Customer credit risk has become a major concern for businesses today. Companies that were financially sound for decades, are seeing struggles in today’s economy. Calculating and monitoring customer credit risk is essential to protecting your company’s cash flow.

Calculating Credit Risk

Credit risk is directly correlated with a number of factors including:

  • Years in business.
  • Financial strength.
  • Supplier payment history.
  • Loan payment history.
  • Bankruptcies, liens, and judgements.
  • Available credit.

The best way to distill these separate but related pieces of information into a tool for calculating credit risk is to develop a custom credit scoring model.

A custom credit score can be tailored to include the factors which give the best reading of your customers’ credit worthiness. Some things to consider in developing a custom credit scoring model include:

  • Factors that give the best picture of your customers’ credit health.
  • Value and weighting to be assigned to the factors in scoring model.
  • Ease of updating the factors to keep credit scores current.
  • Convenient display of credit scores for easy reference by your team.
  • Automation of credit score calculations to increase efficiency.

Leveraging Tools and Technology to Monitor Credit Risk

Monitoring credit risk is done more efficiently and effectively with automated credit and collection solutions. Sage AR Automation has a number of solutions which can help you monitor credit risk including:

  • Custom Credit Scoring Model: Calculates credit score based on values and weighting assigned to factors you think are the best indicators of your customers’ credit quality.
  • Dashboard Reporting: With a glance your team can see a customer’s account status, custom credit score, days past due, available credit, D&B, Experian, TransUnion; and whether the account usually pays on time or late and by how many days.
  • Automated Customer Communications: Automated emails or text reminders based on the status of customer invoices.
  • Activity Management with Smart Activities: Prioritizes activities for your team based on account information.