In credit management, relying solely on scores or summaries can lead to risky decisions. To truly understand a business’s creditworthiness, you need to dig deeper—into trade lines and public records. These tools don’t just show financial behavior; they reveal patterns and potential red flags that might otherwise go unnoticed.
In a recent BuildingBlocks webinar hosted by Lori J. Drake, CBA, Community Marketing Manager for Handle, a panel of credit experts shared their insights on how trade lines and public records work together to provide a full financial profile of a business.
The panel featured Eve Sahnow, CCE, Director of Credit at OrePac Building Supply; Richard Fowler, CBF, Credit Manager at US Lime & Materials; and Marisa Richter, Corporate Credit Manager at Franklin Building Supply. Together, they offered practical advice for credit professionals to enhance their evaluations and mitigate risks effectively.
Understanding Trade Lines
What Are Trade Lines?
Trade lines provide a detailed history of credit extended to a business, including payment patterns, credit limits, and outstanding balances. They reveal how a company manages its obligations over time and whether they’re likely to meet future commitments.
During the webinar, Eve Sahnow explained how risk dashboards in reports like those from Experian can sometimes create a false sense of security: “They might show a high IntelliScore rating, but that might be based on a bunch of really low-grade lines.” This means it’s critical to look beyond the surface and analyze the specifics of each trade line.
Interpreting Trade Line Data
Trade line trends can help forecast a business’s financial behavior. Marisa Richter shared her approach to analyzing this data in Dun & Bradstreet reports: “When you go down to the charts, you’re looking at just some historical ask-y percentages. That is utilized to, once again, kind of predict what the future could hold for this customer.”
However, context is key. A high trade line score might not reflect a company’s ability to manage significant credit. Combine trade line insights with other factors—such as the company’s size or industry norms—to ensure your evaluation is comprehensive.
Leveraging Public Records
What Public Records Reveal
Public records, such as judgments, liens, and lawsuits, provide critical insights into a company’s legal and financial standing. They highlight risks that might not be apparent in trade line data alone. These records are particularly valuable in reports like those from NACM, which incorporate member-submitted information and real-time updates.
Richter emphasized the importance of reviewing public records: “Those judgments and the lien filings are great to be able to have right there in the report to see what is actually going on.” For example, a lien filed by another supplier could indicate financial trouble, even if the business’s payment history seems stable.
Using Public Records to Make Decisions
During the webinar, Sahnow shared a practical example of how public records can reveal hidden risks:
“If someone comes to you and wants the trade line but they’ve just had liens filed against them by their other material supplier… that should be the red flag for you to go ahead and stop and put the brakes on that application to confirm.”
This proactive approach helps credit professionals protect their companies from extending credit to businesses that may not be able to meet their obligations.
Combining Trade Lines and Public Records for Risk Assessment
How They Work Together
Trade lines and public records complement each other, offering a complete picture of a business’s financial health. Trade lines provide a window into payment habits and credit usage, while public records reveal deeper challenges, like legal disputes or cash flow problems.
For example, Equifax reports include debt-to-credit ratios that help gauge a business’s leverage. Cross-referencing this with public records, such as a recently filed judgment, can help identify inconsistencies. “You want to understand where that information is actually coming from,” Sahnow noted. “It’s part of the puzzle.”
Spotting Red Flags
Imagine a scenario where a business has consistent trade line payments but multiple recent liens in their public records. This might suggest short-term financial strain or hidden debts. By cross-referencing data from tools like CreditSafe and state databases, credit professionals can identify these red flags before approving credit.
Tools and Best Practices for Accessing Data
Where to Find Reliable Data
The webinar highlighted several resources for accessing trade lines and public records:
- Experian: Offers a user-friendly dashboard with trade line details and public records.
- NACM: Combines member-reported trade lines with timely public record updates.
- Dun & Bradstreet: Provides robust trade line data but may lack depth for smaller businesses.
- CreditSafe: Includes extensive trade line and public record data but can be cumbersome for quick decisions.
Sahnow noted the value of verifying information at its source: “You go to the county that the company’s registered to do business with, and you check that the DBA is registered. And just because it’s not here doesn’t mean it doesn’t exist.” Using state and county databases ensures your evaluations are based on accurate, up-to-date information.
Best Practices in Leveraging Trade Lines
To make the most of trade lines and public records:
- Monitor Regularly: Use tools like Experian or NACM to track changes in real-time.
- Validate Data: Cross-check trade line insights with public records to confirm accuracy and uncover hidden risks.
- Stay Updated: Public records often update faster than trade lines. Review them frequently to catch new developments.
Trade lines and public records aren’t just tools—they’re a critical part of building a reliable credit evaluation process. Trade lines reveal payment behavior and credit trends, while public records uncover deeper risks like judgments and liens. Together, they give you the context needed to make informed decisions.
As Marisa Richter pointed out, “You’re looking at a summary of those trends… and you’re going to get that month and quarterly report, which is going to be really helpful for the short term.” By leveraging both trade lines and public records, credit professionals can protect their companies, mitigate risks, and build stronger financial relationships.
This post is part of a series based on insights shared during the BuildingBlocks webinar hosted by Lori J. Drake, CBA, featuring credit experts Eve Sahnow, CCE, Richard Fowler, CBF, and Marisa Richter. The series dives into actionable strategies for credit professionals, exploring topics like trade line evaluation, credit alerts, and leveraging public records to make better credit decisions. Stay tuned for more posts packed with practical advice from this expert panel!
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