Functions and roles of credit investigation institutions

Most people, especially businessmen, are familiar with the concept of "credit". Credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date. It also refers to the borrowing capacity of an individual or company. Business credit is an overall reflection of a company's or organization's ability to pay and willingness to pay its debt. Knowing the credit conditions of a corporate or organization will help the decision makers in making accurate judgment and right decision during their business dealings. It has further implications on disciplining those corporate and organization's behaviors in the market economy, increasing the operating transparency and preventing economic frauds. Credit has appeared as early as the West Zhou Dynasty of China and the Ancient Greece.

The new problem emerges with the cost reduction of market transaction and augmentation of market scale due to the wide use of credit transaction. Credit risks are produced when the credit giver (creditor) gives credit incorrectly or the credit receiver (debtor) refuses to pay back. To minimize business risk, reduce bad debt losses and control trade risk while facilitating economic activities; to gain inside credit information for companies all over the world while conducting business transactions; to promote the healthy development of capital markets and reduce investment risks in China; to function as important references for government to supervise corporate undertakings; before making a deal with a first-time customer or a business partner, certain steps and measures should be taken to ensure the healthy and steady development of the market transaction. Some credit investigation institutions come into being aiming to seek a high-quality, high-level development trend of market economy.

Generally speaking, credit investigation institutions provide the following four types of services: due diligence, consumer credit investigation, assets investigation and market investigation. Thanks to the existence of such institutions and their services, the social economy can be developed in an orderly way, which will certainly contribute to the improvement of overall economic level of whole society through law of natural selection. Under modern economic environment, the functions and roles of credit investigation institutions include following aspects:

1. Basis for enterprises' existence

In modern society, all kinds of social competition has been gradually commercialized. Competition is everywhere, such as commercial competition and human resources competition. With more and more intensive competition, exchange of commodities is becoming more frequent. The nature of commodity exchange determines the separation of the use value and transaction value, which, as a result, makes it possible for both sides to cheat. Therefore, both sides of transaction must have a good knowledge of the other party as well as commodity provided so as to avoid transaction risks in time and unnecessary losses. The due diligence undertaken by credit investigation institutions can provide strong guarantee for both sides to safeguard their interests.

Due diligence, just as its name implies, means the endowment and credit of enterprise. Comprehensive items are included in it, such as registered capital, general situation of legal person or shareholders, size, actual working status and credit rank of enterprise. Such detailed data help judge the credit standing of enterprise. You can cooperate easily with an enterprise of good endowment and credit. On the contrary, you should be prudent if the objective and true data provided by investigation institution imply an unsatisfactory endowment and credit situation. Still, at that time, you have a command of initiatives. However, with poor knowledge about transaction part or cooperation partner, and no investigation is conducted by investigation institutions, the probability of your success would be decreased by 50%. It also might cause big losses, even make the company close to bankruptcy and never be able to recover ever since. In this meaning, credit investigation institutions serve as basis for existence of enterprises. They provide strong support for enterprises' survive and development through their preventive measures.

2. One of essential factors for the development of enterprise

An enterprise should keep living through development. It is particularly true in modern market economy. Company makes progress and gets competitive through development. The developments of an enterprise depend directly on renewing and improvement of products. Products should be tailored to the market and correspond to technology development trend. It is obvious that human resources in high-tech are needed to produce high-tech products. An understanding of the general situation and background of them is necessary before the employment. One person's credit standing will be affected if he has bad credit record, which is out of the ordinary in everyday life or morally degenerate. Such person will not be taken in spite of his knowledge for the sake of the long-run development of enterprise. On the contrary, one person who is knowledgeable, abide by social norms, acknowledged and accepted by others will be employed by the enterprise. A good or bad reputation of an individual is not formed immediately in short time, but gained gradually in everyday social life. Then how to know about somebody's credit situation? Credit investigation institutions are here to help you. With fair and detailed data about personal credit, it provides precise basis for decision making for enterprise's development. So the professional services from credit investigation are essential for the development of enterprises.

3. One force assisting government to maintain market economy order

Credit was widely praised as a good moral code in ancient times. In actual times when the market economy is on the way to globalization, it is obviously outdated if credit is considered just as a concept and still ruled by moral norms. Legal regulations are necessary to adjust and regulate the consciousness and behavior of credit. It is doubtless that government plays an important role in intervening, guiding and maintaining the order of market economy according to economic laws. However, only the government power is not enough to regulate economic order. Some illegal people would still make use of various methods to violate market laws in order to reap colossal profits. Take China as an example, with its market economy being somewhat in the state of disorder in recent years, all kinds of frauds, all kinds of counterfeit and inferior products are filled any place in any industry. They have seriously disturbed the market economy order and hindered the social progress. Under such situation, credit investigation institutions have played a role not to be ignored in regulating economy order. They provide services, which enable consumers to have rights to choose. Enterprises or individuals with good credit are more likely to be chosen to contact, while those with bad credit are less likely to be chosen and even possibly cleaned out of market so as not be able to reap profit. In order to participate actively in market economy and get maximum profit, enterprises or individuals are ready to improve their reputation and credit quality continuously with an effort to get most contacts, most valuable opportunities and maximum profit. As the China's market economy develops and with her joined WTO, it is important for China to adopt international standards and conventions the soonest possible. As the new power of the information industry, Credit investigation came to being in China. A number of credit organizations were created to meet market demand. The advancement in network technology will further propel the development of credit industry, evidencing China's entering into the Credit Economy era. In this way, a good cycle will be formed, a market order will be maintained and market economy will be developed healthily and orderly.

Obviously, credit is a bridge that links all normal social relationships. In market economy, profit is the first drive of market running, credit stands the second. The reason is that credit can become equity, amplify the profit level of enterprise and help enterprise realize its profit objectively. Credit investigation institutions provide guarantee for successful operation of enterprises in market economy. They guide the enterprise to take scientific management and have an impact on its living and competitive ability. Finally, their existence is helpful in building a matured market economy for one country.