Credit scoring process

If your company provides loans or credits, or otherwise has ongoing financial balances with a customer or business partner, a credit assessment process should be established.

The term "credit rating process" covers all the actions a company considers relevant to support credit ratings of customers.

What is a credit rating?

A credit rating is an assessment of a customer's financial situation, often based on one or more pieces of information.

This information can range from obtaining simple data about the customer to looking up a debt register or sending income, payslips, financial statements from internal and external sources, etc.

Why do a credit rating?

All credit and debt carries a risk that it will not be paid - either in full or in part.

No lender can completely protect against a borrower/customer defaulting on their debt. There can be many reasons: bankruptcy, death or a change in financial circumstances that makes the customer unable to pay their debt.

A credit rating gives you insight into a customer's financial situation and allows you to adjust the credit accordingly - for example, the credit term, size or the decision to refuse credit altogether.

What does a credit scoring process include?

No two credit scoring processes are the same and it's up to each company to assess and plan what their process should include.

Many companies perform simple credit assessments, making the process short. This may include obtaining the customer's general information (name, address, etc.) and a lookup in a debt register, such as RKI or Debitorlisten.

Checking a debt register is quick and easy and provides insight into whether a customer is registered as a bad payer.

Other companies, especially larger lenders, often have a more extensive credit scoring process that includes obtaining general information and debt records, as well as pay slips and accounting information from the customer.

The longer the process, the more work and administration is required to grant credit, so it's often a trade-off between the amount of work involved and the amount of credit or debt.

As a rule of thumb, the more money you lend or extend credit, the more comprehensive your credit assessment process should be.

The credit scoring process over time

How long does a credit scoring process take? Basically, it can take from a few minutes to the rest of the customer relationship.

In the past, it was common to perform a credit assessment at the start of the customer relationship, but there is an increasing focus on the fact that credit assessments should be ongoing - perhaps weekly, monthly, annually or every time the customer shops.

Many companies choose to monitor their customers on an ongoing basis by subscribing to changes in customer financial conditions and generalia.

There are also companies and industries that perform ongoing credit assessments - for example, monthly or every time the customer makes a purchase.

Of course, all this is done with the realization that a customer's financial circumstances can change over time, which is why many businesses need an ongoing credit assessment process.

Help with your credit scoring process

Collectia has developed the Qatchr service - an online credit check platform that makes it easy to obtain credit information and search debt records.

Qatchr can look up both businesses and individuals and give you insights into your customers' financial situation, including financial figures, history, general information and much more.