Behavior Scoring.(credit management)

In today's competitive and ever-changing business marketplace, it is more important than ever to maintain a competitive advantage, particularly when it comes to back-end decision automation. Credit and collection managers are continually faced with having to create better decision efficiency to accurately and effectively determine the creditworthiness of their customers. Change in the decision strategy is inevitable due to changes in the portfolio, market or economic conditions. Leading companies are prospering as a result of using a knowledge-based decision strategy to make faster and better portfolio management decisions. The driving force of their success, in this e-driven "automated world," is integrating information and technology with a validated and maintained statistical-based scoring solution.

When companies are slow in making new credit authorization or credit line increase decisions on existing accounts, customers' orders are delayed, which causes quality concerns. In addition, businesses that take collection actions against customers that are likely to pay leads to customer satisfaction issues. Ultimately, customers become dissatisfied and are at risk of being lost to a competitor. Knowing quickly and accurately who the most creditworthy customers are and which ones are going to pay their invoices and which ones are not, means increasing profitability and maintaining good customer relations. After all, customer satisfaction is the key to retaining good credit performing customers and eliminating poor credit performing customers, thereby increasing your bottom line.

Why Back-End Decisions Are So Important

Many companies continue to focus attention and resources on automating front-end decisions, but ironically, back-end decisions are the foundation of their success. Most business revenue, sometimes up to 90 percent, is being produced from repeat transactions with existing customers. Existing customers are typically the engines generating the most revenue. However, they are also the cause of high DSO's, delinquencies and losses on your portfolio. The best way to understand and control risk management is through backend credit scoring, generally referred to in the industry as behavior scoring.

Implementing an automated knowledge-based decision system creates more productivity, lowers costs and establishes better customer management. Credit and collection managers are provided with the capability to dynamically make new authorizations, line management and collections decisions by proactively monitoring the portfolio. Behavior scoring solutions, in both e-commerce and brick and mortar environments, typically reduce the cost per credit transaction and collection treatment by optimizing resources. Managers can automate low risk decisions and increase the effectiveness of analysts' review time by directing credit and collection efforts on accounts that need further investigation. It actually may become cost prohibitive not to make an instant decision on the majority of accounts.

Multi-Functional Applications of Behavior Scoring Models

Behavior scoring models are derived from a retrospective statistical analysis of individual account credit performance. The purpose of the statistical analysis is to find the most predictive set of data elements that separate the good credit risks from the poor credit risks. Behavior scoring models evaluate the creditworthiness of existing customers. The output of behavior models is the probability that an ongoing account will become seriously delinquent, become written-off, experience bankruptcy, be sent to a collections agency, or exhibit some other type of derogatory payment behavior over a specified period of time (behavior probability). Behavior models are efficient and effective risk management tools that have multiple applications including: