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Gaming the System – An Opportunity for Customers and a Challenge for Businesses and Landlords

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Years ago, Cayman was a place where everyone knew everyone and everyone had some property that served as collateral when they needed to borrow money. Today, those days are no longer and like the rest of the developed world, the collateral of the majority of residents today is down to their good reputation.

So what does all this mean for businesses offering credit like banks, landlords, telecoms, utilities, healthcare providers, retailers, wholesalers or others? Well, it’s quite simple. When consumers need to borrow money, it’s much easier for consumers to get loans when they have valuable assets that creditors can foreclose on or repossess and sell. The risk also becomes lower for creditors as a result of retrievable assets. Nothing new here. But what happens if a customer does not have valuable assets to pledge as collateral like small consumer loans, unsecured credit lines, or accounts that are paid for after service is delivered? What do creditors look at then? Well, that answer is fairly simple too.

Creditors can look at the income of the debtor against their expenses. But that is where the simplicity ends. It is easy enough to get a job letter. But is the job letter really reflective of the true net salary? Did the person really disclose all of their expenses? What if the customer loses their job and is unable to repay the loan? Will they pay you back later?

The questions really go on and on. Nevertheless, business must also go forward. As a result, creditors take the risk and typically charge higher interest rates to offset possible losses down the road.  Cayman is a financially sophisticated country, so what is different about Cayman versus other countries’ credit services offerings? Well there is at least one difference. Other countries with developed credit markets see their creditors regularly check the credit history of their customers.  A credit check is the way creditors can check on the customer’s reputation to determine the level of risk the customer might pose once the credit line is approved.

A credit check is one more means that a business takes to understand the financial capability of the customer to service their debts. Checking a customer’s credit might reveal unlisted debts on the credit application. This is important for at least two reasons. First, if the debtor didn’t list the debt, then they were not transparent with the creditor. This spawns several new questions like what else did the debtor not disclose?

On the other hand, excluding debt expenses from the credit application form will ultimately impact the debt and repayment ratios that creditors typically use to determine whether to grant a credit line or not.

When a customer omits information from creditors, they are looking to capitalize on the opportunity that their creditors will not find out. And when a business fails to check customer credit, they risk the chance of incurring a bad debt. In this way, customers are gaming the system and will win.

Creditors can even the playing field through proper due diligence and credit checks as part of their standard policies and procedures when considering new customer business. The answer is to put a written credit policy in place which includes checking the credit history of the customer.

Up to this point, we discussed checking the credit report when issuing credit.  However, the added benefit is that if the debt goes bad down the road, the creditor can list the debt with CINCB for collection and the debt will also be listed in the debtor’s credit report.  In doing so, the community of creditors that check credit will help collect your debt because the customer will likely not get credit if they have unpaid debt that is listed in a credit report.

CINCB is a leader in debt collection and credit reporting services since 2002. CINCB serves over 260 creditors locally and internationally across the banking, insurance, financial services, healthcare, utilities, telecom, landlords, retail and wholesale sectors.  CINCB has delivered high-quality, professional services through its team of highly experienced agents who possess local in-depth knowledge across every aspect of the credit landscape.  CINCB has been a driving force in the credit and collection industry and stands ready to serve you.

Services are delivered fully online at www.CINCB.ky.  Contact us today to find out more.


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