What tools do creditors use to evaluate my business?

Credit monitoring is a key tool used in managing risks and maximizing revenue. Often, being the first to know about financial distress can help creditors ensure collection of their assets from distressed accounts. The converse is also true. Quickly spotting accounts on their way up provides opportunities for growth that may not be there from latecomers. Monitoring systems employ event-based notifications, or triggers (delivered in the form of an alert). Effective use of triggers can help credit managers partner with business customers who are on the way up and limit exposure to those on the way down.

With business credit monitoring tools, it's impossible to overstate the importance of reviewing credit data for changes, particularly among the more volatile small businesses. Data that may be monitored includes:

• Credit scores: significant changes for better or worse
• Credit balance attributes, such as high credit, total balance, percent current or credit utilization
• Payment behavior: paying more slowly or in less time
• Major derogatory events such as bankruptcy, collections, judgments and liens

Positive alerts might include a score changing for the better; days beyond terms decreasing, indicating bills are being paid in less time; balances going down; or balance-to-limit ratios declining.

Positive alerts can allow credit managers to identify customers to whom they'd like to extend or increase credit. Perhaps an account with a $5,000 credit line should be increased to $10,000. Perhaps an account's score has risen by 10 points, and the company has been gradually increasing its spending while paying on time. If it's a business that's expanding, that business may be receptive to an offer of improved service or better terms.

For example, a customer paying on net 30 terms could be offered a 2 percent discount for paying within 10 days, or this customer should not be restricted to terms requiring payment of the net balance within 30 days of delivery or receipt of the invoice. Perhaps the customer should be allowed net 45 terms in exchange for a larger percentage of the business.