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How is credit risk information calculated?
Here’s a breakdown of how we calculate the credit risk information for companies and directors at Creditsafe.
The company credit score calculation was created by analysing companies over a 12 month period. Using discrimination analysis, we identified key data variables that are essential in predicting the probability of a company becoming insolvent within the next 12 months. These variables were then ran 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 a credit score for each individual business.
The scores are calculated daily and are 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 score will be recorded/adjusted based on the latest filed accounts.
The system also continuously 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
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.
We calculate company credit limits by looking into a company's financial position in greater detail. By analysing critical credit information fields in conjunction with the credit rating of the company, we can base a credit limit decision more accurately.
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.
No. Our algorithms are split into two; one for established companies using the Companies House definition of a small company, and one for all medium and large companies. 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).
The score rates from 0 - 100 and predicts the likelihood of a company becoming insolvent within the next 12 months. There are five bands from a very good credit worthiness to caution - credit at your discretion:
71-100 Very good creditworthiness
51-70 Good creditworthiness
30-50 Creditworthy
21-29 Credit against collateral
0-20 Caution - Credit at your discretion
There are also instances when the company is not rated, these could be:
No Rating -Financial Statements too old / Liquidated / Wound-up / Dissolved / Petition filed.