What is RiskScore?
RiskScore indicates a business’ creditworthiness and predicts the likelihood of default in the next 12 months. It ranks entities based on their riskiness with one of 14 credit ratings (from A1 to F) and a numerical score from 0-850. The higher the score, the lower risk the entity poses.
Segmentation by entity type
RiskScore was developed with five distinct segments, each based on an entity type and tax status and calculated by a separate algorithm. This high level of segmentation provides you with the most accurate data no matter what kind of entity you’re performing a credit check on, including sole traders, public companies and trusts.
Segment | Average Rating |
Trusts (all) | A1 |
Public companies (all) | B3 |
Private companies & partnerships (GST registered) | C1 |
Sole traders (GST registered) | C2 |
Private companies & partnerships (not GST registered) | C2 |
Sole traders (not GST registered) | D2 |
RiskScore calculates the creditworthiness of joint ventures under the ‘Private Companies and Partnerships’ segment. The ratings assigned to joint ventures include data capturing any adverse cross-directorship information along with behaviours and demographic risk of the joint venture entity itself.
Rating recommendations
CreditorWatch’s rating system includes a rating from A1 to F, a risk category designation and a recommendation on action to take to mitigate risk, as well as the numerical credit score from 0 to 850.
RiskScore Data Sources
Trade line behavioural data
CreditorWatch customers from small, medium and large businesses, contribute over 11 million monthly tradelines. This unique business-to-business transaction data includes both positive and negative repayment behaviour from two sources: corporate ATB uploads and SME payment data.
CreditorWatch is the only Australian bureau to gather payment information directly from small businesses. Our unique trade payment data is the most predictive early warning indicator for future defaults and credit risk.
Business Demographic Risk Data
CreditorWatch uses machine learning to enrich our business demographic data and make a more comprehensive range of predictors available, including:
Geographical risk clusters that capture economic stress associated with business location, including unemployment and commercial rental costs to a postcode level.
Natural language processing is applied to business names to classify high-risk business types. This offers a more granular look at industry risk whilst complementing our ANZSIC industry classifications database.
A wide range of additional risk factors that assess the entity maturity (such as its age and the length of time at its current address), type of entity and number of directors are also included in the algorithm.
Traditional credit risk drivers
Our model also includes traditional adverse risk information that are proven predictors of future entity failure. CreditorWatch customers are alerted to this data via our 24/7 monitoring feature. Some key predictors include:
Payment defaults, our most unique and predictive piece of adverse information.
Court actions from all reporting courts in Australia.
ATO tax debt default data.
High-risk ASIC documents (such as strike-off action and director changes).
Mercantile enquiries, which indicate potential future court actions.
Insolvency notices.
Credit enquiries, including frequency and ordered by industry and date.
Director behaviour and their previously failed businesses to help identify risk and illegal phoenixing activity.
How do I use RiskScore in my collections process?
RiskScore predicts the likelihood of a business to default in the next 12 months.
You can use RiskScore within CreditorWatch Collect to help inform your collections approach, such as:
Which collections workflow or escalation method is required for each customer
Whether to stop providing credit to a customer
Whether to reduce or increase a customer’s credit limit
It may be useful to regularly check the RiskScore of late paying customers, particularly those that are regular culprits.
Below are some examples of how RiskScore can be used to inform your credit and collections decisions.
If a customer’s risk is increasing over time, it is important to review their payment behaviour with your business and determine whether you’d still like to extend credit to them in future.
If a customer’s risk is low, but they are regularly paying late, you could place them in a separate workflow that sends more frequent reminders or sends reminders before invoices are due.
If a customer’s risk is high, but they are paying on time, you could reduce their credit limit or decide to stop providing credit to reduce your risk, or keep a closer eye on their payments while continuing to do business with them on existing terms.
If a customer’s risk is high, and have a history of paying late, or have defaulted on a payment in the past, you could escalate the overdue invoices and demand payment, as well as stop credit immediately.
CreditorWatch suggests that businesses review and update their credit policies regularly, such as incorporating how data sets such as the RiskScore is used within the business.
Where can I find my customers’ RiskScores in CreditorWatch Collect?
For Australian customers, RiskScore insights appear in numerous places in your CreditorWatch Collect account.
RiskScore Ratings and RiskScore Categories will appear for each account in your Accounts page.
RiskScore information for your accounts also appear in the Top Debtors table in your Reporting page.
What should I do if my customer’s RiskScore is F (default)?
If you have not already, we recommend you stop credit and escalate this account immediately by calling the customer and sending formal communication to demand payment for overdue invoices.
You could also consider sending the account to collections agency.