Credit reports: do your customers always learn the truth?

Credit reports: do your customers always learn the truth?

Imagine you’re about to proceed with an important deal, when a surprising and rather alarming obstacle gets in the way.

Credit reports can sometimes be inaccurate, writes MARK PEARSONAnd when they are, that spells real trouble…

It’s usual, when new contracts are being signed, for there to be a standard due-diligence process. After all, it’s important for customers to establish the financial health of the business that’s about to become a significant supplier. Credit agencies are likely to be their first port of call. But can you always be certain the information they’ve supplied about you is correct?
Many accountancy firms will be familiar with horror stories from their clients, in which a purchasing company has called up and said that they couldn’t proceed with a substantial piece of business. The reputation of the supplier has been compromised or even severely damaged by information that is inaccurate or just plain wrong. As a result, they have fallen outside the purchasing company’s criteria, as they are seen as ‘above average risk’, when they were perhaps ‘low risk’ just six months earlier.

One of my own clients found themselves in this position, despite four years of consistent growth and a very healthy year-end bank balance.

How do such situations arise?

Well, to be quite honest, it’s usually just a straightforward error with the inputting or interpretation of data. A profit figure can be listed as a loss, for instance. Given the huge volume of data that credit agencies handle, it’s perhaps inevitable mistakes occur and there’s no way of telling how commonplace they are. But they can have a devastating effect on individual businesses when they do.
The good news is that it’s usually possible to challenge data which is incorrect. Go back to the credit agency promptly and ask them to correct the error and they normally will. At the very least, they should offer you a chance to add your own note to the file.

Sometimes it might be advisable to get your accountant to do this work on your behalf. If you monitor what the big agencies say about you and are prepared to challenge incorrect or misleading statements, you’re taking an important step towards maintaining the healthy reputation of your business.