Wholesalers and manufacturers who provide goods on credit are emerging as major users of credit reference bureau (CRB) scores to weed out rogue retailers who fail to pay for consignments, leading to losses and working capital constraints.
The bureaus have reported an increase in requests for credit data from trade goods providers, who include firms offering e-commerce platforms that allow for the delivery of goods and services before payment.
Demand for the service comes at a time when the CRB framework is being retooled to shift away from a simple listing of good and bad borrowers, to a more comprehensive credit scoring system that will allow for risk-based pricing of debt facilities.
They use the score at the time of onboarding new retailers to determine the quantities they can give on credit, the terms of the facility and the duration of payment.
SMEs, which have been struggling to access lending from banks to finance working capital, tend to rely on accessing goods on credit from suppliers, and paying later once they have made sales.
“In the database, we have large distributors, wholesalers and two e-commerce platforms that offer buy-now-pay-later transactions. The distributors do credit checks on their retailers when they are opening a new outlet,” said Gideon Kipyakwai, chief executive of credit reference bureau service provider Metropol Corporation.
“They cut across 80 industries, out of the 243 industries that are listed in this country, including pharmaceuticals, agriculture and services. We need to get all the industries to use CRB services because all of them have some form of credit.”
Next month, Facebook parent Meta Platforms Inc will be relying on CRB scores to build profiles of traders’ advertising on its platforms in efforts to curb mounting defaults.
The measures, which are part of the company’s updated terms to be effective from January 3, 2023, will also see some advertisers being required to make upfront payments for Facebook and Instagram advertisements.
Those with clean records will continue to enjoy the credit facility that allows them to list their advertisements on the platform and make payments for the same after a month.
Facebook recovers money from the advertisers after 30 days and a significant number of traders have failed to pay within the window after running promotions on the platforms.
Due to the explosion of e-commerce, platforms such as Facebook, Twitter and Instagram have become key marketplaces for businesses, which advertise and also close deals on them in a departure from the traditional brick-and-mortar business outlet system.
Tracing defaulters and collecting the dues owed in the digital space is difficult and costly for these platforms, given that some of the advertisers do not operate out of physical premises.