Property managers are forced, as a result of economic pressure, to fill the commercial space within their portfolios and ensure that the tenants – once signed – are able to pay.
Being able to understand the credit history, and performance, of property tenants can greatly reduce the risks associated with defaulting payments. Michelle Beetar, Managing Director of Experian SA explains the benefit of credit management tools for the property management industry.
Property managers, like other industries, are facing increased pressure to ensure the tenants they sign for their properties are going to pay their bills.
Many years ago, credit decisions tended to be based on limited information and ‘gut feel’ but with the evolution of technology – and increasing corporate governance requirements, the commercial credit industry has been forced to evolve. Instant and accurate decisions are now imperative, and possible.
As such, many property businesses are turning to technology, data and analytical tools provided by international information services companies such as Experian to manage their potential credit risk.
One part of mitigating the risk is to understand the potential tenant’s history up front. The other part is monitoring their credit performance.
At Experian SA, we assist commercial property managers to evaluate the tenants’ credit status, monitor their ongoing business performance, determine the likelihood that they will get their monthly rentals on time and understand compliance implications – for example, if tenants have an annual turnover of R1 million or less they will be regarded as individual consumers rather than established businesses and particular regulations will apply.
Decisions also have to be consistent. A proper credit analysis measures all applicants against the same set of criteria. In turn, this gives the relevant business a means to set their policies for risk taking. Automated decision making, for bigger clients, will also take these policies into account.
Walter Kruger, National Credit Manager at Growthpoint Properties – and a long-standing client of Experian’s feels the same. He says, “Using a reputable bureau like Experian, who has up to date commercial information on tenants, is vital to ensure that the risk is assessed in such a manner that existing and new tenants are scrutinised to ensure a risk free long-term relationship going forward.
“Up to date adverse information updates and tenant monitoring, alert us to potential problematic accounts. Once these daily updates are received it allows us to proactively contact our tenant and assist him before any non-payment issues may arise.
“As our business is conducted over a long-term and differs from a normal trade environment of goods sold and delivered, the bureau information offers important information to us to make an informed decision.”
For both Growthpoint, and a number of other property management companies a deeper commercial understanding based on a blend of integrated business and consumer information is needed.
Commercial property managers need to be able to view potential and existing tenants’ unique business credit risk score which provides early indicators of payment risk.
Experian’s Commercial Delphi Score provides greater granularity to risk ratings for business credit granting. The score is designed to predict the likelihood of business failure over a 12 month period and is structured such that it scores all active businesses, including sole proprietors.
It has been developed to operate on multiple data access platforms so that it treats SME and large business appropriately and has the facility of scoring new start-ups and established businesses.
Additionally, risk grades need to be updated in real-time, as and when factors material to the credit worthiness of a business change. With certain key elements used in the scoring process feeding into the database as often as daily, business are thereby assured that they have the most up-to-date risk profiles on their debtors.
As a market leader in business credit information, Experian has developed core expertise in building and managing a comprehensive commercial database over the last 30 years. We hold information on 4.1 million companies of which 1.7million are active and have risk scores associated to them. We hold information on 2.2 million commercially owned properties and process over 1 million trade credit payment lines, which cover over R63 billion outstanding in trade credit.
We produce over 60,000 researched business reports per annum. A typical business report will include a wide range of information, such as a company’s registration and ownership details, trading addresses, how quickly the business is paying its bills, a credit risk score, court judgments and a history of its financial performance.
The company’s ownership of both consumer and business credit information means that Experian is particularly well positioned to help assess the creditworthiness of small to medium-sized businesses.
Given the pace of business, automated decision making is becoming all the more important in driving efficiency and improved revenue recognition.
Experian offers valued added solutions that combine our data assets with predictive analytical modelling to automate a lot of the decision-making processes resulting in significant productivity enhancements. Experian’s technology facilitates the making of many credit decisions quickly. These are consistent decisions that are accurate and based on non-subjective criteria.
Additionally, Experian is able to provide property managers with a holistic view of risk levels across all of their tenants in one place, enabling them to see who their riskiest tenants are and how they are paying them compared to their other suppliers. This enables the property manager to respond proactively and manage their tenants accordingly.
By having a strategy in place to effectively manage the risk of potential tenants, will not only assist in maintaining long-term profitability but also improve tenants’ service quality.
Although a company’s growth may necessitate a certain level of risk, we do not believe it should result in defaulting commercial tenants and bad debt write-offs.