surveys each year and tries to understand why and how these crimes are being committed. On the surface, what might seem strange is that Arizona is the identity theft hot spot state in the union, followed by California, Texas, Nevada and Florida.

Commentators, particularly from the Right, point to the fact that these are all border states, where illegal immigration may be fuelling the theft of US citizens' identities. Others suggest Arizona is perched on top of the list because it has a large older population more easily fooled by pfishers and other identity thieves. It has also been suggested that Arizona has a high incidence of methamphetimine users, and that identity theft is a popular "non violent" way to finance drug habits.

London and the Southeast see almost 50% of identity theft crimes in the UK, whereas Northern Ireland sees only 1% of the UK total. Is illegal immigration the big factor here? Or illicit drugs? Is anyone in the UK doing similar work to the FTC in the States to try to understand the causes, or are we content just to record the statistics?   

MPs scrutinise Companies House

Unhappy with some of the user complaints about activity at Companies House and delays in implementing aspects of the new Companies Act , a BERR committee of MPs met up recently with senior executives at the CRO in an oral evidence session. MPs heard that the public fears over false information being filed at Companies Registry by "would be" fraudsters and the like are justified, in that very little information coming into Companies House is actually verfied or validated by staff there. The CRO chief executive complained that too few companies had taken up the system of electronic filing of director changes etc called "PROOF", which would substantially cut down on the incidences of identity theft at CRO. When the BERR commitee asked whether making the system compulsory would greatly reduce the identity theft problem, the CRO said yes. One committee member commented " I feel a strong recommendation to Government coming here". Personally, I would back such a move because in this instance, i totally endorse the CRO's view that electronic filing of such changes would make it more difficult for opportunist criminals to fiddle with public records. 

Phishers move up the food chain

Internet fraudsters (phishers) who try to trick online users into passing over bank/creditcard/other private details over the web are moving up the food chain and attacking high net worth individuals. More sophisticated individuals surely won't get caught out by these scams, I hear you ask.

Well, last month, thousands of senior US executives were targetted with e-mails that looked like official court summonses from a court in San Diego. They were told to click on a link to download the full court summons. Anyone who followed the link unwittingly downloaded and installed key logging software that recorded their passwords and computer use and sent it to the phishers. A second piece of software enabled the gang to control the computer remotely. Hundreds were caught out.This scam led the New York Times to coin a new phrase  for phishers who target upmarket individuals- "whalers"!

The message is clear. Organisations can't rely totally on IT guys to combat Internet scams but must train all staff (even senior executives!)to be aware of the technological, commercial and legal risks and need to develop programmes to stop phishers from being successful.

credit assessing small businesses can be easier

Buying credit reports on small businesses often leads to buyer frustration, as the level of available data on small private firms is "limited" so to speak. Some companies, though, have found a way of making credit decisioning easier on this type of business- they do an additional consumer credit check on the business owner at his home address.

I was informed by a Graydon customer the other day that he had bought a business report from Graydon showing a clear credit picture, then bought a consumer report via Graydon's consumer gateway on the man that owned the business and discovered 10 CCJs against the person registered at his home address. Result- an easier decision!

To do this , however, credit departments must ensure that their credit application forms include a request for permission to check out the individual behind the business in keeping with Data Protection law.

SMEs must recognise early warning signs of bad debt

Research in the credit arena continues to point to the fact that SMEs should be doing more to protect themselves from bad debt, and protracted payments from customers. I read some research over the weekend  suggesting that 50% of SMEs continued to deliver goods on credit terms to debtors when unpaid debts were already over 90 days old. Secondly, only 3% of the respondents in this study said they turned to a debt collection agency for help, but when they did, debts were already on average 11 months old. The interesting aspect of this research was that it was looking into trade supplier habits involving companies that had gone bust leaving those suppliers with write offs. Once again, it looks as if there is an imbalance between SME enthusiasm for chasing sales revenue, and unwillingness or lack of expertise in making sure those sales are paid for.   

Sour grapes from the Supermarkets?

Just hours after the publication of the Competition Commission's final report into the Grocery trade, some supermarkets were beginning to bleat on about how the costs of organising and paying for an Ombudsman to police activities in the sector would lead to increased prices in the shops for the consumer. However, the supermarkets already accept that some things do have to get in the way of delivering lower and lower prices to end users. For instance, I'm sure child labour in overseas sweatshops would help to reduce prices of goods on the shelves, but no one, including the supermarkets, accepts this as an ethical way of trading. The Ombudsman has been recommended by the CC because it thinks the supermarkets have continually and unfairly transferred excessive risks and unexpected costs on to their suppliers. Shouldn't this be seen by the supermarkets as unethical trade practice too? A touch of sour grapes methinks.

OFT Tucks into Groceries again

The OFT doesn't seem to be able to leave the Supermarket giants alone lately! This week, we should see the publication of the final recommendations from the Competition Commission in to the Grocery Trade ( read supermarket chains), after the OFT referred the matter to the CC in 2006. Will an Ombudsman for the trade be recommended or not? That's one of the big questions that will soon be answered. Then last week, almost in preparation for this one, we learn that the OFT has launched an investigation into cigarette and toiletries price fixing amongst the large supermarket chains and the cigarette manufacturers. At this rate,Tesco and the like will soon be developing a serious bunker mentality. Why is it ,they ask, we do everything we can to help consumers yet get all this criticism? Any suggested answers from anyone?

UK Company Asks "Who Am I?" following identity hijack

Companies House continues to warn companies about the need to be vigilant concerning identity theft. However, company hijackings of bona fide companies continue apace- I've just been told by Graydon colleagues of one Middlesborough based company that was shocked to discover its registered office had changed without consent, its directors had resigned and been replaced with new ones , and a set of fictitious 2006 accounts had been filed at Companies House too to complete the scam.

I bet the real director was wondering whether he had suddenly lost his marbles or was suffering from a severe case of amnesia- either way, it just shows what can happen to a corporate identity if you don't make regular checks of your file at Companies Registry.