* Collection Management: The Art of Getting Paid, by A. Michael Coleman, is a pricey but effective 320-page manual on how to get down and dirty with problem payers. Coleman, who runs a collection agency in Port Jefferson Station, Long Island, N.Y., passes along more than 200 trade secrets for "turning credit sales into bank statements" -- all geared to teaching companies how to solve their collection problems without the help of costly outside services. The price is $69.50; to order, write The Bureau of Business Practice, Prentice Hall, 24 Rope Ferry Rd., Waterford CT 06386, or call (800) 243-0876.
HOW TO READ A CREDIT REPORT
What does Big Brother really know?
[A Dun & Bradstreet credit report] is Big Brother's dossier on your company or your customer's. Familiar, feared, it's the currency of credit. The maker and breaker of credit lines and reputations. D&B issues 12.5 million of these reports a year on any of 9.5 million businesses in its database. Legions of field reporters across the country collect payment information. Honest Abe Lincoln and three other U.S. Presidents served as D&B reporters in its early days. But times have changed.
The Dun & Bradstreet Corp. is now a $4.3-billion information giant approaching its 150th birthday. Largely unregulated, it owns the lion's share of the credit-report market. And it can dictate the reputations of growing businesses.
Few credit decisions are made without the word according to D&B, a service that can cost thousands of dollars a year. Says Hank Milliken, credit manager of Viking Engineering Inc., a maker of spray equipment in Tarpon Springs, Fla.: "It's highly overrated. I question whether I can't find the same information in three phone calls that would cost me 75¢."
Finances
Although it's hard to know who's whispering in D&B's ear about a company's payment habits, we do know who's providing the financial data: the owners themselves. "They print whatever the principals tell them," says William Garnett, president of Garnett & Co., in Pasadena, Calif. Often, that isn't much. D&B has financial information on fewer than one in 10 companies; only a fraction of those financials are audited.
"The information it deals with is quite old," says Garnett. "It might be as recent as three months or as dated as two years." Witness our featured report: on March 20, 1990, D&B reprinted a company's financial statement dated September 30, 1988. Sure, the CEO had supplied "projected" information on November 30, 1989, but whither the bottom line now?
That's why, for large transactions, Garnett requests audited financial statements and tax returns. He uses them to analyze three- to five-year patterns in debt-to-equity ratios, working capital, net worth, inventory turnover, and accounts receivable. Others rely on credit reports from the National Association of Credit Management.
History
"It's window dressing," says Garnett of the principal's personal history. Maybe the bio is true, maybe it's not.
But a company's legal structure may permit a more scrupulous look at the principals. If the company is a proprietorship or a partnership, it's legal to check out the principals' personal credit history.
Ratings
[Big Borther bases] the venerable D&B rating in part on a private company's own (usually unaudited) estimate of its net worth. Payment history is also factored into the equation that D&B uses to assign its powerful grade.
This particular rating [DC2] suggests the privately held XXX company's estimated financial strength is between $50,000 and $74,999. Of course, that was 18 long months before this report was printed. With painstaking precision, D&B describes the company's "composite credit appraisal" as "condition good."
"A D&B rating can give a false sense of security," Milliken says. "Nothing says D&B can't tell you a company is A-OK and then the customer won't turn around and rip you off."
Payments Reported
"I've gotten negative reports from Dun & Bradstreet about customers who turned out to be my best payers," says Bob Taylor, president of Wesson, Taylor, Wells & Associates Inc., a Charlotte, N.C., software consulting firm.
So maybe the information isn't always reliable. But don't blame D&B. It's right there in the fine print: "Dun & Bradstreet Inc. . . . does not guarantee the accuracy, completeness or timeliness of the information provided."
Just where does D&B get these facts? From creditors, or those who claim to be. And because D&B rarely verifies the information it collects, there's little to stop competitors from sabotaging your credit history. Still, it's more likely a report will omit key facts than spread lies. "We don't provide any info -- period," confesses Garnett. "Why expose yourself to a lawsuit?"
With bad news often hushed, how do you get the lowdown on a customer? Milliken calls any references that have been supplied. Judson Blaine, president of The Judson Lumber Co., in Columbus, Ohio, says local credit bureaus provide accurate, up-to-date reports.
Operations
Theoretically, since D&B tries to contact its customers once a year, some inside information can be gleaned about a private company's operations. Milliken is not impressed. "This tells me they've got a concrete building, but I want to know if it's a good operation or not. The sales rep who spent three days there last week is the one who can tell me that."
-- Anne Murphy
