Fall is in the air, and ‘tis the season for tricks, treats and things that go bump in the night.

Businesses provide a great disguise for fraudsters because it’s relatively easy to create shell businesses or to take over the identity of a dormant corporation. Consumer authentication tools (which have historically been more sophisticated than their commercial counterparts) are sometimes used to screen proprietors to ferret out small business fraud. While these tools may verify the applicant is using a valid consumer identity, they are unable to identify risk factors associated with the proprietor’s current and past businesses.

Fortunately, new tools are now available that screen proprietors for potential fraud while providing insights into risks associated with their current and previous businesses.  These tools not only verify that the proprietor is related to the business and identify application irregularities, but are also helpful in identifying principals who have been associated with multiple businesses or poor financial performance, which may indicate hidden risks are lurking in your portfolio. Without these insights, the skeletons hiding in your guarantor’s past and present business relationships may hold some scary surprises for you.

Some good friends of mine are on a new “low carb” diet and have been getting really impressive results. Now I find myself constantly checking food to make sure I don’t get too many of the dreaded “net carbs.” Too many, and my waistline will suffer.

Similarly,  not knowing what’s in the background of a business owner you’re considering doing business with can add to your “waste line.”  Whether it’s undisclosed liabilities, or associations with businesses or individuals that have resulted in losses in the past, not having insights into these risks can set you up to be victimized over and over again. Fortunately, new tools are now available that provide insights into the current and previous business affiliations of business owners and principals. Armed with a more global view of the owner’s fraud and credit risk, you can improve your bottom line while reducing your “waste line.”

I have especially fond memories at this time of year of working with my grandfather as a painting apprentice during my summer vacations growing up. One of my jobs as an apprentice was using a putty knife to scrape the cracked old paint off of window sills and then sanding and priming them before applying a fresh layer of paint. Over the years I found a sharp putty knife made my work significantly quicker and easier. Although a dull putty knife would technically “work”, it made the job a real chore.

Similarly, while some generic risk scores might work pretty well, they may not be the best tool for the job. Ideally, risk scores should provide you with the most targeted insights to help you manage risk on accounts like yours. For example, if your portfolio is made up of commercial cards, it will be more important that a score identifies the accounts that are likely to go delinquent on card products than one that predicts that a business will go delinquent on a certain percentage of its total outstanding balance. Like using a sharp putty knife, product-specific risk scores can make your job easier and yield much better results.

To learn more about product-specific commercial risk scores, click here.

I usually like to schedule my annual physical around my birthday. It’s a natural reminder to visit my physician to identify any potential issues or suggestions of how I can improve my health.

Like an annual physical, benchmarking your portfolio on a regular basis is a great way to identify both risks and opportunities for your business. So what is benchmarking? Webster’s online defines it as “The process of identifying, understanding, and adapting best-in-class practices and processes from other organizations, as well as within your own organization, to help your organization improve its performance.”

There are many metrics you can benchmark, but here are some ideas that can help make your benchmarking program successful.

• Define your purpose – What are your goals (identify market opportunities, improve internal processes, etc?)
• Define your metrics – Consult with stakeholders to define the metrics that will best help you achieve your goals.
• Define your scope – Start with a manageable number of metrics and evolve over time. 

Benchmarking provides powerful information you can use to plan business strategies, identify market opportunities and more effectively communicate your portfolio performance to senior management. To learn more about how portfolio benchmarking can help you click here

Striking a healthy balance between risk management and customer service can be a challenging proposition, especially when dealing with small business accounts. This was a common theme voiced at today’s TRMA Summer Conference Small Business Roundtable here in rainy San Francisco. Small business accounts represent significantly higher exposure than consumer accounts, so it’s understandable that risk managers would want to adopt more aggressive policies to ferret out small business risk. However, conference attendees reported that adopting a more painstaking approach had not only reduced credit and fraud losses, but had resulted in lost sales too. To stay competitive and avoid being labeled as the “sales prevention department”, it’s critical to adopt policies and leverage tools that provide risk mitigation while building strong customer relationships. I’ll be presenting some of these tools at the conference tomorrow. Based on our conversations today, it should be a very timely session.

Small businesses are big business, and unfortunately, they can represent big risk too. According to research conducted by Greenwich Associates, the percentage of small businesses applying for a loan increased from 5% in the third quarter of 2010 to 15% in the fourth quarter of 2010 and skyrocketed to 29% in the first quarter of 2011. This provides some optimism that small businesses are transitioning from “survival” mode to “growth” mode for the first time in several years.

With this emerging opportunity, many risk professionals are interested in new tools that can help them mitigate the risk associated with their small business accounts. I’ll be presenting some of these tools at the TRMA Summer Conference later this month. The conference will be held at the Sir Francis Drake Hotel in San Francisco on June 28^th and 29^th. In my session, I’ll be discussing some of the new technologies that have been developed to uncover fraud, improve risk assessment and optimize commercial collections by uncovering relationships between principals and their associated business interests.

Based on my past experiences with the TRMA, this should be a great show. If you make it there, be sure to say hello.  You can register online here.

Many small business lenders seem anxious to increase their lending activity, but are wary of lingering economic risks, and for good reason. According to Experian’s BizSource database, as of March 2011 about 58 percent of delinquent small business accounts were likely to go 91+ days delinquent. By comparison, only about 18 percent of larger business delinquencies were likely to become severe.  This increased risk, combined with the low-dollar value associated with many small business transactions presents a dilemma for large volume lenders. 

To address this issue, scores have recently been developed that predict a small business’s performance on a particular product (e.g. commercial card account) rather than its delinquency across all its obligations. These scores provide an accurate and cost-effective way to identify accounts likely to go delinquent on the products within your portfolio. Learn more about how product-specific scores can help you maximize your portfolio, while minimizing your risks here.

Reporting your commercial accounts receivable experiences to commercial bureaus is not a new idea, but “give to get” consortiums that provide access to exclusive content are increasing in popularity as one way to get a competitive edge in today’s challenging market conditions.  These credit “co-ops” provide access to premium risk tools such as highly predictive scores, portfolio benchmarking and proven collection services. Another consideration is that if you are not reporting your data, you may find your account experiences conspicuously absent in the bureau scores and reports you rely on to make your credit decisions. It also might surprise you to know that bureaus provide special pricing incentives to data contributors, providing “found money” to budget beleaguered credit departments. You can find more details about how data reporting can make you more profitable here.