Get Better Mileage for Your Information Dollars.

Thanks in large part to the Internet, data acquisition costs have been plummeting throughout the global economy. Unfortunately, this is not the case for the information product that is of paramount concern to credit departments. Commercial credit reports cost as much as ever, and they are the prime reason why information costs still amount to a very large chunk of the typical credit department's budget. Within credit departments, the annual credit bureau contract is usually exceeded only by employee compensation. Since improving cost efficiency is a key mantra throughout corporate America, credit managers must address the issue of how, with an abundant amount of data available, they can enhance the quality of their credit information while reducing unit costs.

The good news is there are more tools available than ever. The commercial credit bureaus have been adding products to their lineups and are now willing to sell discreet data elements, which makes it easier for companies to buy only the credit information they need. In addition, there are abundant Internet resources that provide access to corporate information, often for little or no cost. On top of all this, there are software products that can help you store and analyze all the data you accumulate.

Not surprisingly for this complex environment, there is no simple answer. How a company's credit information resources are managed will depend upon a number of factors, including the nature of the distribution channel, the type of customers being sold, profit margins, ticket size and volume, as well as the creditor's tolerance for risk. This equation can differ substantially from company to company, and requires a customized solution in most instances. It may, therefore, take a little extra effort, but in the end, most companies can expect to realize both quality and cost benefits by reevaluating their credit information needs and processes. Here are some suggestions for getting the most mileage for the dollars you spend on credit and related information.

Err on the Short Side

For most credit departments, the bulk of their credit information expenses are incurred as part of their contract with a credit bureau for the purchase of credit reports in some shape or form. John Twomey, executive vice president of the Kreller Group, a credit-consulting firm located in Cincinnati, OH, warns, "Be very careful of long term contracts. If you have already paid for something, your people will use it like it's free." As a result, new reports may get ordered while a recent report sits in the credit file. Unnecessary reports may also be ordered towards the end of the contract period if report usage has not been as high as anticipated by the contract. While some of these reports may be looked at, most will end up sitting in the credit files without ever being read.

It is better to buy less than you need during the contract period than to pay for more than you need. This is especially true with deals that only carryover 50 percent of the value of any reports left over at the end of the contract to a new contract. Even a contract that allows a 100 percent carryover may only do so if usage is at least 90 percent of the contract--less than that and the allowance drops to 50 percent. In contrast, there is no penalty for using up a contract before its term expires. It will be less costly in the long run to use up your contract early, and then, either buy a contract extension, sign a new contract or buy reports on a per-report basis. Even if a smaller contract means higher per-unit costs, chances are you will still be ahead of the game by not over-estimating your needs.

Avoid Duplication In Any Form