Managing risk and making informed credit decisions are critical for long-term business success. Custom RiskScores are a powerful tool for businesses to increase predictability, streamline processes, and boost productivity. These scores leverage unique data trends and analytics expertise, delivering tailored insights for smarter, faster, and more reliable credit decisions. Here’s how they work.

A custom RiskScore is a personalised metric to predict customer creditworthiness and behaviour. Unlike generic scoring models, these scores leverage a business’s proprietary data—such as Accounts Trial Balance (ATB) trends—with external data sets like payment defaults, bankruptcies, and industry benchmarks.

Combining these data points with a business’ internal risk policy, a customised RiskScore model is created. The custom score can eliminate manual steps that are typically required during customer credit assessments and risk reviews when a standard RiskScore is being used. Custom RiskScores stand out for their enhanced transparency, predictability, and efficiency. For businesses handling significant volumes of credit-related decisions, relying on generic scores can lead to inaccuracies or inefficiencies. A custom RiskScore is finely tuned to the business and its customer base.

Key benefits include: 

• Transparency: businesses gain a clearer understanding of credit decision drivers, easing communication of policies internally and externally to customers.
• Predictability: custom scores increase the predictive power for forecasting customer behaviour by leveraging historical customer behaviour alongside public information, helping businesses anticipate risks and opportunities more effectively. For example, trade payment defaults—a key CreditorWatch proprietary indicator—are strongly correlated with business failures.
• Efficiency: automating and standardising risk analysis reduces the time and effort needed to evaluate credit limits, as well as reduces human error, freeing up resources for other strategic activities.

Changing economic conditions highlights the importance of a custom RiskScore model. While interest rates increase or decrease, inflation fluctuates, and economic pressures evolve, payment defaults remain a leading indicator of business stress and potential failure. Combining your business’s own historical customer behaviour data with publicly available risk indicators such as payment defaults results in a score that is highly predictive of risk through your business’s lens.

For instance, wholesalers that primarily supply to small businesses may often be paid late by their customers, however, generally always get paid. To these wholesalers, customers who regularly pay late but have low credit limits can be low risk if there are no other red flags. For this reason, payment behaviour may be weighted much lower on the RiskScore.

How businesses can use and benefit from custom RiskScores 

Custom RiskScores can significantly improve cash flow and business resilience across industries. For example, The Reece Group, a leading wholesale and retail name, faced bottlenecks in its credit limit increase process. It partnered with CreditorWatch to develop a custom RiskScore model. The result was streamlined approval processes, reduced head office intervention, and enhanced customer experiences across over 500 locations.

Many construction, retail, and food services businesses are facing high insolvency rates and trade payment defaults. A custom RiskScore model for each business can ensure that key risk factors for their specific industry, business and customer profile are accounted for. What matters from one business in the same industry may not be the same as another. For this reason, a customised model is invaluable in streamlining credit risk assessments, whose end goal is to protect cashflow.

A predictive model tailored to the business is developed after assessing the data, leveraging internal customer data and external data points. The result is a custom RiskScore that is precise and relevant to the organisation’s needs.

The implementation phase begins by establishing a custom RiskScore model for your business. Key risk factors and their importance to the business are calibrated against the standard RiskScore algorithm, making the output as relevant and predictive to the business as possible. Once the customised model is set, the business’ proprietary data is fed into the model to generate their custom scores.

Custom RiskScores are invaluable, enabling businesses to speed up credit risk decisions, particularly when increasing reviewing requests for credit limits for existing customers. A custom score also standardises and automates credit risk assessments, minimising risk and frees up time for teams to focus on strategic growth and relationship management.

Partnering with CreditorWatch

Custom RiskScores give businesses a clear strategy to achieve their goals, whether they want to streamline operations, enhance customer experiences, or improve credit risk management.

CreditorWatch’s credit risk and analytics expertise makes it a reliable partner for businesses seeking customised risk solutions. With over 50 unique data factors and a domain expertise, CreditorWatch ensures every custom RiskScore is not just a number, but a strategic asset.

A subscription model makes these insights accessible to businesses of all sizes, empowering businesses to scale their risk management efforts as they grow. 

With CreditorWatch, you can unlock your data’s potential and elevate your credit management processes. Visit us here to find out more or contact me directly at borna.boltuzic@creditorwatch.com.au.