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:
- Length of business relationship
- Amount of credit
- Terms of credit
- Payment history
Trade references are important for assessing credit risk, but they should be used in conjunction with other references and 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
Experian, D&B and other 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. In addition, public records are reviewed for liens, judgements and bankruptcies, and consideration is given to years on file, Standard Industrial Classification (SIC) code and business size.
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 the rapidly changing business environment in the new normal.
Ideally, credit scoring should match your company objectives, customer base and business processes, and use data from as many sources as possible. Information should be kept up to date and organized. Automated credit solutions will help your team be more efficient and effective at managing credit risk.
The one-size-fits-all approach to credit scoring may not be the right solution for your company. Automated custom scoring can provide the flexibility to incorporate a number of information sources to reflect the right mix of data needed to measure the credit risk of your customers efficiently and effectively.
With the credit scoring solution by Lockstep Collect you can customize the information that best fits your customers, and assign a value and weight to the components based on their importance. Custom credit scores are also displayed on the dashboard solution by Lockstep Collect for easy access and use by your AR team. Automation of custom scoring frees up your collectors so they can make more customer contacts and increase collections.
Lockstep Collect, a leader in cloud-based credit and collection platforms, provides automated solutions for effectively and efficiently managing credit. Lockstep Collect is an experienced software partner that can help you navigate the challenges of managing credit risk.
If you would like to learn more about how you can benefit from automated credit management solutions, please contact Lockstep Collect at www.lockstep.io.