Would you credit it? How would your business cope if one of its biggest clients were to go bust unexpectedly? If your answer is "not at all well", perhaps it's time to consider the services that credit reference agencies offer.

Author:Berens, Camilla

Given that credit reference agencies have been operating in the UK for almost a century, it's perhaps surprising that so few companies take advantage of their services. Most people are aware that such organisations exist--after all, it's impossible to obtain any kind of personal loan without having your creditworthiness checked by the consumer arm of the sector. Those involved in the money markets will also have encountered international credit reference agencies--Moody's and Standard & Poor's, for example--which provide services such as rating a company's ability to repay its bond debts.

But, as far as the wider business community is concerned, only 20 to 30 per cent of firms use the commercial services offered by credit reference agencies. And, despite the growing financial risks associated with the global interlinking of businesses, the credit management market is showing few signs of growth. You might assume that most companies would think it prudent to use a service that checks their customers' ability to pay up, yet it seems that a large number consider keeping their fingers crossed to be the better option--even though almost a quarter of all business failures result from poor credit control.

Credit reference agencies generally fall into three categories. At one end of the scale are the standard web-based services. For as little as 10 [pounds sterling], such agencies will provide basic information on a company from public records, such as its annual accounts or county court judgments against it. The second category covers the more established services that offer a comprehensive overview by combining publicly accessible information with their own databases of credit activity and independent monitoring. The third type of agency specialises in providing various types of credit insurance.

Commercial credit reference agencies not only provide a good idea of the financial health of businesses applying for credit terms; they also advise on what credit limits can safely be applied. This, according to the agencies, is particularly useful for small and medium-sized businesses that lack the financial ballast of bigger organisations. Agency clients become part of a credit community where information on defaulters is pooled to provide an early-warning system for all members. But, despite a recent survey by GMAC Commercial Finance revealing that SMEs lose 6.5bn [pounds sterling] through unpaid invoices every year in the UK, this market remains largely untapped.

Seeking a bigger market share, some agencies have expanded to become specialists in areas such as credit insurance, collections management and business-to-business marketing services. According to Simon Marshall, a founding director of receivables risk management broker, Co-Pilot, more companies may start taking advantage of such...

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