In the world of business and finance, assessing the creditworthiness of a company is crucial for making informed decisions. At Upsales, we use a creditworthiness scoring system that ranges from 1 to 100 to provide a risk prognosis for the likelihood of a company going bankrupt within the next 12 months. Understanding how this scoring system works can help you navigate the complex landscape of business partnerships and investments.
This article will cover:
- The Creditworthiness Score
- The Statistical Model
The Creditworthiness Score
Our creditworthiness score is a numerical representation of a company's financial health and stability, based on a statistical model. It falls on a scale from 1 to 100, where a higher score indicates a lower risk of bankruptcy, and a lower score suggests a higher risk. This score is a valuable tool for assessing the financial viability of your customers and investment opportunities.
Risk Categories (A to E):
To simplify the interpretation of creditworthiness, we group the scores into risk categories representing a certain risk prognosis:
- Category A: Scores 80-100, indicating a very low risk of bankruptcy (0,0001 - 0,2526%)
- Category B: Scores 60-79, representing a low risk (0,2526 - 0,8658%)
- Category C: Scores 40-59, suggesting a moderate risk (0,8658 - 2,9231%)
- Category D: Scores 15-39, indicating a high risk (2,9231 - 12,3937%)
- Category E: Scores 1-14, signifying a very high risk (12,3937 - 100%)
These categories help you quickly understand the risk associated with a company based on its creditworthiness score.
Special Cases (Category F - No Assessment):
Some companies may have events or circumstances that make it impossible for us to provide a creditworthiness assessment. These events include:
- Forced liquidation
- Bankruptcy application
- The company is dissolved
- The company is delisted
- Not an active company
In these cases, we categorise the creditworthiness as "F" and assign a score of 0. This indicates that we cannot assess the risk of bankruptcy for these companies, as they may already be in the process of bankruptcy or have ceased operations.
Other Non-Assessable Events (Category "Other"):
There are other events that also prevent us from providing a creditworthiness assessment. These events include:
- Incomplete data
- Auditor missing
- CEO missing
- Deficiency in accounts
- Bad debt
- No account
- And several other events...
For companies with such events, we categorise their creditworthiness as "Other," which means we cannot assign a score or category. These companies are subject to unique circumstances that prevent a standard assessment.
The Statistical Model
Our creditworthiness score is determined by a statistical model tailored to the type of company. This model takes various factors into account, such as payment remarks, the company's financial health, and the composition of its board. By weighing these factors against each other, we provide a comprehensive and data-driven assessment of creditworthiness.
Understanding creditworthiness is vital for making sound business decisions. Our scoring system and risk categories are designed to provide you with the information needed to assess the financial health of potential partners or investment opportunities accurately. Whether you're looking to engage in a business partnership or invest in a company, having a clear understanding of creditworthiness is an essential tool in your decision-making toolbox.