This crisis has shown the need to consider timelier and more granular measures of stress.
To provide this short term view we have created a new index called the Commercial Volatility Index (CVI). As many know, Experian have a range of different predictive scores to help businesses understand the credit risk profile of the businesses they serve. These scores have been built over time during normal economic conditions; however, when it comes to unprecedented periods of volatility such as those we’re now experiencing, which will likely continue well into next year with Brexit approaching, we have identified a real need for companies to be able to use both short term and long term stress indicators to assess viability of their commercial credit customers.
The Commercial Volatility Index (CVI)
To create the CVI, we used the data we have to provide a short term view on the financial health of businesses, support portfolio management and other services companies rely on in order to be able to help small businesses.
The CVI assesses the commercial viability of existing and new customers and looks at a shorter time period to identify early onset of stress and looks at where there are significant fluctuations of the performances of those businesses.
From a portfolio management perspective, it provides early warning signs and enables you to put in reactive and proactive measures to stem the stress the business may face, but to also ensure the business can recoup whatever cost is owed to them as quickly as possible.
Experian has taken a view of the whole UK commercial market and assessed the availability of cash flow and working capital available to businesses. As well as looking broadly across the credit agreements businesses have in place we have factored in the macroeconomic outlook for the sectors within which those small businesses sit. This combination of incredibly insightful and accurate data means that the CVI enables you to track changes in the volatility of small businesses, on a month-by-month basis.
Monitoring key indicators at a high frequency to provide early signs of stress is critical to enable prompt interventions to be made.
Experian’s newly created Commercial Volatility Index is built specifically to identify signs of stress from Covid-19 enabling you to:
–Assess the commercial viability of both existing and new customers calculated against the macro economic outlook for individual sector recovery
–Measure changes in month-on-month cashflow as a critical indication of the levels of stress individual companies are facing using our Covid-19 Commercial Credit Data Sharing (CCDS) block of attributes
-Identify which businesses to help and when
Using the Commercial Volatility Index provides an indicator of short term stress, but to accurately assess the viability of commercial credit customers should be used hand-in-hand with Experian’s core commercial Delphi scores. Longer term predictability will become increasingly critical. Whilst some sectors will require shorter-term monitoring, anticipating default or failure over 6 to 12 months will become necessary once more.
Experian’s suite of Risk Scores and Portfolio Notifications can be applied to help to:
-Assess the likelihood and ability of individual businesses to meet credit obligations in the future
-Predict a business’ stability through a combination of company accounts, payment performance, director information and consumer scores
-Proactively manage your portfolio with triggered notifications sensitive to changes in credit risk such as: a drop-in score, increases in days beyond terms or approval of new credit agreements
Our commercial scores can be used in conjunction with our current account turnover monthly data so you can assess and identify fluctuations in cashflow for income and expenditure over time. This means when there is a sudden dip or increase in the amount of money coming in, or a reduction of costs, it is flagged, and you can look back over a two to three year period to see if there are similar trends at similar times of year to flag seasonality, or whether that business has hit a wall and needs help in the coming weeks.
Utilising the CVI and cutting across data in this insightful and in-depth manner facilitates companies to pre-empt potential risks and minimise stress early for businesses to help them survive these fast-changing times.
To find out more about our Commercial Volatility Index please contact us
For more on our commercial risk scores click here.