The concept of risk walks hand-in-hand with the hiring and rental industry. Not only must regular payment be guaranteed, but you must also ensure the maintenance and safe return of any products rented. The integrity of your clients is imperative. By determining a customer’s creditworthiness using credit reporting and RiskScore solutions from CreditorWatch, you provide essential security for your cash flow and goods. So, what is a good credit score and how can your business best use that information?
How to manage customers wisely by calculating their risk score
What is a RiskScore?
RiskScore is a numbered score, from 0-850, detailing the credit risk of client business. It is unique to CreditorWatch, and market-leading as a predictive credit rating score indicator. To accomplish that, it draws data from three extensive sub-categories and analyses them with sophisticated machine learning technology:
- Tradeline Behavioural Data – Over 50,000 CreditorWatch customers deliver over 11 million monthly trade lines, incorporating businesses of all sizes across Australia.
- Business demographic risk data – Including factors such as business maturity, entity type, industry and tax status.
- Traditional credit risk drivers – including ATO tax debt defaults, court judgments, bankruptcies and insolvencies
How to manage your customers with RiskScore
Through a simple ABN search, RiskScore distils all of this available data into a single score. The higher a client’s score, the more creditworthy they are. It details which rental customers may be more likely to default within the next 12 months, allowing you crucial time to prepare.
Before engaging with any new hiring or rental customer, or even continuing a pre-existing trading relationship, conducting a credit score check can provide essential peace of mind. Once generated, the score will then allow CreditorWatch to place that customer within a band of credit risk – from A1 to F.
What is an acceptable RiskScore?
What represents an ‘acceptable’ RiskScore depends on multiple factors, including the type of business being scored, the state of the hiring and rental industry, and what phase of growth your business is currently in. As a rule of thumb, you want to ensure that no more than 30% of your customer base return RiskScore results that place them at a rating of C3 or below.
| Credit Rating | Risk Category | Recommendation |
|---|---|---|
| A1, A2, A3 | Very Low | Entity has a very strong aptitude to meet credit commitments. Extend terms within consideration. |
| B1, B2 | Low | Entity has a strong aptitude to meet credit commitments. Unfavourable economic conditions may lead to a weakened capability to meet financial commitments. Extend terms within consideration |
| B3, C1 | Neutral | Entity currently has the aptitude to meet credit commitments. Unfavourable business, financial, or economic conditions may impair ability to meet financial commitments. Extend terms and monitor ongoing payment behaviour. |
| C2 | Acceptable | Entity has an adequate aptitude to meet credit commitments. Unfavourable business, financial, or economic conditions will likely impair the capacity or willingness to meet financial commitments. Extend terms, and closely monitor ongoing payment behaviour. |
| C3 | Borderline | Entity is vulnerable and the aptitude to meet credit commitments is dependent upon favourable business, financial, and economic conditions. Trade with caution, closely monitor and consider your payment terms. |
| D1, D2, D3 | High | Entity is currently highly vulnerable. COD trading is highly recommended. |
| E | Impaired | Entity is currently highly vulnerable to non-payment and default. Trading eligibility must be considered. |
| F | Default | Entity has become insolvent or does not have the ability to trade. |
There are different credit benchmarks for different types of customers. Keep in mind that there will be more granular details pertaining to your business and its clients, which can be discussed in greater depth with the award-winning CreditorWatch customer service team. The groupings below are general in nature and intended to apply across the broadest possible cross-section of Australian businesses.
‘Acceptable’ credit risk within the hiring and rental industry can vary considerably based on other key demographics, including the size of trading partners and location. Due diligence should be done on each customer individually, as no rules can be applied universally. A subcontractor, for example, might be a public company, private company or sole trader. You may also be more willing to accept higher risk during growth-focused periods.
In general, the average ratings for different business types when conducting a credit score check are as follows:
Segment | Average Rating |
Trusts (All) | A1 |
Public Companies (All) | B3 |
Private Companies and Partnerships, GST Registered | C1 |
Sole Traders, GST Registered | C2 |
Private Companies and Partnerships, Not GST Registered | C2 |
Sole Traders, Not GST Registered | D2 |
You can also choose to benchmark your customers against industry averages – standardising your financial decision-making. If an entity has a RiskScore above the average for similar types of business, this could be the determinant factor in green-lighting the transaction. Or perhaps in-house you can determine your own RiskScore standards, establishing a clear threshold that customers must be able to clear.
Whichever rules you set, a sophisticated credit score metric such as RiskScore is vital for hiring and rental businesses looking to protect themselves from risky debtors and bad debt. While a certain level of risk is inherent within the industry, that doesn’t mean you ought to be trading blindly.
For more information, take a look at our RiskScore FAQ or contact CreditorWatch for a free trial today.
credit reports
credit risk
hiring & rental
Senior Account Manager
Teagan joined CreditorWatch in June 2021. Teagan has experience in the energy sector as well as working for a trend forecasting company delivering business intelligence across many industries. Today, in her Senior Account manager role at CreditorWatch, Teagan works closely alongside her client base acting as a trusted advisor to help Australian Businesses find solutions to mitigate credit and supply risk.
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