Government regulations simply cannot paint with a broad brush and assume the mandates that work well in the area of consumer credit will transfer well into commercial spheres without creating massive problems.
Columbia, MD (PRWEB) February 14, 2013
A bill in the Virginia House of Delegates would create new problems throughout the commercial credit industry while failing to address the concerns of Virginia's small businesses, according to the National Association of Credit Management (NACM). The bill, HB 2198, sets up a lose-lose proposition for businesses well beyond the borders of the "Old Dominion."
HB 2198 was recently forwarded to the Virginia Small Business Commission for review and would, among other provisions, require commercial credit reporting agencies to identify the source of any negative commercial information. It is a move that would immediately reduce the amount of information available to commercial trade creditors; information that helps determine a customer's creditworthiness. Open, accurate reporting of trade credit information, without fear of retaliation, is necessary for businesses to offer the financing to other businesses that drives America's business economy.
"Businesses base their decisions to extend trade credit on historical, factual information, which is why this data is so critical to the process," said NACM President Robin Schauseil, CAE. "This bill would discourage businesses from reporting any information, positive or negative, and damage businesses of all sizes, especially small ones, by shrinking the pool of data available for creditors to use when determining a potential customer's creditworthiness. Rather than base a decision on incomplete or unreliable customer information, companies will instead simply stop extending trade credit to Virginia companies."
The potential ramifications of Virginia (or perhaps other states if similar legislation is enacted there) applying consumer credit-type regulations to business credit transactions include a drastic decline in trade credit availability and, ultimately, a situation in which Virginia companies cannot use credit to grow their business because there is no information potential trade creditors can use in making an accurate lending decision.
"Government regulations simply cannot paint with a broad brush and assume the mandates that work well in the area of consumer credit will transfer well into commercial spheres without creating massive problems,” said Schauseil.
"Businesses build their credit by having their suppliers report their payment behavior," said NACM Credit Information Services Committee Chairman Kathleen Quill, CAE, CBA. "The solution to the problem that HB 2198 seeks to address isn't less data; it's more data. HB 2198 would set commercial credit in Virginia back by more than a century."
The bill emanates from complaints on the part of Virginia small businesses about telemarketing and radio advertising practices that aimed to convince companies that they needed to pay for a service to "clean up" their credit profile and boost their potential borrowing power. The tactics in Virginia, and also noted in some other states including Pennsylvania and California, have been characterized as "high pressure" by complainants and akin to "mob-style" protection shakedowns. NACM believes that such business practices are unacceptable and indeed should be addressed, but also that the proposed Virginia bill fails to address any of these problems in its present form.
Debate over the issue is an important reminder of just how much suppliers can assist their smaller buyers through reporting of information, making hard-sell tactics of "pay us and we'll fix your credit" inconsequential.
"Reporting your data helps your customers, especially your smallest ones, build credit. It's not just about you," said Quill. "Small businesses wouldn’t have empty files if creditors all reported. Businesses of all sizes need to build themselves around good corporate practices, which include reporting your data."
About the National Association of Credit Management
NACM, headquartered in Columbia, Maryland, supports more than 15,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of affiliated associations are the leading resource for credit and financial management information, education, products and services designed to improve the management of business credit and accounts receivable. NACM’s collective voice has influenced federal legislative policy results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy. Its annual Credit Congress is the largest gathering of credit professionals in the world, and its National Trade Credit Report draws from the accounts receivable data of more than 10,000 businesses and 1,000 industry trade credit groups to help creditors assess a company’s payment habits and ability to pay before deciding to sell on credit.