How are the credit report scores and limits calculated?

What is the Risk Score?

The risk rating predicts the likelihood of a company becoming insolvent within the next 12 months.

Score definition where Accounts are filed
71-100 Very Good Credit Worthiness
51-70 Good Credit Worthiness
30-50 Credit Worthy
21-29 Credit Against Collateral
0-20 Caution - Credit at your discretion
No Rating Financial Statements are too old
Liquidated/Wound-up Company is liquidated or is wound-up
Dissolved Company is dissolved
Petition Petition has been filed
Score definition where no Accounts filed
51-100 Low Risk
30-50 Moderate Risk
0-29 Caution - High risk
Liquidated/Wound-up Company is liquidated or wound-up
Dissolved Company is dissolved
Petition Petition has been filed

 

How is the Risk Score calculated?

The Risk Score calculation was created by analysing companies over a 12 month period. Using discrimination analysis, we identified the key data variables that are essential in predicting the probability of a company becoming insolvent within the next 12 month period. These variables were then run against our entire database of companies and through statistical analysis, an appropriate risk weighting was assigned to each variable. Through the calculation of these key variables, combined with current variables we generate the credit score.

Key Data Variables

  • Age - A newer company wouldn't be penalised for it's age, but an older company will have more history to assist with a calculation.
  • Size - Small and Medium sized companies are scored using a separate calculation to large sized companies.
  • Financial performance - Net Worth, Cash etc is compared to previous years and with similar sized companies.
  • Age of the company accounts - Analysis has shown that small sized companies who file within the final 15 days of their due date are almost three times more risky than a company who files in good time. For large companies No Rating is provided if the accounts are filed late.
  • Ratio Analysis - Return on assets employed etc.
  • Comments from Independent Auditors - Any adverse comments would affect the score.
  • Director’s history and performance - If a director is associated with companies which are insolvent or have adverse information this may affect the score. The number of directors and changes within the management of the company is also considered?
  • Group Influence - If the company is part of a group, the companies within the group will also be analysed to look for adverse information such as insolvency. Such information would affect the score.
  • Demographics - Where the company based may have an affect on the score if the area has seen an increase in insolvencies.
  • Mortgage Data - The amount and number of mortgages against the company will also affect the score.

Current Data Variables

  • Industry insolvency trends - Analysis across the country and carried out and adjusted quarterly
  • Number of CCJ’s - The more County Court Judgements, the bigger the affect on the score.
  • Value of CCJ’s - The bigger the value of the County Court Judgements, the bigger the affect on the score.
  • Frequency of CCJ’s (how often and how recent?) - If a company receives a number of County Court Judgements within a short space of time, this would be considered an increased risk.
  • Time critical filings - Any documents which are over due for filing at the registry would suggest an increase in risk.

To ensure that latest credit ratings take into consideration the problems that companies are facing in the current economic climate, we have taken the results through an additional stage of analysis to reflect the latest trends in insolvencies. The ratings have then been further processed to reflect the insolvency trend by industry SIC code ensuring that companies in the worst affected industries have their ratings reduced appropriately.
As a positive by-product of these changes we are able to reassess the insolvency statistics quarterly and alter the ratings both as a whole and by industry so that we continue to have the most up to date and relevant rating possible.
Our rating algorithms are split in two for established companies using the Companies House definition of a small company for one and all medium and large companies in another. We also have a separate algorithm for Non Limited companies and for New companies (less than 22 months old and yet to file financial information).

How often is the Risk Score calculated?

The Risk rating is calculated daily and is entirely automated, there is no manual calculation required to manipulate or adjust credit scores/ratings. Daily feeds are taken from our databases to update scores on a real time basis. If a company submits its latest accounts to Companies House, then as soon as these are available to the public (usually 10 working days later) the documents will be analysed within 48 hours and updated on the database. As soon as this is completed the company’s credit risk rating will be recorded/adjusted based on the latest filed accounts. The system also continually incorporates the following time critical information, which updates the credit scores on a real time basis:

  • Companies house Gazette
  • London, Edinburgh & Belfast Gazette
  • CCJ & High Court Writ data

Credit Limit

The company credit limit is our recommendation of the total amount of credit that should be offered to a given company at any one time.
EU & UK Data now calculate Credit Limits by looking at a company’s financial position in greater detail. By looking at critical credit information fields in conjunction with the credit rating of the company we can base a credit limit decision more accurately than previously. These fields include:

  • Net Worth
  • Working Capital
  • Net Cash Flow Operations
  • Debtors & Cash
  • Turnover (larger companies where available)

Typically if a company has a positive rating and the above financial fields are all of high values then you can expect this company to have a reasonable credit limit, if these values are low (or negative) then the credit limit decision will reflect this. The above financial items are standard for credit assessment terms.

County Court judgments

Information is received from the Registry Trust via Creditsafe Business Solutions Limited about County Court judgments or Scottish Decrees brought against companies for non-payment.
The matching is done on name only and shows exact, probable and possible matches. A judgment must be paid within a month of being issued. If the judgment is paid off within the month it is removed and will not be shown in the report. If the judgment is paid after one month then the details remain on the system but will show the judgment as satisfied.
EU & UK Data shows the total number of CCJ's, the total amount owed and also a cumulative total over 3 month intervals. Details confirming the date, amount, court, case number and reference number are given for the latest 10 judgments.

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