Not getting lost in the flood: learning the complete profile of your customers.

The United States is facing a long road to recovery. Businesses are mired in an epidemic of souring consumer confidence that has swept through and ravaged sectors from construction, to retail, to big ticket items and beyond. Optimism from small business owners and credit managers also continues to plunge as the economy struggles to regain footing on solid ground.

As the economic situation becomes more desperate, there is a greater onus placed on credit managers to ensure the financial health of their existing and potential customers, and to increase their ability to collect on accounts. Tossed on top of the heap is the overhead squeeze that is forcing credit and collection departments to reduce headcounts and take on more responsibilities. The need for more secure capital means greater pressure is also being placed on professionals to bring in more cash in shorter periods of time. All of these forces are driving an evolution in a variety of risk management and collection strategies.

In the United States, over 94% of the more than 26 million businesses are considered small businesses. Of that percentage, 67% are categorized as micro-businesses (one to four employees). It's an important distinction for credit managers because micro-businesses act more like consumers in their spending and financing habits.

[ILLUSTRATION OMITTED]

"The business landscape in the U.S. is dominated by these micro-businesses, these less than five employee businesses" said Dan Meder, vice president, Marketing and Product Management, Experian Business Information Solutions during a presentation at NACM's 112th Credit Congress. "A key thing to keep in mind is that these are very informal business structures. This could be the person who mows your lawn. This could be the plumber who came by and fixed your pipes. This could be your accountant. These are people who have very, very small businesses and don't operate like a true business. In fact, many of them don't have any commercial footprint at all. So, in many cases if you tried to pull a business report, you might not find it and maybe the only credit they are using is their consumer credit."

Another key figure in the nation's business snapshot is that sole proprietorships make up 77% of American businesses, which often means the business' health has a direct tie to the financial well-being of its owner. Partnerships make up another 15% of the small business landscape.

"Why is that a significant number? Because, according to the Fair Credit Reporting Act (FRCA), if you have a partnership or a proprietorship, and you have an arm's-length credit transaction, or you have a current business in your portfolio that you are reviewing for credit limit purposes or collection purposes, you are allowed to check their consumer credit," explained Meder. "And it makes sense, because in these cases, as we all know, there is a liability the individual has for the obligations of the business."