The renewed Belgian scorecards

It is perfectly normal for Credit Reference Agencies to review and update their scorecards with changes in the economic climate and available data. As new information becomes available, we must seize the opportunity to utilise this data and improve predictability further.

We must also be vigilant in tracking marketplace trends and make sure that our predictive models are reflective of current developments. With constant changes to economic, social and political climates, some of the indicators that are predictive of failure today are likely to change in the years to come.

Creditsafe continually enhance our scorecards to reflect the current risk factors that have emerged within the local economies. Assessing the entire business population, we have refined and confirmed what indicators commonly hold for commercial stability, and what is predictive of a company heading into difficulty.

The Creditsafe scorecards are built to assess the entire business population of the country in question, utilising Creditsafe owned data as well as third party data.

Our assessment of this data produces a score which reflects the likelihood of business failure within the next 12 months. In addition, the Limit Solution is designed to offer a recommended maximum amount of credit to be extended to this business based on numerous financial factors. 

Our scorecards are built to compliment any business, however, we do also offer bespoke analytical services. Naturally, all businesses have unique business models, strategies and objectives. In order to help businesses gain greater clarity over their commercial landscape and opportunities, our world-leading analytical team have been commissioned to build a number of bespoke analytical models for companies in many countries.

For further details on our bespoke services please reach out to your dedicated account manager.

You will NOT need to make any changes to your Creditsafe account, app or API when the new scorecard is launched. All changes will be implemented automatically.

No, depending on the type of company, the size and the country, the algorithm is adjusted.

The Probability of Default (PD or PoD) is a mathematical calculation that shows how likely it is that a company will fail or become insolvent within 12 months of the date of application for a particular credit.

Creditsafe’s scorecard provide a score between 1 and 100 representing the highest and lowest risk respectively. This scale was produced using the probability of default (PoD) output.

The PoD is a simple representative way for companies to accept, modify or even reject credit applications. This probability can be applied to a wide range of scenarios for risk management and credit analysis. The PoD depends not only on the characteristics of the debtor, but also on its economic environment.

With the launch of the new scorecard, the Creditsafe score will be accompanied with a PoD. We calculate the PoD for each company individually based on their combination of characteristics. To make the PoD easy to read at a glance, we convert it into a simple score, which runs from 1 (highest risk) to 100 (lowest risk).

The PoD will ultimately tell you exactly how stable any company is and more importantly, what the associated risk of trading with it is.

The Creditsafe scorecard provides a score between 1 and 100 for the highest and the respectively lowest risk. This scale is produced based on the outcome of the PoD, expressed as a percentage. The higher the Creditsafe credit score, the lower the PoD percentage and vice versa.

The development of the new model and the new PoD table means that it would be wrong to compare scores on a like-for-like basis. The underlying statistics have changed, the scoring model has changed and as a result, the meaning of the scores from 1 to 100 has changed.

This may result in a company receiving a lower score than previous on the 1-100 scale but the associated risk of this company defaulting or failing will be lower. Therefore, a company’s score can drop from 70 to 60 but for its credit limit to increase at the same time because the associated risks with the company are lower.

It is important to note that this does not mean that all company scores will drop, as some companies will be scored higher than previously. However where score drops are noticed, the changes in PoD's need to be referenced.

Creditsafe’s scorecard calculates the probability that a business will fail over the coming 12 month period. The calculation is converted into an easy to understand score between 1 (highest risk) to 100 (lowest risk). We consider a business below 30 to be high risk and therefore uncreditworthy, where as a business with a score above 51 would have a lower risk of failure

Creditsafe considers the following criteria to be the definition of failure:

• Initiation of bankruptcy proceedings with excusability
• Initiation of bankruptcy proceedings with inexcusability
• Initiation of bankruptcy proceedings
• Completion of bankruptcy proceedings with excusability
• Completion of bankruptcy proceedings with inexcusability
• Completion of bankruptcy proceedings
• Stay of proceedings (judicial reorganisation)
• Judicial winding-up or nullity

At Creditsafe we are fortunate to have an extensive and ever growing database of up-to-date company information. As we expand and increase the wealth of data we hold, we must evaluate whether this new data contains information that is indicative of company stability or future insolvency. We must also re-validate whether previous indicators in existing data remain true. In both cases, it is likely that additions and adjustments to the scorecard will be needed to ensure high predictability.

Therefore, when a new scorecard is amended, there will inevitably be some shifts in the business credit score and the recommended credit limits. We should also not forget that the probability of default has become an important and compelling element in the updated scorecard, resulting in a new score indication for many companies.

There are a number of differences between the old and new scorecard. All changes have been made to improve the accuracy of its scores so that they provide true representation of the risk associated with a business.

It is crucial that our scorecard is accurately calculating the likelihood of company default based on current market conditions. Therefore, when developing the new scorecard, Creditsafe used the most up-to-date business information available. Naturally as the economy and market conditions change from one year to the next, the calculations behind the score must be adjusted for the score to remain highly predictive.

With deeper business segmentation we have achieved a more representative distribution of business across the different risk bandings. Businesses classified as low risk within our Belgian Scorecard, on the whole, have a lower probability of default than the previous scorecard. Similarly, the high risk segment of the population with a score below 30 have a slightly higher probability of default overall. This has been implanted to give a true reflection of high risk scenarios, so as to prevent stifling your business by dismissing opportunities for growth.

Please refer to our Probability of Default table for a full representation of risk across the scores.

At Creditsafe, scorecard updates are not performed according to a schedule or set time period.

Rather, the Creditsafe Scorecards are continually monitored to understand the performance of the scorecards over time. As new economic changes and trends emerge, these inevitably cause slight shifts in what factors are most indicative of company failure and stability. Our Scorecard monitoring allows us to measure these shifts, and determine whether the predictability of our scores remains over an acceptable threshold.

If and when the predictability of a scorecard begins we deteriorate, we make it our priority to revaluate the data we hold, the variables we measure and the weightings we apply to each variable. With the development of Creditsafe's even more robust scorecards, we have strengthened our ability to thoroughly assess the predictability of variables over time and adapt the model as and when needed, in line with economic changes.

You will NOT need to make any changes to your Creditsafe account, app or API when the new scorecard is launched. All changes will be implemented automatically.

We will be switching off Score Change Alerts within Risk Tracker and Monitoring for the day of launch to prevent a disruptive number of alerts being emailed to customers. However you may export a list of portfolio changes, including score changes, from your Monitoring account on the day following the scorecard launch.

The reason for doing so is that we want to create a certain uniformity, based on the international rating, in all Creditsafe entities where a new scorecard has been launched.

In both Germany, UK, Sweden, Netherlands and France, for example, the international D rating varies between their local 29-39 score. Similarly, we have a risk level of around 3% around the threshold between C and D in all new scorecards developed since 2018.

On the other hand, we understand the impact that trust can have on a company's growth. Whether it is the confidence to seize new opportunities or the confidence to reject opportunities that may harm your business in the long run. Therefore, we want to make sure that, on the one hand, there is more room for commercial opportunities. And, of course on the other hand, that there is an even more accurate prediction of credit risks.