I split my time between the East Coast and West Coast. Last month, I guess the rain in the northeast was getting to me.  Seemed like between the August rain and all the bad economic news in the media, it was hard to find a lot to smile about.  But I did manage to find something, and it had to do with the fact that commercial scores were actually starting to tick higher. 

Well, it’s a new month, new quarter, and while the weather in the Northeast may not be any better, I am back in lovely North San Diego County, and the weather couldn’t be any better.  PLUS, it looks like the hammerlock the “gloomy Gus’s” had on the media is lessening as well.  So, while the news isn’t necessarily great, it isn’t awful either.  The National Federation of Independent Business just released their latest survey, and small business optimism actually ticked up ever so slightly in September.  But, the key thing is, that for the first time in 6 months, it didn’t decline.  What was also interesting was that “credit problems” were the number one issue for only 4% of the respondents.

We can couple that with Experian’s latest benchmark report, which shows that average commercial risk scores held firm for the third quarter.  And bankruptcy filings have also leveled off, at least through mid-year which is the latest data I’ve seen.

We are not out of the woods yet, and far be it from me to make any kind of prediction.  Maybe it’s because the sun is shining here, but I’m thinking things might be on the cusp of getting better…again.  I will be interested to see what the economic world looks like one year from today.  It seems like the sun may be shining a little brighter by then too.

I’m tired of all the bad news.  Seriously.  Every day it seems like it’s something different.  We get a brief ray of sunshine, and we feel good for a few minutes, then its right back to feeling bad again.  Like today… for those of us who are in the Northeast (New Jersey specifically), the constant rain that is causing all kinds of severe problems.

Do you recall the good old days?  Seemed like everyone was employed, everyone was making money, the market was going gangbusters.  Remember?  They tell us we won’t see that again for quite some time.  I think it’s been labeled “the new normal”…or something like that.

Anyway, back to looking for bright spots.  I think I may have found one that provides a little glimmer of hope.  It’s that overall risk score performance of U.S. businesses is getting better!  That is, at least when you compare average risk in Q1 2011 with Q2 2011.

 Our latest quarterly business benchmark report shows that the average risk score was 57.4.  That represents a 5.1% improvement over Q1!  For Q1, the average risk score was 54.6.  Granted, the Q2 average score is down 1.4% over Q2 2010, but it looks like we are “headed higher.”  Progress!

So, on a day when it’s raining (as it has almost non-stop for the last 3 ½ days), I’m going with this as my “silver lining,” and look forward to seeing more.

Ah, thought I was heading towards a bad joke?  Well, while it may be tempting to follow that through, I was really talking about trade payments needed to make a credit decision.  When I started in the data business all those years ago, my primary responsibility was to review credit reports all day.  I was taught to circle all the delinquent experiences, those beyond 30 days anyway, and then look at all the circled experiences to decide what type of rating to put on the business.

Usually after the first 20 or so (often less), you got a pretty good feel for how a particular business was going to pay.  You could have put 50 or 500 more experiences on that report, and my opinion, it wouldn’t have changed.  Given the amount of times I had to do that every day, I got very good at spotting trouble from just a handful of payment experiences.

A little while later I graduated to the world of credit scoring.  At that point, I began to realize that just focusing on how many trades were in the report wasn’t even the crucial issue.  The real value of credit scoring is the model development process that looks at hundreds of data elements, and observes thousands and thousands of businesses, to arrive at the most efficient set of data.  That is more powerful than just looking at the payment record, or worrying about how many payments there are in a credit report.

So, a suggestion?  Rather than thinking about the depth of trade you see on a credit report, think instead about what the score is telling you about the likelihood the business will pay severely slowly.  I believe you will end up in a better place.

Ok, that is a loaded question. We can take a look at many things, and say, “yea, with all the bad news coming out, of course small business owners are losing confidence”.  The NFIB confirms that with their latest report. Reasons cited?  What else….inflation fears brought on by higher gas prices, and high unemployment. 

But wait … aren’t gas prices going down?  Oh, that’s right.  They may be going down, but they are still up substantially from even six months ago.  I recently heard Warren Buffett suggest that when construction activity turns positive, then the economy will get going.  Well, not exactly what he said, but since we have made the connection between employment uncertainty and an improving economy, I guess I made the assumption that one follows the other.

Ok, I am not in a position to disagree with Mr. Buffett.  But really?  It seems to me or in my humble opinion (IMHO…learned this one from my kids) that the issue is bigger than that.  Again, IMHO, that would say that the majority of those unemployed are tied to the construction industry somehow…but what about workers let go from financial services firms or those whose manufacturing jobs were offshored?  I am not seeing how improvements in the housing picture get them back to work.  Or the small business guy who can no longer compete with the big box retailer?

Anyway, far be it from me to disagree with Mr. Buffett, but I guess I’d like to ask him for a little clarification.

So, sometimes it takes a little while for the popular press to catch up.  I say that because on June 14th, an article ran on msnbc.com talking about, of all things a “Tale of Two Economies”.  Well, if they had seen our blog on May 18, they would have seen that we could have told them that a while ago.  At the time, our data (going as far back as March) was showing there were two distinct sets of economic conditions. In fact, in our view, the big business community was actually thriving, partially at the expense of the small business guy.

On what basis did we make that determination?  Payment deterioration.  We were seeing about a 5x incidence of severe payment delinquency among small businesses as we saw among large businesses.   But to add to that, nearly 60% of all small business delinquent dollars were stretching to severely slow, while less than 10% of the large business delinquencies were going to that extreme.

 The msnbc.com article, based on AP and Reuters contributions,  quoted a survey by the National Federation of Independent Businesses (NFIB) as having seen a 3^rd straight month of decline in optimism.  The reason?  Weak optimism was due to the weakness of the recovery.  Our position was that opening up lending to small business would be a big help, given the fact that large businesses were putting a strain on small business cash flow by extending their payments to the small business community.    

 June 17th on CNBC’s Squawk Box , Jim Rohr of PNC Bank, indicated that in Q1, almost a billion dollars in small business loans were made.  This was up significantly from the past.  That trend is continuing into the second quarter.  Mr. Rohr feels that this should inject some added optimism into the small business community.  Hopefully he is correct.

We need it.

They say the future has a strange way of arriving on time.  As much as we want to ignore it, it still arrives.  The question then, is how well have you prepared for it?  One way you can get ready, is to get the information and tools you can rely on to make sure you are getting the insight you need.  These tools will put you in the best position to thrive when the inevitable occurs…that is, the future arrives.

I have experienced this in a big way with my 529 fund for the college educations of my two boys.  I blindly socked money away in it each month for years.  Then, one day, my oldest graduated from high school.  The future had arrived!  Lo and behold, I had enough saved to get him through!  Not only that, I am on track to get his younger brother through as well.  That little bit of advice I got from my accountant all those years ago—open a 529 fund—has paid off hugely for me.

I was reminded of this over the weekend when talking to my brother.  He is a small business owner, a great salesman for whom credit was barely even a consideration a few years ago.  In the recent downturn though, it’s become necessary for him to pay attention to credit to protect his business, and he asked for my advice on how to read a credit report. 

Teach a man to fish, and he can feed himself for a lifetime right?  Well, I directed him to an online resource that would help him learn how to understand an Experian business credit report.  He may have saved himself a bundle this past weekend thanks to this valuable insight.  And I am sure his new found skill will save him again with other slow paying customers.

 Amazing how preparing for the future can pay unseen dividends, isn’t it?

Southern hospitality continued today at NACM Credit Congress 2011 with a Dolly Parton impersonator who kicked off the morning with lots of energy and familiar tunes. The fun continued in the Super Session where critically acclaimed author, Joe Calloway focused on challenging assumptions and creating new ways to think competitively, improve constantly and act decisively – all good skills to have when protecting and growing your business.  Late morning, we were excited to host Joe in our booth where people got to meet him and get an autographed copy of his book, ‘Becoming  a Category of One.’ 

In the afternoon, we hosted an in-depth demo of BusinessIQ, our platform that combines all of the credit tools your credit department needs. The platform has been very successful since its launch last July, and the conversations we’re having with attendees about BusinessIQ have been great.

Tomorrow, Mary Kathryn Jarcy, one of our Senior Product Managers is speaking on how you can protect your company from credit fraud.  The session will cover fraud trends you should be on the lookout for and tips and tools on protecting your business. Find her tomorrow, Wednesday, May 25  at Educational Session 19054 from 10:30-12:00.

An interesting dynamic is playing out as the economy begins to get legs.  For example, when you look at the payment behavior of U.S. businesses, there’s a difference in big business trade payments vs. small business.  Our Experian Business Benchmark report shows large businesses are delinquent at a much higher rate.  However,when it comes to  severely delinquent payment, small businesses pay beyond 90 days significantly more often than large businesses.

What does this mean?  Big businesses are leveraging their positions, while small businesses can’t.  Big business balance sheets are flush with cash.  They are using “supplier financing” in the form of extending payments, but not to the point of severe delinquency.  Small businesses, however, need to stay current to ensure a flow of inventory.  Unfortunately, banks reluctance to lend, big business essentially extracting free working capital loans from small business suppliers in the form of extended payments, and suppliers unwillingness to accept slow payments from small businesses can become a slippery slope.  Since small business growth is crucial to the recovery, it may be time to start loosening the reins in order for them to have the funding they need to continue.

I just returned from our annual Vision conference, and it was a great success.  This was the 30^th annual event, and we played host to over 400 financial services professionals from around the globe.  The program was excellent…education sessions highlighting best practices for managing credit risk, informative “hot topics” sessions around important economic trends, and guest speakers including Condoleezza Rice; former Director of the Congressional Budget Office Doug Holtz-Eakin;  and Tom Brokaw.  Ms. Rice was our keynote speaker, and talk about timing!  She spoke on Monday morning, right after we had just heard the night before about Osama Bin Laden! 

The biggest highlight was the opportunity to meet with our clients in a very informal setting.  I had several conversations, gaining clients’ feedback on the products and services they use.  We also brainstormed other ways Experian could help them achieve greater success in managing business credit risk.  We had several networking activities designed to give our clients the opportunity to interact with their peers.   There were an ongoing stream of opportunities to share information, learn how others were addressing similar problems, and head back home better prepared to face the day-to-day challenges in their businesses.  Looking forward to next year’s conference scheduled for May 6^th – 9^th, 2012, in Phoenix.  Hope to see you there!