Can digital trade credit make credit scoring and fraud checks less expensive and more efficient?

Recent years have seen a significant shift towards digital in B2B commerce. Yet while there has been a transformation of B2B commerce platforms, the same cannot be said of the trade credit processes that typically underpin B2B transactions. Instead, merchants still rely on traditional trade credit management practices, which are typically manual, costly, and hinder business growth. 

Over a series of 3 blog posts and a white paper, we are going to explore the return on investment (ROI) of implementing such a solution. During the course of the blog series and white paper, we will consider the 6 major areas of the order-to-cash cycle:

• Credit scoring 
• Fraud checks
• Financing
• Insurance
• Payment processing
• Collections

Credit scoring and fraud risk management are vital in order for businesses to protect themselves and ensure their longevity, but traditional ways of working in this area are laborious and time consuming – and that’s even if a merchant can afford to pay for an in-house team. In this first blog post, we are going to explore the benefits that digital trade credit can bring to credit management and fraud mitigation.

The traditional approach to credit scoring

What happens?

The traditional trade credit management process is cumbersome and costly. Credit departments have to send out forms, run identity and credit checks and determine credit limits or refuse credit. Some businesses are simply unable to spend the resources on this and instead focus their efforts on collecting payments.

How long does it take?

For some prospective clients, the credit decisioning can be straightforward, but for others it can be lengthy and require significant management bandwidth. When things go smoothly, the credit application process typically takes 1-2 days. It can take longer if details on applications are missing, for example, and your team has to spend time chasing for this information. 

Even once companies are approved for initial credit, ongoing limits management must also be considered. Often this is a manual process managed on complex spreadsheets. As such, it takes up staff resources that could be more valuably deployed elsewhere. 

How much does it cost?

It can cost a business an average of £10/€10 every time they need to access a credit report. The time spent by credit management teams on conducting manual checks and ongoing credit limit management must also be considered.

The digital approach to credit scoring

What happens?

The credit management process is substantially streamlined. Credit checks are built in, so that when a customer starts shopping, assessments are already happening in the background.

How long does it take?

This approach provides significant time savings for sellers, with credit decisions being made in seconds rather than days and ongoing limits management baked into the solution.

How much does it cost?

Credit scoring should not come at any extra charge. It will be built into the price agreed with your digital trade credit provider. Your team gains back the hours they would have spent on laborious manual tasks.

The traditional approach to fraud checks

What happens?

If the merchant has a fraud team, their analysts may use credit reports and other resources at their disposal to verify the legitimacy of businesses and their transactions. Alternatively, the merchant may purchase a standalone fraud management system.

How long does it take?

Similarly to credit scoring, the time it takes to check a customer or transaction for potentially fraudulent behaviour can vary. It may be built into the in-house credit management process, and thus take an average of 1-2 days. If additional verification is required, this timeframe could grow significantly. 

How much does it cost?

If a fraud analyst needs to check a credit report, they will need to pay the £10/€10 fee. Merchants must also consider the cost of one or more full-time employees in an in-house fraud team.

The digital approach to fraud checks

What happens?

Most digital trade credit solutions include fraud checks as part of their customer acceptance process. The inclusion of fraud checks significantly reduces the potential for invoice scams and the resulting cost of non-payment. With research from Barclays showing that fraudsters stole the most money from UK SMEs through invoice scams and the average loss increasing by 6% between 2021 and 2022 to reach £2,100, this is not an insignificant consideration. 

How long does it take?

As with credit scoring, these checks start happening in the background and take place in a matter of seconds. Additional verification may be needed occasionally, but this should only impact around 5% of transactions. 

How much does it cost?

Fraud checks should not come at any extra charge. They will be built into the price agreed with your digital trade credit provider. Your team gains back the hours they would have spent on laborious manual tasks.

We're working on a brand new white paper that will help you to demonstrate ROI and build a business case for digital trade credit. Pre-register for exclusive first-look access when the white paper is released in February.