Knowing your customer | Part one
Credit-checking B2B and B2C customers is now a well-established industry, but the art of knowing your customer needs is a lot more wide-ranging - and less expensive - than you might think.
Verifying customers and businesses you deal with has never been easier, largely thanks to the rapid expansion of the range of credit checking and allied services that have arrived on the market in the last five years or so.
Driving the competition has, of course, been the rapid ascendancy of the Internet, giving most small businesses access to a much wider range of credit checking and allied services than was previously available.
But, as many small businesses know to their cost, checking customers and trading businesses' credit risk can be an expensive business - large corporates can strike volume trading deals with the likes of Callcredit, Equifax, Experian and the other credit-checking majors, but smaller businesses rarely have such leverage.
Fortunately for us all, the rise and rise of the Internet now allows firms to profile consumers based on demographics such as post codes and other socio-economic data.
Profiling services are also handy for small businesses in that they are not subject to the red tape (more of which later) that formal credit checking services are subject to.
Callcredit's GeoDebt service, for example, allows firms to predict the likelihood of an individual running up an uncollectable bill based on the post code area of where they live.
Launched in 2003, the service uses a blend of geographic demographics, life-style, credit and fraud data to produce a credit risk score for whole of the UK.
According to Callcredit, GeoDebt and its sister service, GeoFraud, which identifies the potential fraud risk for a given postcode, can be used to analyse what risk the customer poses to a company without going anywhere near their private credit file.
Is consumer profiling useful? Almost certainly, as Callcredit says that its research suggests that 20 per cent of fraud comes from post codes with a zero rating on its GeoDebt and GeoFraud databases.
One other useful service that Callcredit offers small firms trading with the public and sole traders is CallFraud, which checks the customer exists by cross-referencing to the electoral roll and other databases.
Whilst larger firms can host Callcredit's services on their own computer systems, smaller firms can access the services securely across the Web.
The cost of checking customers via Callcredit's various profiling services varies, dependent on the data/customer volumes involved, but typically varies from £2.00 down to £1.00 per check.
Callcredit's research suggests that 73 per cent of fraud occurs in just 15 per cent of post codes.
One interesting aspect of Callcredit's profiling services is that they can be useful for assessing borderline cases, where the customer may have failed one or more aspects of conventional credit checking, such as whether they are on the electoral roll or not.
Not all firms have equal access
Now on to a little-known fact. Unless your firm is assessing a consumer or business for credit- normally as defined under the Consumer Credit Act - you cannot normally have access to the standard credit reference services from the major credit reference agencies.
These are the services that facilitate organisations to credit score the potential customer based on their previous credit dealings, and contain public information such as electoral roll data, county court judgements and whether they've been made bankrupt. Or not.
You can, however, access customer profile facilities such as Callcredit's GeoDebt service and Experian's similar service, Mosaic.
Experian's Mosaic, for example, is a classification system that covers the UK, classifying every consumer into one of 61 types aggregated into 11 groups and is claimed to be unique in offering a dual household and postcode classification.
The service is widely used by small, as well as large, companies, for a wide range of purposes, such as planning future services and determining the optimal location for a new store - and what to stock in it.
Over at Callcredit, meanwhile, Graham Lund, the firm's product director, says that, owing to deals with third-party suppliers of credit-checking services, not all small firms may realise they are using Callcredit data.
"We have database deals with a number of third party partners, such as ICC and Creditsafe. There's quite a diverse number of partners, but they all use our data," he explained.
So what happens if a small business is offering credit facilities and wants to keep serious tabs on their customers?
Callcredit has the answer in the shape of its Credit Monitor service which maintains a daily watch on around 35 million consumers and tells companies that subscribe to the service whether a consumer has had a County Court Judgement against them - quite literally - the day before.
"This is extraordinarily useful to companies, as it allows them to spot a potentially troublesome customer before they hit real problems, and talk to that customer, before things get out of hand," he said.
For the small business market, Experian credit reports are available through www.busibody.com, an online solution offering cost effective business credit reports that help businesses stay ahead of the game.
According to Joe Myers, head of commercial credit within Experian's business information division, the risk of non-payment can affect the personal livelihood of owners of small business, which makes it all the more important to use credit reports.
"If you know in advance that a customer isn't going to be able to pay, would you still take on the business?," he said, adding that credit reports can help small businesses understand the level of risk and avoid potential non-payment.
A helping hand from e-bcm
Romford-based e-bcm, meanwhile, offers a unique business proposition for small businesses. As well offer a number of credit checking and allied services on other companies, it also offers a simple method of chasing bad debts.
According to Dennis Scott, the firm's commercial director, who joined the company after a lengthy career with BT two years ago, e-bcm now has around 2,000 small businesses that use his firm's services.
"Small companies can use our service on a subscription basis, which can be cheaper, or on a pay-as-you-go basis," he said, adding that report costs can be as low as £2.00 or £3.00 per company file.
"We offer our members, for example, a downloadable pro-forma 14-day letter to use when chasing bad debts and, if the company still doesn't pay, we offer a debt recovery service through our partners, Legal Recovery and Collections in Nottingham," he said.
Because e-bcm's services are Web-based, all the processes of debt collection can be automated online, which, says Scott, all helps to keep costs to a minimum.
Of course, lowering the risk of a debt going bad in the first place is of key interest to small businesses, which is where e-bcm's credit checking facilities enter the frame.
The firm maintains a database on around 8,500 businesses in the UK, including limited and sole trader enterprises, offering members a schedule of directors, five years profit and loss figures, plus balance sheet facilities.
All of this, says Scott, allows members to take an informed view of the credit risk they company or sole trader they are dealing with, no matter how small they are.
The 192.com alternative
Another company in the Web-based services arena is 192.com, an online information service that gives even the smallest of firms and sole traders access to a wide variety of information: electoral roll data, telephone directories, business databases - including details of directors - and a whole lot more.
The service, which is accessible through the 192.com Web site, allows even the smallest of firms to verify that the person or business they are trading with, is who they say they are.
According to Dave Pope, the firm's marketing director, even though 192.com is not a credit checking service like the big three, the company has more than 500 million people and business records on its systems.
This means, he says, that the site allows businesses and sole traders to carry out a wide range of verification and anti-fraud services, including reverse look-up of phone numbers and the ability to check on passport and driving licence numbers.
The good news for smaller firms is that, because 192.com isn't in the credit checking business, its services are usually priced lower than the credit checking companies.
According to 192.com, identity checking is a fascinating area. The company says that, rather than just looking at the customer's credit file, it also looks at the overall characteristics of the customer.
It can, for example, check against the deceased person's database and a number of other files to help smaller firms reduce the risk that the customer isn't who they say they are,
One interesting trend on mail order, says Pope, is the rising number of customers who want their goods to be delivered to them at work.
Pope says that 192.com can help small firms in this area too, as its Web site can confirm that the `work company' is a real one and is operating from its address.
Whilst the 192.com Web site offers business the chance to sign-up for the pre-pay service - which costs from 35 pence (and downwards) per customer search - heavy users can elect to pay a annual fee, from £950.00 a year, for flat-rate access to 192.com's databases.
"192.com allows smaller firms to do a lot more than simply credit check their customers. We allow them to verify the identities of their customers, which is often a more appropriate action," said Pope.
"We can, for example, verify that the person or company that the firm is dealing with is who they claim they are. We can verify the address. We can check the characteristics of the person or company against a wide variety of information," he added.
A common feature of fraudsters, whether consumer or company, says Pope, is that the fraudster will press the `submit' button twice on a Web form and then phone the firm's helpline up saying there may have been a problem.
"This lulls the firm into thinking that the customer is only worried about the transaction going through twice. Once they've won the helpline member of staff over, they then start asking for the delivery address to be changed. It's at this stage the alarm bells should start ringing," he said.
"Credit scoring as such is not really our business. We merely provide the flags for companies to add scoring systems to their checking procedures," he added.
By Steve Gold, News Editor
