Credit scoring can be a useful and efficient tool for assessing business credit risk. There are several business credit scoring strategies that you can use. Here are some things that you should consider in deciding which credit scoring strategy is best for your company.
Traditional Credit Scoring
Traditional scoring focuses on trade references. Trade reference information typically includes the length of business relationship, the amount of credit requested, the terms of credit, and the customer’s payment history.
Trade references are vitally important for assessing credit risk, but they should be used in conjunction with other references as well as financial and legal information to make well-informed credit decisions. Trade references are usually limited to a few suppliers, so they may not provide a broad enough sample to get a clear picture of a customer’s credit worthiness.
Credit Rating Agency Scoring
Credit rating agencies provide statistical credit scoring on businesses. The scale is 1- 100 with higher being better, as compared to the scale of 250-900 used by FICO for individuals. Business scoring considers trade references, balances outstanding, payment history, credit utilization, and trends.
Credit rating agency scoring provides a broad range of factors, and includes a larger sample than traditional scoring, but the information can be stale and unreliable due to a rapidly changing business environment.
Automated Custom Scoring
The one-size-fits-all approach to credit scoring may not be the right solution for your company. Automated custom credit scoring can provide the flexibility needed to incorporate several information sources to reflect the right mix of data required to measure the credit risk of your customers efficiently and effectively. These can incorporate traditional scoring methods and agency scores to best fit your needs.
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.