The Hidden Gems: Optimizing your DNB Credit Reports

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



Search Results

Choosing the Right Company


Can’t Find the business

you are Looking for?


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”


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


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


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


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


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.


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


Public Filings


‘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.


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


Date Reported & Last Sale should be compared to check

recency of the purchasing activity

Trade Payments – Details Available


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


Today’s Agenda

D&B Data


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


Viability Rating at a Glance


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


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.

Data Depth Indicator: Ratings Scale


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+


*includes actual employee size and sales only;

estimated/model employee size and sales

counted as “missing”

Viability Rating

Comparing Two Companies


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


Delinquency Predictor

Commercial Credit Score – Version 9.0


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


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

Don’t forget the importance of

Trends…


Financial Stress Score


Financial Stress Score:

Predictive Performance


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”


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.

Here is an example from a real portfolio


Paydex: how a Company Pays its Bills


PAYDEX Payment Summary

100

90

80

70

60

50

40

30

20

UN

Anticipate

Discount

Prompt

15 Days Beyond Terms






Unavailable

Paydex


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

Paydex Trends – 12 & 24 Months


D&B’s Conservative & Aggressive

Credit Limits


Looking at scores in conjunction with each

other is where the true insight is uncovered


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



Bad Rate = 0.9%

Lowest Risk



Bad Rate = 0.4%

Utilize the customization capabilities

to build your summary


Bringing it all together…


Thank you!