What is the CheckRate Company or Business Failure or Default Prediction Score?
The Checkrate Company failure or business default prediction (Credit) score predicts the likelihood of a UK Ltd / Plc or Irish Ltd / Plc Company becoming insolvent within the next 12 months, whilst predicting whether a UK Sole Trader or Partnership Business (Non Registered Business) is likely to default on Payment (get a County Court Judgement) in the next year.
There are 3 different types of Credit Rating Company Failure or Business default prediction scores used:
- The Established Company Score for Limited & Plc Companies who have filed accounts
- The Newly Registered Limited & Plc Company Score for Companies yet to file accounts
- The Sole Trader & Partnership (Non Ltd) Business Score for Businesses who don't have to file accounts
Established UK & Irish Ltd & Plc Companies CheckRate Company Failure Prediction Score:
- The Established Company Failure Prediction Score has three main variations for the different sizes companies as per Companies House Filing Regulations.
- Small Companies do not have to File a Profit & Loss sheet (P&L) so as there are some bits of data missing so that score needs to be different.
- Medium & Large or Group Companies have to file Profit & Loss so they use different algorithms due to the extra data in their accounts. The medium and large company predictive variable differ though so the two models have different weightings of certain fields to reflect the differnet levels of predictiveness of those data sets for the different size bands of companies.
| CheckRate Established UK & Irish Ltd & Plc Company Failure Prediction Score definition's where Accounts are filed | |
|---|---|
| 71-100 | Very Good Credit Worthiness |
| 51-70 | Good Credit Worthiness |
| 30-50 | Credit Worthy |
| 21-29 | Credit Against Collateral |
| 0-20 | Caution - Credit at your discretion |
| No Rating | Financial Statements are too old |
| Liquidated/Wound-up | Company is liquidated or is wound-up |
| Dissolved | Company is dissolved |
| Petition | Petition has been filed |
Newly Registered UK & Irish Ltd & Plc Companies CheckRate Failure Prediction Scores:
- The newly incoporated Company Credit Rating Risk Score is similar to a Business score as there are no accounts filed so the number of variables are far less until the first filing.
- The score does take in to consideration the risk levels of the industry and the company using other fields (such as directors and location) and also uses associated company info to predict risk levels of the new company.
| CheckRate UK & Irish Ltd & Plc Company Credit Rating RiskScore definition where no Accounts are filed (Newly Registered Companies) | |
|---|---|
| 51-100 | Low Risk |
| 30-50 | Moderate Risk |
| 0-29 | Caution - High risk |
| Liquidated/Wound-up | Company is liquidated or wound-up |
| Dissolved | Company is dissolved |
| Petition | Petition has been filed |
UK Non Ltd (Sole Trader & Partnerships) Business CheckRate Credit Rating Risk Scores:
The Non Limited Business Default Payment Prediction Score uses Non Financial Data Fields such as;
- Operation Type,
- Premises Type,
- Industry Classification,
- Age of Business,
- Proprietor Info,
- Default Payment History (CCJ's / County Court Judgements)
| CheckRate UK Non Ltd (Sole Trader & Partnership Business Credit Rating RiskScore definition (No Financial Information due to anture of the Businesses). | |
|---|---|
| 71-100 | Very Low Risk of Default |
| 51-70 | Low Risk of Default |
| 30-50 | Moderate Risk of Default |
| 01-29 | High Risk of Default |
| Not Rated | A Status or Event has effected the score |
How are the CheckRate Company Failure or Business Default Payment Prediction Scores calculated?
The CheckRate Company Failure and Business Default Scores are calculated using very complex algorithm's that takes in to consideration many data sets from the reports, including
- Financial figures from the P&L (where filed)
- Financial Figures from the Balance sheet,
- Number of Directors,
- Location,
- SIC code,
- CCJ & Writs,
- Part of a Group or not
- Mortgage Charges etc.)
Who Built the Credit Rating Company Failure or Business Default Predictive Score Algorithm's?
The different Score Algorithm's were developed by a Pan European Industry Rating Score building experts who analysed company failures and business default payments over a 36 month period.
The Process!
Using the detailed data analysis, the key Financial data variables and other data field variables both used for predicting failing companies within the next 12 month or the liklihood of a default payment on businesses in the next 12 months, were combined together in complex algorythm to come up with the prediction score (using a relevant weighting of predictiveness for each predictive variable).
Stress Testing for Accuracy!
These variables were then measured against the entire database and stressed test to ensure accuracy and when the model was perfected and highly predictive it was used to calculate the Credit Rating Risk Scores on all UK & Irish Ltd Companies & UK Non Limited Business, that we now use.
Key Data Fields Used
- Company Age
- Company Size (Due to different calculations and predictive weightings used)
- Turnover
- Net Worth
- Cash & Other Liquid Assets
- Profitability
- Networth
- Age of the company accounts and whether they are filed on time
- Key Ratios (Gearing etc)
- Comments from Independent Auditors (Adverse can affect a score)
- Director Ages
- Directorship Numbers
- Director's Titles
- Director’s history and performance (Associated Company scores and failures)
- Group Structure (Ownership and Associated Company Scores & ailures)
- Demographics (Company or Business Location, Industry SIC code or Classification etc).
- Mortgage Data (Numbers & Values)
- Industry insolvency trends (Regualr Analysis on Industry Failure Trends)
- CCJ Numbers,
- CCJ Values
- Frequency of CCJ’s
- Time critical filings (over due for filing accounts at the registry increases risk of failure).
Accurate Prediction Scores that Change with the times!
CheckRate ensures the accuracy and predictiveness of their Scores by taking in to consideration the problems that companies are facing during the tough economic times that the double dip recession has offered and is still offering. This is especially true with certain high risk industry sectors.
We ensure our scoring model moves with the times by incorporating the latest trends in Company insolvencies.
The Predictive Credit Scores that CheckRate use, have been further processed to reflect these insolvency trends, using the Standard Industry Classification (SIC) codes, and this ensures companies in the worst effected industry have had their scored adjusted accordingly.
How often are the Prediction Scores calculated?
The Credit Rating Prediction Scores that CheckRate uses are calculated using an automated process on a daily basis. When any of the fields within the algorithm's change, from daily feeds of Data we get in from all our Data suppliers (Companies House, Irish CRO Office, Registry Trust, High Court & Sheriff Court Data, Gazette's etc.) the Credit Rating Risk Scores are updated on a real time basis.
New Accounts Filed:
After a company has submited its latest set of annual accounts at Companies House, it usually take between 1 week and 3 to be processed, depending on seasonal peak times), then as soon as the accounts are available to the public, the documents are released to the Credit Reference Agencies to be processed and analysed. This usually take a few days and are then added to the database and a new score would be calculated and available.
What is the CheckRate Company or Business Credit Limit?
The company credit limit is the recommended total amount that should not be exceed in the extension of credit at any one time to the company or business in question.
The score is calculated using many of the same data fields as the Credit Rating Risk Score and is calculated in conjunction with the Risk Score.
These fields include:
Debtors & Cash (where available)
Turnover (where available
Net Worth
Working Capital
Net Cash Flow Operations
Shareholder Fund
If a company has a positive rating the credit limit would use the above fields to calcualte the amount of credit that can be extened at anyone time. If there is a negative rating then there usually would not be any limit. If the Company has High Value figures in the above Fields then it is likely to have much larger Credit Limits than Companies with low (or negative) figures in the above fields. The financial items used are fairly standard for credit limit assessments.
Business Credit Limits!
For Sole Trader and Partnership Businesses the Limit takes into consideration the type and age of business, number of employee's and any default payment history.
