This e-book is an insightful summary of building the best-in-class credit scoring model capable of streamlining information, reducing bad debt, and predicting bankruptcy.

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© HighRadius Corporation
Top 15 Parameters Your B2B Credit
Scoring Model Must Have
An insightful summary on building the
best-in-class credit scoring model
capable of streamlining information,
reducing bad-debt and predicting
bankruptcy.
Guide For Credit Professionals

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© HighRadius Corporation
TABLE OF CONTENTS
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I. INTRODUCTION
II. SIGNS YOUR CURRENT CREDIT
SCORING MODEL IS VINTAGE
III. TOP 15 MUST-HAVE CREDIT
SCORING PARAMETERS
IV. SUMMARY
V. ABOUT HIGHRADIUS
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© HighRadius Corporation
INTRODUCTION
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As a credit professional, you are required to make accurate, on-the-
spot decisions of high value and in huge volume, while your
departments are consolidating and slimming down as well as under
more scrutiny from auditors.
Under these conditions, how do you perform a detailed and consistent
analysis needed to avoid unnecessary credit risk?
What is the best credit decision you have ever made? What
do you even rely upon to make these hard calls –
experience, policy, data, gut, or something else?
An Up-to-date, Proactive Credit Scoring Model
Can Help!

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© HighRadius Corporation
SIGNS YOUR CURRENT CREDIT
SCORING MODEL IS VINTAGE
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Have you heard about the ‘cloaking effect’?
The “cloaking effect”: The credit scoring model is not able to predict
bankruptcy, financial stress or delinquent behavior.
For example:
Eastman Kodak is a company whose payment behavior to its suppliers did not
reflect it’s financial condition. But Kodak filed for bankruptcy on January 19, 2012.
The company was able to maintain a Payment Score around 8, which indicates no
evidence of severely delinquent payment behavior until it went bankrupt. This is
known as the cloaking effect.
Along with this, high bad-debt, undetermined losses, loss of business
opportunities, increase in delinquent behavior/delayed payments, and
a prolonged credit approval process are signs that your current credit
scoring model has become outdated.
Payment Score
FRISK Score
Score
Values
Bankruptcy
Filing Date
10
5
0
December
2010
December
2011
Credit Risk Monitor
Question – Can your current credit scoring model beat
down the ‘cloaking effect’?
If not, then it’s time to upgrade!

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© HighRadius Corporation
TOP 15 MUST-HAVE CREDIT SCORING
PARAMETERS
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Contrary to what those lousy internet popups would have you believe,
no secret formula will improve your credit scoring model overnight.
A healthy credit scoring model is made up of three key
elements:
robust information, sound financial management, and
regular monitoring.
To make it easy for you, we’ve pulled together 15 must-have parameters
to help you manage your score effectively.
Including these parameters in your model won’t guarantee you a
perfect credit score, but they will certainly help you avoid any nasty
surprises.
Credit Worthiness/Score should be calculated based on four kinds of
information:
Credit Agency Information
All credit bureaus typically use public data, information reported by
vendors and lenders, as well as self-reported information to generate
your business credit score.
The Credit Agency category will contain the third party ratings that you
consider most important when making a credit decision.
Credit
Agency
Information
Public
Financial
Statements
Bank &
Trade
References
Financial
Stress
Prediction

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© HighRadius Corporation
TOP 15 MUST-HAVE CREDIT SCORING
PARAMETERS
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Below are the four business credit bureaus and their most common credit
score:
https://www.crfonline.org/orc/cro/cro-15-1.html
1. DUN & BRADSTREET: PAYDEX
Dun & Bradstreet’s PAYDEX score (sometimes referred to as D&B PAYDEX)
relies solely on the promptness of payments. This score examines your
customer’s average time (in days) to pay off a debt, relative to the outlined
terms.
Dun &
Bradstreet
Experian Equifax FICO
Score PAYDEX Intelliscore Plus Equifax
Business
Credit Report
FICO SBSS
Score
Range 0 to 100 0 to 100 Not a single
number
0 to 300
Major
Determining
Factors
• Promptness
of payments
to creditors
• Payment
History
• Frequency
of
derogatory
marks(collec
tions, etc.)
• Credit
Utilization
• Company
Size
• Age of
Credit
• Credit Limit
• Age of
Business
• Number of
Employees
• Revenue &
Assets
• Personal
Credit
History
• Data from
Other
Business
Credit
Reporting
Agencies

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2. EXPERIAN: INTELLISCORE
Experian’s Intelliscore ranges from 0 (high risk) to 100 (low risk). Experian’s
business credit score only considers whether payments are made on time or
not. It also examines how a company has handled credit in the past, looking at
things such as average credit utilization (how much of your available credit you
use), as well as the frequency of any derogatory marks towards their account
(payment delinquency, collections, liens, etc.).
3. EQUIFAX: BUSINESS CREDIT REPORTS
Equifax assigns a company three different scores, inside of a single report.
1. Traditional credit risk score (range: 100 to 992), analyzes a company’s
credit history – credit utilization, past delinquencies, length of credit history,
and the like.
2. Payment Index (range: 0 to 100), which is a measure of a company’s
payment history to past creditors. A score of 90+ indicates that, on
average, the company paid its bills on time.
3. Business Failure Score (range: 1,000 to 1,880), which asses the risk of a
company going under and dissolving.
4. FICO: SMALL BUSINESS CREDIT SCORE
A businesses’ FICO score can range from 0 to 300 and takes into account a
huge amount of data – working in conjunction with companies like Equifax
and Experian to come up with a comprehensive report on your business.
TOP 15 MUST-HAVE CREDIT SCORING
PARAMETERS
https://www.valuepenguin.com/business-credit-scores-what-are-they-how-do-they-work
Public Financial Statements
Financial statement analysis is a judgmental process. One of the primary
objectives is the identification of significant changes in trends, and
relationships and the investigation of the reasons underlying those
changes.

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TOP 15 MUST-HAVE CREDIT SCORING
PARAMETERS
5. Z SCORE
The Altman Z-score is the output of a credit-strength test that gauges a
publicly traded manufacturing company's likelihood of bankruptcy. The
Altman Z-score is based on five financial ratios that one can calculate from
data found on a company's annual 10-K report.
6. NUMBER OF EMPLOYEES
This information can be found on a company’s website, Wikipedia, credit
agency, social media, public financial reports.
7. LIQUIDITY RATIOS
Liquidity ratios measure a company's ability to meet its current obligations. It
includes Working Capital, Quick Ratio, Current Ratio, Cash Ratio.
8. PROFITABILITY RATIOS
Profitability ratios measure a company's ability to control expenses and to
earn a return on the resources committed to the business. It includes Net
Profit Margin (Return on Sales), Return on Assets, Operating Income Margin,
Return on Investment, Return on Equity, Du Pont Return on Assets, Gross Profit
Margin.
9. LEVERAGE RATIOS
Leverage ratios measure the degree of protection of suppliers of long-term
funds and can also aid in judging a company's ability to raise additional
debt and its capacity to pay its liabilities on time. It includes Total Debts to
Assets, Capitalization Ratio, Debt to Equity, Interest Coverage Ratio (Times
Interest Earned), Long-term Debt to Net Working Capital.
10. TURNOVER RATIOS
Efficiency, activity or turnover ratios provide information about a company's
ability to control expenses and to earn a return on the resources committed
to the business. It includes Cash Turnover, Sales to Working Capital (Net
Working Capital Turnover), Total Asset Turnover, Fixed Asset Turnover, Days'
Sales in Receivables, Accounts Receivable Turnover, Days' Payables
Outstanding.
https://www.crfonline.org/orc/cro/cro-16.html

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TOP 15 MUST-HAVE CREDIT SCORING
PARAMETERS
11. BAD-DEBT TO ACCOUNTS RECEIVABLE RATIO
Bad-debt to Accounts Receivable ratio measures expected inability to
collect on credit sales. An increase in bad debts is a negative sign since it
indicates greater realization risk in accounts receivable and possible future
write-offs.
12. CURRENT-LIABILITY RATIOS
Current-liability ratios indicate the degree to which current debt payments will
be required within the year. Understanding a company's liability is critical
since if it is unable to meet current debt, a liquidity crisis looms.
Bank & Trade References
13. BANK RATING
Banks rely heavily on business credit scores and FICO scores for
establishing lines of credit. Banks implement internal credit ratings to
evaluate the likelihood of a corporate customer defaulting on its
obligations.
14. TRADE REFERENCES
Banks may not report negative payment histories to the national credit
bureaus until borrowers are 30 or 60 days late. Some suppliers, especially
smaller businesses, do not report client histories at all. This reality makes
checking trade references a crucial element when companies decide
to extend credit. A typical business credit application will ask for three
trade references.

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© HighRadius Corporation
TOP 15 MUST-HAVE CREDIT SCORING
PARAMETERS
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Financial Stress Prediction
Although the Altman Z can predict bankruptcy to some extent, it is no match for
the ‘cloaking effect.’ Only using real-time industry data ensures continuous updates
to scoring attributes and weights.
Advantages: The scoring models self-adjust continuously without manual updates,
pulling in more data types than traditional models, including micro and
macroeconomic variables to target the prediction of outcomes that meet your
company’s needs. The models adjust for a specific industry or business needs based
on your unique data or information, defining your preferred outcome with high
precision.
So how can you build such a model?
Answer. With Artificial Intelligence.
It’s not that complex. Include the 15 essential parameters (as discussed in this
eBook) in your current credit scoring model and apply artificial intelligence on it.
BEST IN
CLASS
CREDIT
SCORING
MODEL
=
Existing
Credit
Scoring
Model
Artificial
Intelligence
15 Must-
Have
Parameters
Adapt your existing credit scoring model today!
It's critical to update your credit scoring model, so it reflects this market's risk levels
and growth goals.
By re-validating your models regularly, you can ensure that risk criteria aren't too
strict--or too loose. This way, the models don't turn away prospects with good credit
or offer it to those who present a real risk of delinquency or losses.
15. ARTIFICIAL INTELLIGENCE

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© HighRadius Corporation
SUMMARY
A loose credit policy lost money.
A tight credit policy lost business.
Intelligence, judgment and useful information –
These are what made the crucial difference.
- Lewis Tappan, Founder- Dun& Bradstreet
An artificial intelligence enabled credit scoring model will provide you
with real-time risk assessment and a credit decision, with an immediately
available credit line.
With the use of best-in-class credit scoring model, industry leaders like
Klöckner, Mercury Marine, and Parker Hannifin have been able to:
• Provide instant credit decisions for the majority of applicants
• Significantly reduce bad debt and become proactive
• Remove all manual time spent on making routine approvals and
declines.
… to learn more about the role of technology in the world of credit.
https://www.credittoday.net/members/Credit_Today_Benchmarking_Survey_Essay_Responses_from_Cre
dit_Scoring_Survey_Show_Credit_Scorings_Strengths_and_Weaknesses.cfm
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Update your existing credit scoring model with
artificial intelligence today!
CLICK HERE

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© HighRadius Corporation
ABOUT HIGHRADIUS
HighRadius is a Fintech enterprise Software-as-a-Service (SaaS) company. The HighRadius™
Integrated Receivables platform optimizes cash flow through automation of receivables and
payments processes across credit, collections, cash application, deductions, electronic billing and
payment processing.
Powered by Rivana™ Artificial Intelligence Engine and Freda™ Virtual Assistant for Credit-to-Cash,
HighRadius Integrated Receivables enables teams to leverage machine learning for accurate
decision making and future outcomes. The radiusOne™ B2B payment network allows suppliers to
digitally connect with buyers, closing the loop from supplier receivable processes to buyer payable
processes.
HighRadius solutions have a proven track record of optimizing cash flow, reducing days sales
outstanding (DSO) and bad debt, and increasing operational efficiency so that companies may
achieve strong ROI in just a few months. To learn more, please visitwww.highradius.com
HighRadius’ Integrated Receivables Platform
Integrated Receivables optimizes accounts receivable operations by combining all receivable and
payment modules into a unified business process. The Integrated Receivables platform provides
solutions for credit, collections, deductions, cash application, electronic billing, and payment
processing – covering the entire gamut from credit-to-cash.
The HighRadiusTM Integrated Receivables platform stands out by enabling every credit and A/R
operation to execute real-time from a unified platform with an end goal of lower DSO, reduced bad-
debt, and faster dispute resolution while improving efficiency and accuracy for cash application,
billing, and payment processing.
HighRadiusTM Integrated Receivables leverages RivanaTM Artificial Intelligence for Accounts Receivable
to convert receivables faster and more effectively by using machine learning for accurate decision
making across both credit and receivable processes. The Integrated Receivables platform also
enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from
the supplier Accounts Receivable process to the buyer Accounts Payableprocess.
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© HighRadius Corporation
Corporate Headquarters
Westlake 4 Building (BP Campus)
200 Westlake Park Blvd.
8th floor, Houston, TX 77079
(281) 968-4473
www.highradius.com
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