Imagine consumer lending without being able to reference a FICO score. Although it’s possible to perform extensive due diligence on every consumer, it’s cost-prohibitive. Fast and accurate credit decisioning for consumers is made possible by the Fair Credit Reporting Act which gives credit providers a uniform way to report (to credit bureaus) credit amounts and payment behavior of their customers.
In the business world (B2B), there is no such regulatory mandate to report when a purchase order arrives, when an invoice is sent or when a payment is made against an invoice. Interestingly, B2B financial data is incredibly insightful from a credit standpoint as it highlights how much credit is being extended to each customer and, importantly, how timely they pay.
In addition to storing customer invoicing and collection activities, accounting systems also contain detailed information on a business’s payment behavior with its suppliers and vendors.