How do we more effectively prevent credit losses?

The more you know about a potential credit customer and their relationships — individual as well as business — the better able you are to determine the level of risk they represent. The customer’s own financial condition may appear stable, but if they have entered into financial commitments and guarantees with other entities, their financial stability may be at considerable risk.

Working with a more complete understanding of the customer’s total financial connections and commitments — many of which are not available in a traditional credit report — enables risk managers to make a much more reliable assessment of a customer’s potential risk.

One of the key factors in minimizing credit losses is being able to recognize when a customer’s risk of default increases. This starts with a foundation of good data quality. Building upon that, identifying extended relationships — such as common sources of income, financial commitments or membership in limited partnerships — allows you to identify heightened risk levels early. Individuals can be linked to companies, including privately-held businesses, and business customers can be linked to a parent company, headquarters operation, or distant owner. When evidence of a potential default is recognized, appropriate steps can be taken to monitor or limit the risk, protecting your organization against loss. Further, by understanding the extended relationships among customers, your organization can determine when a default by one customer may signal potential default by others.

These techniques can enable your organization to substantially reduce credit losses and other risks.

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