For Emera Inc., a $1 billion electric power company based in Nova Scotia, the biggest financial risk it faced was default of its corporate customers. But as Ken McOnie, the director of finance for the owner of Nova Scotia Power, will concede, sometimes credit decisions boiled down to how he was feeling on a particular day or how much pressure he was getting from his traders. This was primarily because the company lacked sufficient data and an assessment tool to analyze the numbers. It was a situation fraught with risk, and McOnie decided he had to address it.
Although sophisticated risk analytics have tended to be the reserve of the large multinationals and financial services providers, McOnie was determined to find a tool that made sense for Emera. After reviewing the field he chose Web-based RiskCalc from Moody's KMV Co. With RiskCalc, Emera receives a daily flow of e-mail alerts on a combination of credit sensitive terms, including payments to vendors, financial statement data and equity market information for public and private companies. "I don't think we'd be rating down counterparty weighting limits if we didn't have this tool," McOnie says. "We had been reactive, and now we tend to be very proactive and have adjusted several counterparties down."
Many of the newest credit risk solutions offer the kind of fundamental customer payment and financial information that large companies and financial institutions have been relying upon for years, but at a price that even small companies can consider. The latest tools offer a broader number of key credit risk metrics, but at the same time, are easier to use than ever before–an important characteristic for very small finance departments often filled with generalists. "Corporate credit departments are under pressure to deliver good predictive data before a customer goes bad," says Henry Ijams, managing director at finance IT consultants Paystream Consultants. "They are not getting more resources to do it, [so they will have to rely on] speed of recognition and automation for better visibility of changes in corporate credit status."
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Among traditional data providers, The Dun & Bradstreet Corp. offers the Risk Assessment Management (RAM) solution, a Windows-based credit management tool. Software companies are also making inroads, including Credit & Management Systems Inc. and eCredit.com Inc.
The Winter Release 2006 solution from eCredit.com Inc. offers a scalable credit and collections application for companies of all sizes. The update is built on an easy-to-use platform that
allows users to tailor the product to their specific needs without the help of an IT staff. This includes easy management of information about how certain customers measure up from a credit-risk perspective. In less than an hour, a company can sign up with the service online and begin using accounting, billing, process management and credit score functionalities. "We wanted to empower the end-user, which really helps small and midsize companies who can't afford to bring in a consultant to do this," says Alex Cote, director of marketing at eCredit.
Scorecarding capabilities also make it simple to automate the process of building valuable credit assessments on specific customers, eliminating time-consuming manual calculations that are typically used. Last year eCredit acquired The Credit Exchange, an online compiler of credit reports from transportation and freight delivery companies. The data from these reports can be accessed on a subscription basis and integrated into the tool for a fee starting at $300 for 25 reports. Users can also link to credit reports from all the major data bureaus, including Equifax and Dun & Bradstreet, to build a credit score based on a customer's history of payments, outstanding balances and other key measures, all in real-time. Credit score weights can be adjusted automatically.
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