It is already a well-worn adage that these are unprecedented times. But when it comes to managing credit risk it’s a particularly poignant truth. Unprecedented times come with uncertainty, and uncertainty makes the process of decision-making much more complex.
For lenders trying to balance the fair treatment of customers with the mitigation of significantly increased risk in their portfolios, insight into what’s changing at portfolio and account levels, is essential to making the right decisions. And it’s very much a case of more is more.
Data + insight = greater visibility
Access to more in-depth data, more frequently can give you some much needed clarity at a time when traditional models and assumptions are being challenged. We recommend using the full breadth of data available, both in-house and externally sourced, to get as comprehensive a picture as possible of existing customers and new business applicants. Metrics like credit and debit turnover ratios, trends in minimum balances over time, and payment delays can offer a much more accurate view of a business’s status than relying solely on traditional scores calibrated on a ‘normal’ economic cycle. Helping you to understand:
- A business’s pre-COVID viability and how they’re performing now
- The stress indicators that might predict a business’s ability to pay
- A small business’s sustainability under stress conditions
How Experian can help
Our core data sets can be viewed alongside commercial credit scores, and your own customer data to help you make the right lending decisions. They give you the opportunity to track changes to payment behaviour with the coverage and recency that’s so critical right now.
Our network of data partners share their data on how well their customers pay their trade credit invoices. This data enables us to calculate Days Beyond Terms scores for use in Risk Reports and Delphi to give insight on business payment behaviour. This is up to date, predictive data as any downturn in payments is likely to be a sign of financial distress.
CATO (Current Account Turnover)
CATO data is the most reactive data set we’ve got, with the most recent data being just 15 days old. Current account debit and credit data can give you powerful clarity on a business’s cashflow, which banks have been using for some time to monitor propensity to default (PD).
Commercial CAIS (Credit Account Information Sharing)
Our shared database of 13.3 million commercial credit accounts credit history gives you a comprehensive view of a business’s credit commitments and how they’re performing against them. This data is also as recent as 15 days and can flag up where businesses are falling behind or defaulting on payments.
Open Banking data
As this scheme allows businesses to share their business account data, you can access transactional information from businesses who aren’t currently banked with you.
The value of this data now is in showing you monthly changes in attributes like credit/debit turnover, average balance, days in excess and rejected payments. All of which are very real indicators of a business’s ability to pay, when compared to their payment history. A month-on-month cash flow analysis can identify flags like a drop in liquidity, which means you can implement proactive measures to help. And when considered alongside publicly filed accounts data and management accounts, you’re getting a complete picture of a business pre-pandemic and at present.
Measures taken by the government to help businesses survive the pandemic also need to be taken into account to understand how these could change the outlook for a business. In the case of payment holidays, when an ‘Emergency Payment Freeze’ is agreed by the lender, the CRAs have agreed not to report any build up of arrears and thus suspend the status of the account so it doesn’t affect credit scores. Experian has also agreed to help minimise the impact on the credit assessment of any company’s application for a government-backed funding scheme, designed to support their survival through Covid-19.
While a furlough application could suggest a current lack of demand for a business’ products or services, if the scheme works as it should there will be minimal long-term impact as businesses start to recover and move away from it. All of which reinforces the importance of considering as many data sources as possible when making lending decisions.
Giving you access to the right data at the right time
We have a number of platforms and solutions that can give you fast access to our core data sets and the insight you need to protect your business and your customers during the pandemic and beyond.
Experian Commercial Acumen Data Sharing Portal
Combines credit information and open banking data with publicly reported account data and management accounts to give you a single view of what a customer can afford.
With access to CATO, payment performance, score histories and public data, the Portfolio module of our BusinessIQ platform groups, profiles and segments businesses in your customer and prospect databases to help you analyse and evaluate.
Commercial DCM (Delphi for Customer Management)
Our batch data append service lets you automatically append key risk attributes to your portfolio at an account level. Attributes like CATO credit account summary, Commercial Delphi risk score, CAIS bureau variables and payment performance, as well as COVID-19 business stress specific variables mean you can view current and historic trend summary data.
We’re committed to supporting you and your customers through this period of change, with our unique combination of data and insight. Please contact us to find out more about how we can help.