MSU Global/International Business and the Certified Global Business Professional/Domain 4/Task 3/Statement 1

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Knowledge Statement 1

Knowledge of sources of credit reports (e.g., credit bureau, D&B, Hoovers)


Goal

The goal of this material is to introduce credit reports, their purpose, uses, and components. This information will also identify reliable sources for credit report information for international transactions.


Learning Objective

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Objectives
The learner will be able to:
  • Define a credit report and its purpose.
  • Recognize components of credit reports
  • Identify reliable sources of credit information


Content

(Student/Instructor Reading Material)

Introduction

This lesson describes the purpose and components of credit reports. There are different perspectives when it comes to credit reports: 1. from an individual and 2. from the seller’s perspective (i.e., business or commercial perspective). Another perspective may be from a financial institution such as a bank. We are going to focus on the seller’s perspective.

We are going to assume that a person or persons within a business is responsible for assessing whether a buyer (e.g., an individual, another business, etc) has a credit history that demonstrates whether they can and will make payments accordingly. More specifically, we are going to assume that the credit report is obtained from a source outside the seller’s business. This type of information is contained in external credit reports.

The persons that request credit reports and analyze them have many titles. For example, analyst, credit manager, international credit manager, etc. To keep things simple, we are going to assume that they are the international credit manager (ICM).

Topics

In order to convey the purpose of a credit report, the following topics will be discussed:

Conclusion

Credit allows a buyer to take possession of something now and pay for it later or over time. An integral part of granting credit information is requesting and analyzing the credit report. The report provides information in order to make a specific decision about granting credit to a company. An investigation, done correctly, has the goal of a seller obtaining accurate and timely information about a buyer, information that will lead to an appropriate decision for the seller in determining whether and if so on what terms, or not credit will be approved. 1 - “Improving Credit Practice,” Miller and Relkin. AMA, 1991 2 - Business Credit Principles, Field Version 4, NACM Publishing


Activities

  1. In discussion groups, determine what the various elements of a credit report mean and what risk factors would need to be evaluated when considering extending a line of credit to a customer.
  2. It is Friday at 3 PM and you have to make a credit decision on a large, first order from a new customer. You need to decide if using a “direct” investigation or “indirect” investigation will work best. Your sales dept. is expecting you to make a decision by 5 PM the same day. Outline the process and alternatives you have to complete the investigation.


Assessment

(correct answers are bold & listed as answer a.)

  • Which of the following is a definition of a credit report?
a. A tool to assist a seller in assessing payment potential of a customer
b. An instrument that will provide ease in obtaining bank financing
c. A required report by most government agencies
d. A report that is the best source to view financial information of a potential customer
  • The concept of a credit report includes
a. offering an opportunity for a creditor to review key information to make an informed decision
b. providing a debtor the means to outline his/her business principles
c. meeting legal requirements of a business license
d. a way in which a business can solidify a bank line of credit
  • The main purpose of a credit report is to
a. establish a method for customers to obtain favorable payment terms
b. clarify the credit rating of a potential customer
c. allow a business to select qualified vendors
d. clarify financial rumors about a company
  • Which of the following is an example of a direct method of credit investigation?
a. Customer financial reports
b. National Association of Credit Manager (NACM)
c. Experian credit report
d. industry trade groups
  • Which of the following is an example of an indirect method of credit investigation?
a. Dun & Bradstreet credit report
b. Customer financial reports
c. Wall Street Journal
d. International Bank records


Resources


PowerPoint Slides & Attachments

Slides

PDF of Credit Report Presentation

  1. Components of a Credit Report
  2. Components of a Credit Report (cont.)
  3. Components of a Credit Report (cont.)
  4. Direct Sources of Credit Information
  5. In-Direct Sources of Credit Information

PDF Attachments

These attachments can be used to illustrate the type of information that needs to be gathered from new customers. In addition scenarios can be created by completing the forms for a customer and asking the students to approve payment terms based on the information provided

  1. Credit Application – used to request information from new customers
  2. Vendor Reference Form – used to request information from vendor references provided by customers
  3. Bank Reference Form – used to request information from bank reference provided by customers
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