Free Online Course in International BusinessKnowledge StatementKnowledge of Costs and Value of Credit ReportsGoalThe goal of this material is to introduce you to the cost of credit reports used when extending appropriate payment terms to international customers. This information will also provide you with an understanding of the value of information provided in a credit report.Learning ObjectivesYou will be able to• identify the cost of credit reports. • identify the value of the information contained in the credit report. IntroductionCredit reports are an important investment of international managers to make. Although sometimes costly, offering payment terms to new international customers without conducting the appropriate due diligence can be much more costly in the long run. Assessing the type of credit reports to obtain and the necessary data to evaluate with help justify this cost.Credit Report Assessment FactorsBefore international credit managers decide whether a direct or indirect investigation is appropriate, they need to consider five factors: credibility, cost, value, timeliness, and completeness. Neither the direct or indirect approach is the best when all five factors are considered. A credit manager must to assess whether cost and timeliness is more important than completeness or value. As is the case in most business decisions, it depends on the circumstances.CredibilityEach report has its own credibility factor, just as the organization has that produces the report. There is no “one, magic” source: a review of the country that the customer is located in could impact the report; the reputation of the firm producing the report often can change, as corporations are bought and sold. Such is true when using either a direct or indirect approach. Most astute credit people have “favorites” based on their own experience, but there is a danger to this approach, since some firms have a better reputation in some countries than others. Since many of the reporting firms contract with outside organizations to develop the data, there is valid concern as to the accuracy of the information.CostsCosts can be measured two ways. For a direct investigation, the costs associated with a seller’s international credit manager and analysts should be considered. For indirect investigations, costs are typically measured by the fees paid for the report. Credit reports are sold on a per investigation basis, which can range from $60 to $200, to a contract basis for so many units for so many dollars over a period of time. It is not uncommon for a Fortune 100 US company to have a budget of $200 $400K per year for contract information on customers as well as countries. In addition, a wise international credit manager knows that his/her bank will provide information on select customers, often at no charge and as a result of the company’s banking relationship. Credit insurers and insurance brokers, even if an international credit manager does not have an insurance policy with a carrier, are an excellent and often free sources of credit data. Fortunately, there is considerable information available on the Internet to help alleviate costs. The amount of general information on the Internet is truly overwhelming: publications, periodicals and news services. Internet access does make it easy for the international credit manager to check out many more publications than one would normally purchase to read. All the major newspapers are available on the Web. Right now, The Wall Street Journal is one of several charging an access fee. Publications such as Fortune and the Economist are online, as is Business Credit (on the NACM site). Also useful are the financial networks, such as CNN Financial News and Bloomberg. Finally, the Internet offers a fast, efficient, and cost effective way to communicate with customers. E mail seems to work faster and has an inherent friendliness that is a bonus in credit management situations. Somehow, people find it easier to compose e mail messages rather than to use regular mail. Of course, the global credit executive must ensure that e mail messages adhere to the same standards as regular letters. A relaxation of style does not mean relaxing credit policy or normal business practices. Much credit information is confidential in nature. A professional credit executive should take every precaution to maintain standard levels of confidentiality, which may mean using encryption or otherwise securing messages and transmissions. Security also means controlling access to the computer where e mail messages are stored.
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