During the course of 2025, I noted a number of articles written that were critical of Credit Reference Agencies (CRA’s) and their approach to short firm fraud.
It kicked off very early this year when some four cases of short firm fraud cost suppliers some £200,000 with criticism of CRA’s for not picking up the signs early enough and where suppliers had over-relied on CRA recommendations and came to the conclusion that CRA’s were still not able to spot bogus companies or data despite the arrival of technological advancements such as AI.
A challenge was apparently thrown out to CRA’s to demonstrate they could spot bogus accounts and data by way of a test.
Surprisingly, an editorial in the CICM magazine in April 2025 referenced all this and questioned why there had been no response from the Business Information Providers Association or any of its members.
The editorial then went on to say that CRA’s are a critical part of the decisioning process and CRA’s themselves, having constantly promoted the strength of their data in business growth, have a duty of care to respond to the challenge.
I disagree with this entirely as ‘over reliance’ is at fault as is the belief that CRA’s are infallible, they are not.
My own experience of CRA’s goes way back to the early 1970’s and I have worked with many over the years noting advances not only in terms of information and its presentation or delivery but also a greater in-depth desire to work with their clients in providing a first rate risk management service. I have also seen the a dramatic shift in the way data is accumulated to include analytical sources that far exceed simply Companies House information. This has given CRA’s a huge advantage in recent years to improve predictive and rating analysis and AI, superb as it is, will improve it still further.
But, can any CRA give an absolute guarantee that its information will accurately predict or spot any fraudulent activity of impending insolvency? Of course it can’t and anyone in Credit that suggests it should needs to fully understand the nature of what CRA’s provide and how they get to recommendations.
I often wonder if in today’s Credit and business information environment where everything has to be done instantly and where automation demands it, we have lost sight of what a Credit Manager is there to do.
If you decide to outsource your entire credit limit decisioning process to a CRA and demote a Credit Manager to mere facilitation then expect losses that are sometimes unjustified. CRA data is fallible, indeed any data is fallible and the only expectation should be that incidence of failures diminish but are never eradicated.
Throughout my career I recall many instances where I would not accept a CRA risk rating or recommendation or indeed the risk ratings of Credit Insurers with their ‘traffic light’ analysis of our database. The reason was simple, I knew what CRA’s could and could not provide and I often had information available to me that was current and not in the public domain, it was my job to know this.
One case in point was a client in Spain. I had visited once to assess financials and people behind the distribution business and walked away comfortable. We traded exceptionally well for four years slowly increasing levels. CRA rating and recommendation was good, indeed a little higher than mine at the time. Insurance cover was full.
But then, a payment failed to arrive on time, unusually for this client. I jumped on it fast, tried to call the Directors but with little joy. I finally pinned down someone who advised the business had new owners. I insisted on meeting them but meanwhile dropped the credit line and received the delayed payment.
I visited again, met the new owners and their CFO who glowingly said they had acquired the business for some €3m and had plans to expand it significantly. I found myself put off by the flippant nature of answers to questions and walked away concerned that all was not well. New owners were Colombian.
I gradually reduced our exposure facing criticism at times even from my own CFO given our insured levels were retained and CRA ratings were still good. The business then filed its next financial statement, which led to an increased insured level and even better CRA ratings and recommendations while I continued to reduce mine. My suspicions were confirmed when those results showed an increase in turnover from €50m to €167m. I knew when I left after that 2nd visit this was a company hi-jack, a takeover effectively in order to money launder through what was a legitimate, respected company with established ratings.
The business collapsed within 9 months of my second visit while Insurer and CRA ratings had increased with the false filings. Our loss was minimal and my decisions were vindicated.
CRA’s can only do so much with what is available to them and no system of earth is capable of predicting fraud or insolvency no matter what technology arrives.
What CRA’s can do is guide one to safer environments by minimising losses and provide tools to speed up commercial business decisions, and this is what they do, exceptionally well.
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