Business Credit Scorecards: Everything You Need to Know

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Scorecards: The Foundation of Automated Decisioning

What Is a Business Credit Scorecard?

A business credit scorecard contains the formulas than a company uses to calculate credit scores. It’s the foundation of automated credit decisions.

Automation in the finance department is both a hot topic and a sensitive subject. While most large enterprises automate some part of the order-to-cash process, midsize and smaller firms may still be reluctant to adopt new technology. Smaller firms that don’t have to evaluate tons of credit requests may still prefer to make manual credit decisions using their own subjective determinations of creditworthiness.

However, automating routine decisions allow credit managers to more quickly identify the customers who might pay late or pose other serious credit risks. Its time-saving element is important because if there’s one thing that’s in short supply these days, it’s time. Credit managers can’t spend days - or even hours - looking at submitted documents, scanning applications, reading credit reports, calling trade references, and leaving voicemails before an order can be filled or a new account can be established.

For those credit managers who are overwhelmed with the level of manual work involved in making a routine credit decision, it might be time to consider implementing a business credit scorecard.

What Does a Business Credit Scorecard Look Like?

Simply put, a business credit scorecard is a formula that uses data elements, or variables, to determine a score that represents a company’s level of tolerance for risk.

The first step to creating a business credit scorecard is to define what it should measure. There are two main categories of “bad” accounts that credit managers aim to avoid – those that pay slowly (but will eventually pay, whether it’s 60 or 90 days late) and those that will never be able to pay.

This requires a general understanding of a company’s bad accounts in order to choose which data elements make the most sense for your scorecard. There are a variety of data elements to choose from when defining the scorecard’s underlying variables, including third-party credit scores, financial information, trade experiences, public filings, and industry data. This information allows for scoring companies on useful metrics, such as a delinquency prediction and percent of past due dollars.

Common Data Variables:

Payment rating score
% total past due
Rating code
Years in business
# of employees # of suits
Net worth
delinquent payment score
# of liens
% of slow or negative payments
business failure prediction score
fraud score

A point value (usually out of ten) is assigned to each variable, depending on where a company’s score on that variable falls in a range of potential scores. The point values are weighted based on the variable’s importance, the results are added up, and the total score generates the credit decision.

For example, a score of 0–3 means “no credit” given, 3.1–5.5 means “maybe” (and would require further review), 5.5–7 means “conditional approval” (e.g., granting 75 percent of the requested credit), and a score of 7.1–10 would grant 100% of the requested credit.

Companies commonly set up their scorecards with conditions when results fall in a mid-range score, such as granting a percentage of the requested credit or tightening the payment terms. This allows them to set a threshold for risk while still approving routine and reasonable credit requests.

Benefits of Automating Credit Decisions With Scorecards

  • Reduce Risk – It can lead to decreased bad debt and lower DSO (days sales outstanding) and DBT (days beyond terms) by reducing exposure to high-risk accounts – because any red flags are detected upfront.
  • Increase Speed and Scale – It creates an instant process for handling routine or obvious approvals or declines, and by reducing the time spent on the review process, it increases the volume of accounts that staff can evaluate.
  • Increase Consistency – Calculating routine credit decisions using the same formula becomes a repeatable process that removes any subjectivity, which can lead to fewer disputes.
  • Accelerate Revenue – The scorecard’s formula can be tweaked for subsequent invoices, and consistently creditworthy accounts can be targeted for future promotions to foster better collaboration with the sales team.


In short, implementing a business credit scorecard can alleviate time-consuming manual reviews and provide more consistent credit decisions. Routine decisions need to be made quickly and efficiently to not only shorten the sales cycle but also reallocate valuable time and resources to higher-exposure accounts. It’s a smart way to strike the right balance between managing credit risk and optimizing resources, and the results are worthwhile – more revenue, less bad debt, and increased profitability.

Download the eBook with Sample Scorecards

Download the eBook to learn how easy it can be to set up a business credit scorecard. You’ll get a better understanding of the commonly used types of data variables and be able to determine which ones address your definition of creditworthiness. It includes templates of sample scorecards for when the customer provides financial statements and when they do not.

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