Assessing the commercial viability of new and existing customers

Businesses that would have passed onboarding risk policies with flying colours before, are now facing extreme turbulence and stress. Models and assumptions that usually determine pricing and probability of default are being challenged. This is particularly pertinent to at-risk sectors and certain regions.

To adapt to these changes, you’ll need a better understanding of how your portfolio has changed. At an account level, the sooner you’re able to identify critical signs of stress in a customer, the greater your chance of taking action to support the customer and minimise losses. You may want to look at measures, such as changing interest rates, altering terms, managing credit limits or removing pre-assessed lending limits. You may want to proactively approach your customers to discuss adapting repayment plans, where they’ve gone beyond terms – or if they’re still within terms, to manage overdraft and card limits. Here we explore the challenges and how we can help you navigate and adapt, to enable you to better serve your new and existing customers.

Spot signs of stress in real-time

No two lending portfolios will be impacted in the same way. It will depend on your customers’ ability to adapt and keep trading. A simple sector-based segmentation is unlikely to be accurate or actionable. Our capabilities can help you understand your changing risks in real-time at a macro, full-portfolio level, giving you the best chance of mitigating losses from payment failures while continuing to trade. The most reactive data is critical to see early warning of stress within the portfolio.

Assess commercial viability using our new Commercial Volatility Index

We have recently introduced a new Commercial Volatility Index, which is a new short-term index enabling lenders to accurately assess the commercial viability of new and existing customers.  It enables you to identify early signs of stress in a business leading to the potential for payments to be missed or defaulted on and how that business ranks against the overall UK small business market.  Using it with Commercial Delphi or other Experian risk scores is already proving successful in enabling lenders to make timely, accurate and well-informed decisions when it comes to supporting SMEs.

Utilise stress indicator attributes

We have enhanced our Commercial DCM (Delphi for Customer Management) so you can automatically append the following sets of attributes to your portfolio at account level. And we’ll be adding new ‘stress indicator’ attributes as they come online:

  • CATO credit account summary
  • Commercial Delphi score
  • DWS, FSS, Commercial Delphi for Cashflow scores
  • CAIS bureau variables – to identify businesses that are already over-committed to credit, or those with an adverse credit history, to help you make appropriate lending decisions
  • Payment Performance attributes – our sales ledger sharing programme that gives you in-depth analysis of your customers’ payments across suppliers, helping you manage risk and collections
  • Adverse events such as CCJs and company events
  • Covid-19 business stress specific variables including Commercial Volatility Index

By combining these, you can view both current and historic trend summary data: this lets you see risk levels prior to Covid-19, as they are now, and the likelihood of survival post-crisis. And you can set up alerts based on key stress indicators. Portfolio accounts are monitored on a daily basis; when an account crosses a threshold, it is added to an email with details of the trigger event and sent to key parties.

CATO and CAIS provide the first signs of a business beginning to struggle to meet its financial responsibilities, and our Commercial Volatility Index summarises this data into a score that reacts to changes in financial health in the short-term. Applying this data to your portfolio can give a summary of changing risk, account level view of customer status and a real-time alert if anything changes beyond acceptable thresholds; allowing you to accurately assess, manage and support the commercial viability of your commercial customers.