In the movie “Casablanca”, the French police chief has a famous line, “round up the usual suspects”.  The Financial Stability Risk Score, or FSR, predicts bankruptcy or severe payment default and the factors used by the scoring model are familiar ones.

Among the warning signals used:  61+ and 91+ delinquency trades and derogatories such as being placed for collection, liens, and judgments.  A young business and certain industries are also correlated with business failure.

So if you have a relatively high margin business and are looking to spot the worst offenders the Financial Stability Risk Score is for you, and it works extremely well with Experian’s payment delinquency score, the Intelliscore Plus  in segmenting slow pay BUT will pay, vs. slow pay AND NO PAY.  That distinction is the difference between your receivables making it home safely or getting mugged.

 P.S. If you’re one of our clients, we just added Financial Stability Risk Score to our Premier Profile report – at no extra charge!

You do not have to be the owner of Greek Treasury bonds to be concerned about the risk of a major account going bankrupt or defaulting. Slow pay is one thing, but no pay is unacceptable. To help reduce the risk of no-pay accounts, we’ve developed a new product – the the Financial Stability Risk Score.

The score’s objective is projecting which companies have the highest risk of business failure and payment default. Fortunately, this severe event is much less likely to occur then payment delinquency (which scores like our Intelliscore Plus score predict).

For geeks, like me, who understand scoring methodology, you’ll be impressed with the score’s performance – the bad rate for the Financial Stability Risk Score, is a little less than 3%.
We will talk more about this powerful new score in future posts.

A credit score is looking to the future . Sometimes I will receive a question about a score, because on the surface the company looks good, but its credit score is in the high risk range.

Often the confusion is caused by current data looking decent, such as having a high percentage of existing trade dollars paid in a current manner. But when we look closely at the account, we will find that the company is paying its high dollar, main trade vendor on time, while letting payments to other suppliers lapse.

Since a score is looking ahead these early delinquent payments are a warning sign of future deterioration. So, even though a company may look okay at first, it’s important to look deeper to understand how it may perform in the future.

Learn more about improving financial results with the predictive power of scores:

http://www.experian.com/intelliscoreplus

One of the challenges in developing credit scores for more than 25 million businesses in the U.S. is accounting for the differences. After all, statistical scoring started in order to avoid making time consuming decisions on each new account application. On the other hand, having one scoring model would lump every company together in one model, from Apple and Exxon to Bob’s Barbershop.

The solution? Segmentation. While it would be impossible to have more than 25 million separate models, it is possible to group businesses by like characteristics. For example, the Intelliscore Plus model has a large company segment. Companies with over 1,000 employees are scored by a separate model specifically crafted for larger companies. As such, this model does not heavily weight the number of liens or judgments since this factor is so common with larger companies.

To learn more about Intelliscore Plus and segmentation, click here: http://www.experian.com/intelliscoreplus/

In the holiday favorite, “A Christmas Story,” Ralphie drinks an ocean of Ovaltine in order to receive a Little Orphan Annie decoding ring. He uses this to finally decode the cryptic messages he tracked from the end of each episode of his favorite radio show. It turns out that all his hard work was to reveal the secret message “drink more Ovaltine.” To understand decreasing credit scores, you shouldn’t have to go through so much trouble—and in the end, you should receive meaningful messages—like the top four factors that lowered the score.

These top factors relate directly to the data that caused the score to decrease. Questions usually arise when no derogatory data is obvious. Score factor codes provide the insight needed to reveal the answers, such as number of accounts with delinquency, or high utilization of previous high credit. With score factor codes, you see what data drove the score lower—and whether you drink your Ovaltine, or not—that’s purely optional.

Want more? Learn about Intelliscore and score factor codes, click here:

http://www.experian.com/intelliscoreplus/

You may be familiar with your personal credit score, but do you know what factors drive a business credit score? The top three are trade, trade, and more trade information. You see, the number and percentage of trade credit lines that are considered delinquent or severely delinquent can have a major impact on your business’ credit score. High utilization of trade credit lines can also have a negative impact. The next most important factor affecting your business credit score to look out for would be the presence of derogatory information, such as your account being placed for collection or having a public filing on your record (liens and judgments).

So how do you keep your business credit score in good standing? It’s easy. Pay those bills on time and settle disputes with creditors and the government before they turn into negatives on you report and cause your business big problems.

How do you use scores in setting a credit or risk policy? The answer actually varies widely, but there are some general rules. What is your companies risk tolerance? If margins are high, approvals are usually high also. In this situation, only the highest risk and lowest scored accounts should be rejected or reviewed. For a lower margin business, the opposite is true. A higher threshold is set for approval and many more accounts are reviewed or declined.

You can deploy credit scores to facilitate a custom risk policy and Experian provides capabilities in Business IQ to set a risk policy that fits your companies approach, so one size does not fit all.

For most people, a credit score on a business—the Experian Intelliscore—is a bit of a mystery. In reality, the score can be thought of as solid credit analysis driven by a statistically disciplined process.

For example, most people would agree that a tax lien would be a serious issue for a small business, but not that important for a fortune 500 company. Following this logic, there are actually multiple model paths that adjust to the type of business being scored, and the data present. The statistical analysis is critical in determining where one lien, or two liens, or 10 or more liens is a serious factor lowering the score, no factor at all, or something in between.

Finally, all Intelliscore reports provide up to four reasons which lowered the score, reducing the potential for mystery even further.

http://www.experian.com/business-information/credit-risk-management.html

In my last post we discussed how the best predictive performance comes from using the consumer data on the business owner and blending it with the commercial data on the business.  But how does the scoring model work using both sets of data?  Unfortunately it is not as simple as half of the score is driven by the consumer data and half by the business data.  Advanced statistically processes are used to identify the relationship between data elements and the best prediction of future performance.  Thus we have often seen very high consumer scores on the business owner and yet the blended business score is low because of significant derogatory commercial data.  The use of both sets of data always means a better identification of risk.

Fast, accurate, and efficient is the way most people want decisions in today’s hyper-competitive world.  You can also add: ‘customized to my company’s specific risk policies’ and ‘flexible to change as circumstances change’—naturally, wanting this right away, no waiting.  Does this sound like the type of decision system you would love to have?  Not surprisingly, that is what we have heard from clients.

DecisionIQ is a powerful tool for implementing all the above.  How does it work?  First, you start with Intelliscore Plus, a business credit score.  You can setup multiple score ranges with approve, review, and decline decisions, or customize the decision to fit your specific business model (deposit required, etc.)  Next, you can establish kick-out rules.  A good example would be if a company has been in business less than a year, it always gets reviewed.  The key point here is that these rules are flexible, with multiple data elements and settings to select from.

The real power comes in adding rule sets.  Say you are approving accounts that are in the top 25% of scores, and you will provide them with a credit line of $10,000. You can then add multiple rules:  is the company in health services?  If so, now provide a credit line of $25,000.  Or, is the company under 10 employees?  Then provide a credit line of $5,000.  It’s all up to you—and you can change these rules on the fly, creating different rule sets for different divisions or product lines—all with a few clicks.

These decisions are produced automatically, a perfect solution for decentralized operations, such as for multiple branch offices.  You also control what each location sees, from just the decision, to the decision with a full business report and score.

Fast, accurate, efficient AND flexible?  Yes, we can help you with that—DecisionIQ Premier.  To learn more about Experian Business Information Services, visit http://www.experian.com/b2b.