CHAPTER 4: CREDIT MANAGEMENT
4.10 Internal Credit Score
Scorecards should be developed in-house based on the company’s business plan, goals, and the amount of risk the CFO is willing to take to achieve sales goals. A simple score should be assigned to each category and can be scaled or weighted to a standard (e.g., 0-to-10, 0-to-100). Credit bureau scores are usually scaled from 100 to 999. The overall score can then be used to approve, deny, or assign a credit line, terms, and payment methods.
Scorecard inputs include the following:
Government-issued block lists—if the person or entity is on the list, cease further activity and do not proceed with any business relationship (Score = zero) Financial statements (at least three years to get trending) Portfolio References Credit agency score
Credit group Personal visit Sales team input Internet Trade magazines
You cannot rely on a single tool. Evaluate as many tools as possible to make a credit decision. Any category for which information is not provided scores a zero.
For example, if you use 10 categories, you can weigh each between 0-10. If each category were issued a 10, the total score would be 100. for a scorecard example, see the chart below.
OVERALL SCORE (0-100)
Score
Credit Line
Pay Method
Terms
0
Very Hight Risk
None
None
None
1-10
High Risk
Zero
Credit Card or CIA Prior to Shipment
11-20 Borderline
Very Small
Paper Check
2% 10 Net 15
21-40 Average
Small
Paper Check
2% 10 Net 15
41-59 Above Average
Medium
Paper Check
2% 10 Net 15
60-80 Good
Medium
e-Payment
2% 10 Net 30
81-100 Excellent
Large
e-Payment
2% 10 Net 30
FIGURE 6
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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