the hidden gems: optimizing your dnb credit reports
TRANSCRIPT
The Hidden Gems: Mining Maximum Insight from your
D&B Credit Reports
Robert Porreca
November 20, 2014
Today’s Agenda
D&B Data
Finding the Right Business
High Risk or Special Event Triggers
Data that will help you know your customer better:
‐ History and Operations
‐ Corporate Linkage
‐ Public Records
‐ Trade Payments/Small Business Risk Insight (SBRI)
D&B Scores
An in-depth look at our key Ratings & Scores:
‐ Viability Rating
‐ Delinquency Predictor (Commercial Credit Score)
‐ Financial Stress Score (Failure Score)
‐ PAYDEX
‐ Credit Limit Recommendation
Bringing it all together
2Understanding D&B Data & Scores
High Risk Events & Data Triggers
Warning signs that may indicate possible
high risk scenarios:
‐ Over-eager owner
‐ Questionable start date
‐ Ostentatious business name
‐ Extremely Robust Financial Statement
‐ Atypical trade references
‐ Trade references all from one industry
‐ Business principals involved in other failed
or fraudulent enterprises
‐ “Too good to be true for prospect that size
& time in business”
6Understanding D&B Data & Scores
Special Events
Bankruptcy
Burglary or Embezzlement
Partner Change
Fire or Other Disaster
Legal Structure Change
Business Discontinued
Criminal Proceeding
Move
Name Change
Control/Ownership Change
M&A Activity
Criminal indictment
7Understanding D&B Data & Scores
Special Event & High-Risk
Trigger Sources
Federal, State and Local Courts
Bankruptcy Courts
News and Media
Customers
Business Owners
Trusted Third Parties:
– Lexis/Nexis – Mergers & Acquisitions
– United States Postal Service
– Security and Exchange Commission
– Secretary of State
8Understanding D&B Data & Scores
Historical Data - Know Your Customers
Type of Business / Legal Structure
Year Started – Year when the business first started commercial operations
Present Control – Year when current management took control
Ownership / Background on Principals – Includes Owner Name, title and work history
Business Registration Details –Includes State of incorporation, date, officers and stock ownership
Related Businesses – Related through common ownership or minority stock ownership
Derogatory Information – Includes former criminal proceedings or business failures
Google Maps – Shows Satellite & Street Views
9Understanding D&B Data & Scores
Operational Data - Know your Customers
Line of Business / SIC Code –
Assigned based on % of revenue.
Terms of sale, # of Accounts,
Territory covered, Import / Export,
Who they sell to and Brands
Employees – Total Employees
(includes all branches and
subsidiaries) and Employees Here
(at this site)
Facility / Location Information –
includes square footage, type of
building, condition and location
Branches / Subsidiaries – Other
locations and owned companies
along with % of stock ownership,
location and inter-company relations
10Understanding D&B Data & Scores
Understanding Corporate Linkage
Legal structure
– D&B bases linkage on capital stock ownership. A company must own
50.1% or more of the capital stock in an organization for linkage to
appear in the database.
Linked records include
– Parent / Subsidiary relationships
– Headquarter / Branch relationships
Non-Linked records include
– Joint ventures will not be linked, since each company owns 50% of the
stock and there is no majority ownership.
– Franchise, agent and dealer relationships: Companies may choose
to license other companies to run their locations or market their
products. These companies are not legally owned, but have a
contractual relationship with the franchisor, and usually use the
franchisor name in their business name or trade style.
11Understanding D&B Data & Scores
Corporate Linkage
Can be used to access
overall credit exposure at:
– Global / Domestic Ultimate
– Headquarters
Based on exposure level
you can better:
– Reevaluate credit limits
– Prioritize collections
– Recognize growth
opportunities
12Understanding D&B Data & Scores
Public Filings
13Understanding D&B Data & Scores
‘Public Filings’ includes: Suits/Liens/Judgments Bankruptcies Financing Statements (UCC’s)
We collect and keep the information
updated by: Direct data feeds from filing offices
(state and federal levels) 100% coverage of bankruptcy courts
And the value this brings to you…
Liens may indicate difficulty to pay Judgment may equal large
obligations outstanding Suits may impact the businesses
credibility Bankruptcy – will creditors get paid Financing Statements – secured
assets
Trade Payments
Our Coverage:
Approximately 105 million unique and matched
trade payment experiences in the U.S.
database, across 4500 trade tape program
participants.
Trade collection & coverage is U.S.-focused
Most suppliers give monthly updates from trade
tape program
Approximately 1 billion trades are added per
year, 7-8 times per year
Over 9 million businesses have a valid Paydex
score
Over 20 million businesses have at least 1 trade
payment experience on their reports.
Over 93% of the time a D&B product has at least
1 trade payment experience.
85.6% of the time a D&B product has at least 3
trade payment experiences.
14Understanding D&B Data & Scores
Largest Trade Program
Participants by Industry:
• Credit Card Providers
• Wholesalers – Durable/Non-Durable
Goods
• Communications
• Electric, Gas and Sanitary Services
• Business Services
• Printing, Publishing and Allied Industries
Trade Payments - Recent Trade History
15Understanding D&B Data & Scores
Date Reported & Last Sale should be compared to check
recency of the purchasing activity
Trade Payments – Details Available
16Understanding D&B Data & Scores
By Dollar Amount
By Industry
3 & 6 Month Days Beyond Terms
Monthly Aging Details
Powerful Banking information is available
in the Small Business Risk Insight area
17Understanding D&B Data & Scores
Today’s Agenda
D&B Data
Finding the Right Business
High Risk or Special Event Triggers
Data that will help you know your customer better:
‐ History and Operations
‐ Corporate Linkage
‐ Public Records
‐ Trade Payments/Small Business Risk Insight (SBRI)
D&B Scores
An in-depth look at our key Ratings & Scores:
‐ Viability Rating
‐ Delinquency Predictor (Commercial Credit Score)
‐ Financial Stress Score (Failure Score)
‐ PAYDEX
‐ Credit Limit Recommendation
Bringing it all together
18Understanding D&B Data & Scores
Viability Rating at a Glance
19Understanding D&B Data & Scores
PREDICTIVE DESCRIPTIVE
8 5 C BViability Score
• 1 - 9 Risk Ranking
• 1 = Lowest Risk
• 9 = Highest Risk
• Ranking Against
• All US Businesses
Portfolio
Comparison• 1 - 9 Risk Ranking
• 1 = Lowest Risk
• 9 = Highest Risk
• Ranking Against
• Similar Businesses
Data Depth Indicator• A - M Scale
• A = High
• G = Low
• H – M
• Special Risk Conditions
Company Profile• A - Z Scale
• A = Largest
• X = Smallest
• Y = Branch
• Z = Subsidiary
Predictive Components: Data elements What makes up the Viability Score and Portfolio Comparison
20Understanding D&B Data & Scores
Data Category Data Variables
Demographic Data Actual sales, Actual employees, Business Year. Years under same
management, Industry Classification, Building own/rents, History Indicator
Business Activity
Signals
Number of updated data sources in the last 6 months
Legacy & Detailed
Trade Data
Number of payment experiences, Percent of slow and negative payments,
Average monthly percent balances, Average Monthly 30+ Days Past Due
Amount - 12 Months, Composite 3 Months Paydex, and others.
Public Record
Data
Total Dollars/Number of suits, liens, and judgments; Presence or absence
of UCCs or Bankruptcy.
Financial Data Number and type of financial statements, Total Assets & Liabilities, Net
Worth, Quick Ratio, Current Ratio, Return on Assets, Total Liabilities/Net
Worth and others.
Company Profile: Ratings Scale
Young: < 5 years
Established: 5+ years
Small:
– Employee < 10 or missing
– Sales <$100K or missing
Medium:
– Employee 10-49
– Sales $100K - $499K
Large:
– Employee 50+
– Sales $500K+
22Understanding D&B Data & Scores
*includes actual employee size and sales only;
estimated/model employee size and sales
counted as “missing”
Viability Rating
Comparing Two Companies
23Understanding D&B Data & Scores
Both companies look the same, with a Viability
Score= 4, when compared with all US businesses4
2
A
A
ABC Company XYZ Company
But their Portfolio Comparison (ABC with Financial
Data and XYZ with Established Trade), their risk
ranking is significantly different; ABC has a better
outlook than XYZ
Data Depth is at different levels. ABC has shared
financial information and XYZ has established credit
history, but no financials reported
The companies have different Company Profiles–
large, established business small, established
business
4
6
C
K
24
Predictive performance of the Viability Score
Superior Risk Discrimination: Bad Rates Range from .3% to 65%
25
Predictive performance of the Portfolio Comparison: With
available financial data and businesses with no financial data but with
established trade payments
Average bad rate is 0.6%, significantly
lower than combined average of 14%
Ranking businesses within this peer group
provides additional insight into financial
performance
Average bad rate is 5%, lower than the
combined average of 14%.
Ranking businesses within this peer
group provides additional insight into
detailed payment trends relative to
viability
262626
Predictive performance of the Portfolio Comparison:
Limited Trade Payments and No Trade Payments
Average bad rate is 11%, slightly better
than the combined average of 14%
Ranking businesses within this peer
group provides additional insight into level of
business activity, firmographics, public
records and trade relative to viability
Average bad rate is 15%, higher than the
combined average of 14%
Ranking businesses within this highest
risk peer group provides additional insight
into how businesses with no established
trade history compare in terms of future
viability
27272727
Intelligence Engine ‘Signals’ of business activity
are correlated to delinquency
Distribution of delinquency rate by IE updates
last quarter vs. the same quarter a year ago
Businesses with 4+ updates have lower delinquency vs. businesses without any
updates or with a decreased number of updates.
% of 91+ accounts
Delinquency Predictor
Commercial Credit Score – Version 9.0
29Understanding D&B Data & Scores
Summarized and Detailed Trade Data
Number of Trade Accounts
Percent of Negative Account Dollars
Average Monthly Open Balance
Most Recent Past Due Amount
Total Amount Owing by Aging Bucket
Percent of Accounts and Dollars by Aging Bucket
Percent of Slow Accounts and Past Due Dollars
over last 3, 6, 9, and 12 months
Percent of Change in Slow Accounts and Past Due
Dollars by Aging Bucket over last 3, 6, 9, and 12
months
Paydex Variance
Demographic and Intelligence
Engine Data
Year Started; Management Control Year
SIC/Industry
State
History
Intelligence Engine Activity Signals
Public Record Data
Number of Suits, Liens, Judgments
Bankruptcy
Financial Data
Availability of Financial Statement <24 Months
Old
Current Ratio
Delinquency Predictor:
Predictive Performance
30Understanding D&B Data & Scores
Delinquency Predictor Higher RiskLower Risk0%
5%
10%
20%
30%
40%
50%
60%
1.1%
National Delinquency Rate = 10.2%
2.5%5.8%
9.4%
53.1%
Pro
ject
ed
De
linq
ue
ncy
Rat
e
Risk Class 1 2 3 4 5
Percentile 100-91 90-71 70-31 30-11 10-1
Score 670-580 579-530 529-481 480-453 452-101
Financial Stress Score:
Predictive Performance
33Understanding D&B Data & Scores
Failure Score Higher RiskLower Risk0%
.5%
1%
2%
3%
4%
5%
6%
0.03%
National Failure Rate = 0.48%
0.09% 0.24%
0.84%
4.70%
Pro
ject
ed
Fai
lure
Sco
re
Risk Class 1 2 3 4 5
Percentile 95-100 69-94 34-68 2-33 1
Score 1875-1570 1569-1510 1509-1450 1449-1340 1339-1001
Delinquency Predictor & Financial
Stress Score “Cheat sheet”
34Understanding D&B Data & Scores
Low Risk of Delinquency
(1, 2)
Low Risk of Failure
(3, 2, 1)
High Risk of Failure
(5, 4)
“STARS”
Healthy companies that not
only are prompt payers, but
also less likely to fail.
“LONG TERM RISK”
Companies that are less likely to
experience failure, but are not
prompt in paying obligations.
“SHORT TERM RISK”
Rare. Companies that are regular
in payment but with a high risk of
failure.
High Risk of Delinquency
(3, 5, 4)
“WATCH LIST”
Unhealthy companies that are
not prompt payers and are more
likely to fail.
Paydex: how a Company Pays its Bills
36Understanding D&B Data & Scores
PAYDEX Payment Summary
100
90
80
70
60
50
40
30
20
UN
Anticipate
Discount
Prompt
15 Days Beyond Terms
22 Days Beyond Terms
30 Days Beyond Terms
60 Days Beyond Terms
90 Days Beyond Terms
120 Days Beyond Terms
Unavailable
Paydex
37Understanding D&B Data & Scores
What drives the PAYDEX score? Terms of Sale / Payment Manner
Dollar Amount
Number of Experiences
Trade Experiences
Updated/Removed – Dynamic
Note: The PAYDEX calculation
compares payments to ‘terms of
sale’, is dollar weighted, and scores
the overall manner of payment
reported to D&B (Prompt, Slow,
Discount, Placed for Collection)
PAYDEX availability rules are: Need a minimum of 3 trade
experiences, with a minimum of 2
unique trade suppliers
Up to 874 trade experiences can be
used (always the most current)
Must be reported within a 24 month
period
Looking at scores in conjunction with each
other is where the true insight is uncovered
40Understanding D&B Data & Scores
The best way to use the scores is to perform a
Retro Score Analysis on your portfolio
Prior Period
Credit Score
Percentile % Accts
Cumulative %
of Accts Bad Rate
Cumulative
% of Total
Bads
1-<6 1.8% 1.8% 1.0% 2.6%
6-<24 9.3% 11.2% 1.4% 21.5%
24-<48 3.1% 14.3% 1.6% 29.0%
48-<57 2.5% 16.8% 1.2% 33.4%
57-<64 3.2% 20.0% 0.9% 37.8%
64-<70 3.5% 23.5% 1.2% 44.2%
70-<75 3.3% 26.9% 1.3% 50.8%
75-<80 8.7% 35.6% 0.7% 59.6%
80-<82 5.6% 41.2% 0.5% 63.7%
82-<85 10.3% 51.4% 0.7% 74.5%
85-<88 10.7% 62.2% 0.4% 81.3%
88-<90 10.6% 72.7% 0.5% 88.4%
90-<92 8.1% 80.9% 0.5% 93.8%
92-<93 3.4% 84.3% 0.4% 96.0%
93-<94 3.1% 87.4% 0.1% 96.5%
94-<95 5.4% 92.8% 0.1% 97.1%
95-<97 4.2% 97.0% 0.3% 99.1%
97-<98 1.6% 98.6% 0.4% 100.0%
98-<99 0.8% 99.4% 0.0% 100.0%
99+ 0.6% 100.0% 0.0% 100.0%
Highest Risk
% Total Accts = 11.2%
% Total Bads = 21.5%
Bad Rate = 1.3%
Medium Risk
% Total Accts = 40.3%
% Total Bads = 53.0%
Bad Rate = 0.9%
Lowest Risk
% Total Accts = 48.6%
% Total Bads = 25.5%
Bad Rate = 0.4%