Page 495 - Business Principles and Management
P. 495
Unit 5
Teamwork tip extent of business competition. The local economy, for example, may be depressed.
As a result, many people would be unemployed. Inflation, rising taxes, and reces-
sions also affect a business’s willingness to grant credit.
To work well together, team As part of evaluating the four Cs of credit, businesses often use a point sys-
members must know how tem. They assign points to each of the four C factors. Credit applicants provide
to deal with change, how information about these factors by answering questions on credit applications.
to resolve conflicts before Answers are assigned a specific number of points. To receive credit, an applicant
they hurt the team, and must earn a predetermined score. Some factors that are rated and assigned
how to help each person points include the type of job, the length of time the applicant has held the job,
realize his or her potential. and the applicant’s income, savings, and total debts. The higher the person’s in-
The needs of the team are come, for example, the higher the number of points assigned. No points are as-
best met when each member signed if the applicant’s income is too small to cover loan payments.
is successful. Credit experts agree that the best single measure of creditworthiness is the
applicant’s past credit-paying record. For that reason alone, credit applicants
need to build and maintain excellent credit records.
SOURCES OF CREDIT INFORMATION
After selecting a method for making decisions about credit applicants, busi-
nesses must collect information about them. They can obtain much of the in-
formation directly from the applicants and from credit agencies.
APPLICANTS Banks, credit card companies, consumer credit firms, and businesses
that operate their own credit departments obtain information directly from ap-
plicants who complete credit application forms. A simple form used by a retail
store is shown in Figure 18-2. The application requests basic information such
as name, address, phone number, date of birth, Social Security number, bank ac-
counts, and employer’s name and phone number. After the retailer reviews the
credit application, it either rejects the application, obtains more information
from other sources, or approves the applicant for a limited amount of credit. If
the customer demonstrates responsible use of that credit, the business will grad-
ually increase the credit limit.
CREDIT AGENCIES Most businesses want more information than they can gather
through a credit application. One of the best sources is a credit agency. A credit
agency is a clearinghouse for information on the creditworthiness of individuals or
businesses. In general, there are two types of credit agencies—those that provide
credit information about individual consumers and another that provides credit
information about businesses. Private credit agencies, or bureaus, regularly collect
data from businesses and publish confidential reports for their subscribers, who
are usually retailers. Although there are hundreds of credit agencies, most are as-
sociated with the top three national credit-reporting firms: Experian, Equifax, and
TransUnion. Each national agency maintains vast amounts of computerized data
about millions of customers. A business subscriber to one of the agencies can get
information quickly for making credit decisions, often through direct computer
access to credit reports. The credit agency provides a summary report of the indi-
vidual’s credit and financial history and a credit score.
Businesses that sell on credit to other businesses need different types of credit
information than do retailers that sell to consumers. An important source of in-
formation on the credit standing of retailers, wholesalers, and manufacturers is
Dun & Bradstreet (D&B). As a service to subscribers, D&B regularly publishes
and sells credit ratings and financial analysis reports. Those reports are used to
make a number of decisions about prospective business relationships as well as
about granting credit.
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