Credit profile checks vital: CTOS


  • News
  • Monday, 18 May 2015

Individuals and businesses should determine the financial status of prospective customers, partners or suppliers before committing to important financial decisions.

Credit reporting agency says businesses ought to ensure that customers, partners and suppliers have good credit standing, reports NEVASH NAIR.

Malaysia’s leading credit reporting agency (CRA), CTOS is urging business owners, especially small and medium enterprises, to conduct regular credit profile checks on themselves, as well as people and organisations they have dealings with, to minimise financial risks in business transactions.

The credit reporting agency says individuals and businesses can turn to it to determine the financial status of concerned parties before committing to important financial decisions, be they potential customers, partners or suppliers.

This method of doing background checks is a sound business practice and widely used by banks and financial institutions to verify one’s financial standing.

“By providing information to credit grantors and creating transparency, we inspire greater confidence in them to transact with parties they would otherwise know little or nothing about,” explains CTOS chief executive officer Eric Chin.

“For a business, there are three key areas to look at. Firstly, we have to look at customers (and most likely customers will request for a delay in payment). Secondly, business partners that are brought in should add value and not bring the company down. Finally, businesses have to evaluate suppliers. Suppliers are key as they keep businesses running. A wrong supplier on the verge of business failure can be detrimental,” says Chin.

“This is where CTOS comes in. We provide the services to support the due diligence process,” he stresses.

Chin says CTOS’s information database includes the credit profile on 15.1 million individuals and two million records on companies and businesses.

 

CTOS has collated the largest database of crucial information on people, companies and businesses in the industry. CTOS’ information database includes profile on 15.1 million individuals and two million records on companies and businesses.

“We update our information on companies and businesses every month. We have a close working relationship with the Registrar of Companies (ROC) and the information we provide include the name of directors, shareholders, etc. We also have some three million proprietary information, and we encourage our subscriber base to share information with us,” says Chin.

“We also have a self-reinforcing eco-system and, unlike other providers, CTOS is the only credit rating agency that provides a web-based business tool called Credit Manager. This tool works like a mini enterprise resource planning (ERP) system. When SMEs subscribe to our service, they will provided with this software,” he adds.

The Credit Manager provides information to their subscribers who may require report for various purposes, including opening of accounts, extension of credit or loans, hire-purchase/leasing/rental or purchase of properties or equipment, factoring, insurance, provision of services, job employment, and legal documentation amongst others.

“This is our EMR (evaluate, monitor, recover) principle. To evaluate is to check credit profile and credit records of customers in order to be in a position to assess as to whether a credit risk is acceptable. And then, we monitor to constantly update business information sources to keep track of approved credit risks.

“This helps to determine whether these risks are worth maintaining to minimise or avoid losses. Finally, recovery is based on the current financial conditions of customers and taking relevant action in the worst-case scenario of the risks,” explains Chin.

“Based on statistics from the Department of Insolvency 2013, 60% of new businesses fail within the first year of its inception. At the same time, on average, 125 companies close shop voluntarily every month. Although this is not alarming, there is a need for businesses – small or large – to carry out due diligence when extending credit.

“You do not want to be granting credit to businesses that have a poor financial track record. The same goes to businesses that are managed by people with poor financial track record,” says Chin.

“The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCIM) conducted a study recently with all their members and they found that 66% of their respondents see a gloomy outlook for this year. Looking at this, we believe CTOS has a role to play in helping SMEs become more competitive.

“Our key value proposition to SMEs at the end of the day is to strengthen and enhance their credit-risk management,” he adds.

Established in 1990, CTOS fall under the ambit of the Credit Reporting Agencies Act 2010, and their main role is to facilitate credit extensions by empowering individuals and businesses with access to crucial information at greater ease and speed.

According to published reports, CTOS plans to expand its SME customer base from 3,100 currently to 15,000 by 2020.The credit agency has also tied up with business analytic software company Fair Isaac Corp (FICO) to launch what is being labelled as a “game changer” for the credit provider industry.

The 25-year-old company is looking to establish best business practices among SMEs as the way forward.

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