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Benchmarking Results on International Credit Reports, Part I
When it comes to international credit information, D&B continues to dominate, although it appears that this 800-pound gorilla's popularity with credit pros may be shrinking. Most credit pros now use more than one source for credit reports, typically D&B then at least one of the other dozen or so bureaus or credit insurance resources serving the international marketplace. In addition, D&B holds a smaller lead as a provider of country risk reports.
The real story revealed by this survey, however, is the rise of secondary data resources being used by international credit executives. The biggest change from November 2007 revolves around the peripheral sources of information regarding foreign credit. Usage of both Political Risk Reports and the Internet exploded over the past 18 months. Credit execs have clearly expanded their due diligence in an effort to better define international risk and protect their foreign receivables.
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The anecdotal comments from our survey respondents reflect a general wariness in regard to the accuracy of foreign credit bureau information. For example, Brian Northrop, international credit manager with General Mills remarks, "We are primarily looking to establish some level of stability in the customer we are evaluating, as this is key in these unstable times. If financials are available, that is a very important component of the customer's evaluation. The challenges stem from the quantity of good background information on companies." As a result, more than a few recommend the use of multiple sources of information in order to more completely fill out their foreign customers' portraits, and the survey data backs up this trend. Moreover, in these economic times, political and country risk is clearly perceived as a much bigger risk factor than during the previous economic expansion. Question: Please tell us about your international credit environment.
There were a couple of interesting trends from our previous survey. First, there appears to be a increase in foreign sales activity, which is reflected in the percentage of foreign to total sales as well as modest increases in credit applications, number of reports purchased and number of foreign accounts. However, part of the increase in the foreign sales percentage could also reflect a drop in domestic sales. Unfortunately, we did not measure this.
| Key Survey Demographics |
| Key Survey Demographics |
2007 Survey |
2009 Survey |
| Metric |
Average |
Median |
Average |
Median |
| Number of foreign credit applications processed monthly |
4.5 |
2 |
10 |
3 |
| Number of foreign credit reports purchased monthly |
6.8 |
2 |
7.5 |
2 |
| Number of foreign accounts |
400 |
50 |
442 |
50 |
| Amount of foreign accounts receivable |
$6.0 Mil |
$1.5 Mil |
$5.8 Mil |
$1.0 Mil |
| Percntage of foreign sales to total sales |
10% |
5% |
16% |
10% |
Nevertheless, there was a slight increase in activities related to foreign credit, which is probably divided somewhat between new activity and increased monitoring.
The second trend is the slight decrease in outstanding foreign receivables despite the modest increase in foreign credit activities and the marked increase in the percentage of sales going to international accounts. The most plausible explanation is that credit executives have been more diligent in managing their foreign exposure.
Cost of Foreign Credit Information
The typical export credit operation purchases between two and four dozen credit reports annually. In addition, international credit information budgets are expected to increase between 4 and 14 percent this year as compared to last.
| Cost of Foreign Credit Information |
| Cost of Foreign Credit Information |
Average |
Median |
| Cost of foreign credit report |
$150 |
$150 |
| Amount spent annually on foreign credit information in 2008 |
$7060 |
$3680 |
| Anticipated expenditures on foreign credit information in 2009 |
$8055 |
$3810 |
While D&B is overwhelmingly the first choice of credit executives as a source for foreign credit reports, its market share is shrinking. In our November 2007 survey, 66 percent of our sample reported D&B as their primary source compared with 59 percent today. However, there is no strong competitor for D&B's market dominance, but rather eight other credit bureaus as well as the credit insurance agencies that provide an alternative primary source for credit reports.
Question: Who are your secondary sources for credit reports on foreign firms?
In terms of secondary sources, D&B remains the leader but only at 21 percent, which is down from 25 percent in 2007. The other vendors taken all together now account for the remaining 79 percent of the secondary marketplace. It is also noteworthy that roughly 1 out of 4 international credit executives rely on a single source for foreign credit reports. The assumption is that many of them have only limited needs for foreign credit information. The more your geographical reach, the more likely it will be for you to use multiple bureaus.
When we look at primary and secondary usage together, D&B is used by roughly 4 out of 5 international credit executives, about 10 percent less penetration than in 2007.
The next five most popular sources after D&B are the credit insurance agencies, combined at 21 percent, then Skyminder (15%), CreditRiskMonitor and Kreller (both at 14%), and Equifax at 13 percent. None of the other credit bureaus were reported to have more than 10 percent penetration. In addition, FCIB and Experian both fell out of the top five runners-up in our 2007 survey, being replaced by Kreller and CreditRiskMonitor.
Please tell us how you purchase credit reports.
Over 75 percent of our survey participants purchase foreign credit reports through a contractual relationship with a bureau while 19 percent of this group also buy reports individually. Based on the previous two questions, it is apparent that a significant portion of our sample enters into more than one contract for foreign credit reports.
Who are your suppliers of country or political risk reports?
Nearly half our participants report that they purchase country or political risk reports, which is significantly up from 2007, when only one out of five claimed to be using these products. It is noteworthy that while foreign credit report usage appears to be relatively stable, that interest in political and country risk has clearly blossomed.
D&B is again the favored source, but its margin has slipped from 71 percent to 59 percent as the other vendors have gained ground. This is, however, clearly a case of D&B getting a smaller percentage of a much bigger pie. Nearly three times as many credit execs reported purchasing country risk information from D&B this year as compared to 2007.
Do you belong to an industry credit group that covers foreign customers?
Surprisingly, participation dropped 5 percentage points since 2007 to below 25 percent this year. Although some of the difference could be the result of the larger sample size of this year's survey, this is still a significant number and therefore a definite trend.
That this trend runs counter to accepted best practices is ably expressed by Gordon Miller, general credit manager, ISP Technologies: "For someone who is new to international credit, the best thing they can do is to join an organization such as the FCIB and an industry credit group. The reason I say 'AND' is that the FCIB provides additional resources, as meetings and roundtables are attended by not just trade credit people, but also banks and insurers." Those resources will provide additional information in regards to how the financial companies view a country's political, economic, exchange, and social risks. In international credit, it is not enough to just 'know your customer,' you must know your customer's country as well."
Those that reported being a member of an industry group that covers foreign customers provided the following listing of groups or associations:
International Credit Groups
Question: What Internet Sources Do You Use for Gathering Information on International Customers?
Only 14 percent of our survey respondents claim they do not use the internet to research foreign customers and of those that do, over one third start with Google. Another primary destination is the foreign customers' websites. Yahoo and Hoover.com (incidentally a D&B unit) are also quite popular, each being used by 11 percent of our sample. No other sources exceeded five percent.
The Bottom Line
Managing foreign receivables presents significant additional challenges compared to domestic receivables. Even so it is not rocket science, and the necessary knowledge and skill can be readily obtained by the diligent credit executive. One veteran offered these words of wisdom: "I would suggest complete familiarization with the rules for Letters of Credit, the Inco-terms of shipping and the International Standard Banking Practice. I also recommend developing a good relationship with a freight forwarder that can help explain the ins and outs of import/export. Gathering information about a company is important, but you need to understand your selling options as well."
A primary challenge is that every country is different. Country knowledge is gained through time and experience, so newcomers need to be especially careful not to get blindsided by unexpected risks. Kristine K. Skupas, the Corporate Credit Manager with Schreiber Foods, Inc., believes it is "better to trust a credit insurer to quantify the underwriting risk to determine credit limits and potential country and political risks. Use them for insurance or at least the underwriting. If you have the tools and skills in place for some countries to trust doing this analysis internally, then do it. However, don't think using current international reports in the industry is good enough to make sound credit decisions without having country experience."
Three Keys to Success for International Credit Pros
- Do not rely too much on any one source of information.
- Establish direct and frequent contact with international customers.
- Use email or online services to deliver invoices.
Source: Dan Clayton, Director, Credit & Collections, NetScout Systems, Inc.
The good news for international credit executives is that there is more information available than ever before and the overall cost of information is stable or falling, especially data from the supplemental sources. Credit pros have clearly taken advantage of this situation and have become increasingly diligent in response to the rising tide of world economic uncertainty. Consequently, the bottom line for our sample is that foreign credit exposure is actually down compared to 18 months ago.
If that is not the case for your organization, we strongly recommend you network with those of your peers who are getting the job done in these tough economic times. There appears to be no shortage of international credit executives who are doing yeoman work on behalf of their organizations. We can only hope that they will receive the recognition they clearly deserve.
For additional charts related to this article, click here: http://www.credittoday.net/members/2484.cfm
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