Bank verification is an essential tool credit managers use to prevent fraud, make better credit decisions and deepen customer relationships. But too often, credit managers rely on outdated methods for verifying bank accounts, and receive very limited value as a result.
In today’s world, a bank verification is more than just a verification. It will offer a detailed cash flow analysis of the credit applicant.
Here’s why and how credit managers should rethink their approach to the bank verification process to make it more efficient and effective.
In the commercial trade credit setting, bank verification is the process of confirming a credit applicant’s business bank account. Traditionally, a business applying for credit with a vendor provides basic information about their business bank accounts on the credit application. The credit manager then contacts the applicant’s bank(s) to verify the account. This process is manual and painfully time consuming. In many cases, banks just outright ignore the credit grantor's request to verify an applicant's account.
Alternatively, a credit grantor may request the customer supply copies of business bank statements, but that can also be problematic. The customer may have multiple accounts, for example, and only provide a statement for the one with the highest balance. Or, worse, bank statements can be doctored.
Technology now makes it possible for credit managers to quickly and easily obtain up-to-date, detailed information about an applicant’s business bank accounts. We’ll talk about how bank verification services work in a moment.
But first, it’s important to understand why this information is so crucial to the extension of credit and the credit decisioning process.
When making credit decisions, many credit managers put significantly less weight on the value of bank data when compared to credit reports and scores. According to a poll of the LinkedIn Credit Risk Group, only 5% of the 285 credit managers surveyed chose bank account verification as the most important input.
Perhaps that is in large part due to the limited information most credit managers receive when they verify customer’s bank accounts. If a response is received -- sometimes days or weeks later, or maybe even never -- it will simply confirm whether the applicant has a business bank account, and perhaps include the date it was opened.
Imagine ordering a credit report and getting a response from the credit bureau that simply states whether a credit file exists for the customer, with no information about accounts, balances, or payment history.
With more detailed information, however, bank account data may easily rank as just as valuable– or in some cases, more valuable– than business credit reports and scores.
Here are three reasons how detailed bank data can transform your company’s credit decisioning process:
Recent bank account information provides insights that even a robust credit report can’t. A bank account with only a minimal balance and few transactions may indicate a fledgling business, or one that has been created solely for the purpose of defrauding creditors.
And, of course, bank account information that significantly varies from what was stated on the credit application is a red flag that warrants further investigation.
But most importantly, verifying that an account is a live and active account -- and crosschecking the account ownership with the applicant -- dramatically reduces the chance of fraud.
Bank account activity offers insights into the financial health of the business that even the most detailed credit report can’t. It can also be valuable for evaluating businesses with a thin credit file. As mentioned, a bank verification is more than just a verification. It will offer a detailed cash flow analysis of the credit applicant.
This data helps the credit manager understand how much revenue the business is actually bringing in, and can provide helpful cash flow insights. Historic data can show whether the business is growing or shrinking.
Ultimately, this information can help the credit manager decide whether to approve a credit application, as well as the credit terms and credit limits to extend.
Bank verification can be used for more than just approving or declining a credit application. When checked periodically, bank account information can help the credit manager proactively identify opportunities to improve the customer relationship.
After a credit review, a credit manager may want to increase the credit line of a customer whose bank account balances are growing, for example. Or agree to longer payment terms for a client with healthy revenues but short-term cash flow challenges.
If a customer’s bank accounts show a continual reduction in balances, you can reach out before they miss a payment to learn more about the challenges they are experiencing and act accordingly.
Traditionally the credit application will include language giving the creditor permission to verify bank account information. With the typical manual verification process, a verification request is transmitted to the bank– often by mail, phone, email or fax– and the response can take days, weeks or even months to receive.
Bank verification services can automate the process, making it faster and easier to get detailed account information.
Nectarine Credit is the only company offering vendor credit managers the ability to verify and provide detailed cash flow reports from multiple bank accounts in seconds.
If a bank account is active, the credit manager will receive a report that shows the current account balance, as well as a six-month trailing cash flow report showing inflows and outflows, and the average transaction amount for each month.
With organized and structured credit reviews, a credit grantor can then periodically monitor this information, along with business credit, to keep tabs on the financial health of the business.
See for yourself how Nectarine Credit can help you manage credit risk more efficiently and accurately.