Why credit referencing reports are not enough to protect you from serial bad debtors.

I have been at pains to highlight what I and others consider to be the failings of a Government agency – Companies House. An agency that its own employees describe as nothing more than a “big filing cabinet”.

Now, you may be wondering why the article has a header about credit reports and I then go on to talk about Companies House in the first paragraph? Well as you may or may not know, credit referencing agencies obtain information from Companies House.

One of my concerns is, do the credit referencing agencies perform their own checks on this data? Or, do they simply accept it as accurate? After all it came from a reliable source – Companies House. But, hang on a moment, big filing cabinet they said? Who checks the information that goes in to said “big filing cabinet?”

Well, as Companies House staff have confirmed, they are simply checking that forms are “completed accurately, we don’t have the resource to check if information is factual.” So, this brings me back to three pertinent questions.

1. Do credit referencing agencies/companies check information from Companies House?

2. Are credit reference reports accurate?

3. Are credit referencing reports enough to protect you from serial bad debtors/rouge traders?

Well, to try and answer the questions (try as I can’t say every single credit report is inaccurate) I need to give you an example. However, before I do so, remember staff at the big filing cabinet said “we don’t have the resource to check if information is factual”

So, what if you take a credit report from your preferred supplier, you decide to dig a bit more rather than just rely on the headlines which give a rating score and a recommended credit limit? You look at the accounts, hmm no accounts filed? New company? O.K. The director/business owner seems a nice genuine person but, just in case, I think I will look at what other companies he/she has been involved in.

Right, so according to the credit referencing agency they have not been a director of any other companies. I will give them credit as while there is not a lot of information there is nothing negative.

Wait though! Did I not say something about the information provided by companies/ directors to the “big filing cabinet” not being verified? Yes, I did, let me give you an example.

I was asked to collect a debt from a company, one of the first things I done (as always) was to take a credit report. Small company, new, no accounts, no failed companies associated with the director. All is well, expect all was not well!

As I went about collecting the debt, as calls were ignored and emails ignored, as mail was returned in the post, I decided to dig a bit deeper, what I discovered highlighted why more research other than a credit report is needed before granting credit.

The director had 8 failed companies but, they were not associated to the individual on Companies House (big filing cabinet, I like this phrase!) or on the credit report for a couple of reasons.

1. The director had given two separate dates of birth when sending documents to the “big filing cabinet”. I am not insinuating that the director gave false information, perhaps the director forgot when they were born? Maybe unlike the rest of us mere mortals the director was not reminded every year that they were getting older. Maybe like the Queen the director has two birthdays? Who knows!

2. The “big filing cabinet” did not authenticate dates of birth, no one thought that this was the same person even although the companies all had similar names at the same registered address. An address that one of the “new” companies has since vacated.

Despite this being highlighted to the “big filing cabinet” they have not shown a lot of interest. In fact, I am informed that in due course they will write to the company, if mail is returned, if the company does not file a conformation statement or accounts it will be struck off from the register at the “big filing cabinet”

So, said rouge director allows companies to be struck off and leaves a trail of creditors behind with no consequence.

This brings me back to the subject of this article. “Why credit referencing reports are not enough to protect you from serial bad debtors.”

If information is not verified by Companies House/”big filing cabinet”. Is the information accurate? Is the information supplied to credit referencing companies accurate? Are the credit reports accurate?

In the example above, the answer is no, I have other examples.

So, what is to be done? Well, I doubt the “big filing cabinet” will be given more resource or powers of investigation so, either credit referencing companies improve their products or, you are going to have to do more research yourself. This is time consuming (it took me an hour to dig in to above mentioned director) and is time that you could spend on other issues.

I (obviously!) would suggest that you outsource your credit vetting process to a business that will take the time to properly research your potential client. If you think you can’t afford it, ask yourself how many rouge traders are out there? How much bad debt can you afford?

Due Diligence is vital and the importance of it should never be over looked. Whilst the only way to avoid bad debts is not to grant credit, it is not a practical solution as you could turn away profitable (paying) business. So, do your due diligence and make an informed decision on granting credit.

Written by Jim Sleith of JMS Credit Consultancy

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