The use of the traditional business credit scores is so commonplace that many people don’t stop to question how effectively they identify a company’s true credit risk. While traditional business credit reports contain valuable information, they suffer from several shortcomings, including:
Incorrect information: Details of some business-to-business transactions, known as trade references, get reported to the credit agencies, but those reports can contain errors that become part of a company’s credit file.
Incomplete data: The big credit agencies only receive trade references from a small list of companies, meaning that most B2B activity never gets recorded in their database. For small businesses, the result is often that their documented credit history appears far less robust than it actually is.
Out-of-date information: Fast-moving business environments can quickly render information obsolete, yet credit reports still draw on past data to determine real-time credit risk. The rapid change in the economic climate as a result of COVID-19 demonstrates just how easy it is for old data to fail to apply to present conditions.