Credit Risk Analytics: Your Secret Weapon In the Face of Rising Business Bankruptcy
Mounting defaults, increasing bankruptcies ... financial distress is at the highest level since the last Financial Crisis.
With global risk rising, and a corporate debt bubble ready to pop, financial managers need advanced credit risk analytics to identify growing risk. Here’s how crowd-sourced data, when used to generate our financial stress score, helps you to target credit risk even better than before.
Don't just take our word for it, judge for yourself. Check out the research below.
In troubled economic times, it’s crucial to be prepared
According to the American Bankruptcy Institute, U.S. business bankruptcy filings have soared 38% from a year ago. In fact, September marked the eleventh consecutive month of year-over-year increases.
The current trend points out what we all know. Historically unprecedented low interest rates have led companies to take on record levels of debt. The problem is, as the economy slows, overleveraged companies get into financial trouble -- which is why credit risk is building.
During challenging times like these, credit managers are under great pressure to protect their companies. Here's where the right risk management tools can really prove their worth ... especially a financial risk score that uses crowdsourcing to provide a reliable signal of financial trouble.
Crowd-sourced analytics delivers a better bankruptcy risk score
Our data scientists are always looking for new ways to predict bankruptcy. And in recent bankruptcy research, they noticed an interesting data pattern.
Each day, thousands of credit managers investigate and analyze public companies using our online database. It turns out, when they begin to scrutinize certain companies more closely as part of their business credit analysis, this collective activity pattern becomes a powerful signal of a company’s increasing bankruptcy risk.
By combining our FRISK® financial distress model with a new source of ‘crowd-sourced’ behavioral data, we discovered an even more valuable way to help you combat credit risk.
Leveraging credit manager wisdom: great minds really do think alike
Here's what the data showed: by harnessing the collective wisdom of our online users, we’re able to identify more high-risk companies sooner, and predict bankruptcy even better.
Jerry Flum, founder and CEO of CreditRiskMonitor, explains it this way:
“Our subscribers are credit professionals in the top companies of the world, managing billions of dollars of risk. These credit managers have a front-row view on changing risk conditions because they are in the driver’s seat every day. We have proven that their activity signals coming financial stress. It’s not what they are saying that drives the risk signal. It’s what they are doing – which is far more powerful. This results in the most accurate financial risk score commercially available.”
When you consider it, it’s not all that surprising that a community of your credit manager peers would know about companies beginning to get into financial trouble – especially our subscribers, who are some of the world’s top credit managers. They are highly experienced and manage a huge amount of credit risk, which needs considerable due diligence.
But the game changer is what happens when we use this data to complement other factors in our model, to further refine the FRISK® financial risk score.
Using crowd-sourcing, our bankruptcy prediction model’s accuracy improved from 95% to 96%. You may think an improvement of 1% can’t make that much difference – but it does. Especially as it means more high risk companies slide into the FRISK® ‘red zone’ several months earlier than before (the ‘red zone’ refers to public companies with the highest likelihood of business failure).
The Ultimate Value of Crowd-sourced Behavior: Targeting Credit Risk Sooner
In this bumpy economy, early detection of financial risk has never been more essential. How do you leverage crowd-sourcing in your risk management process?
You can become a data-driven credit manager, using crowd-sourced credit risk analytics to up your game. You can target your credit risks better, and take steps to mitigate them sooner, which is the ultimate hedge against loss.
As the saying goes, 'the sooner, the better' ... the sooner you know about risk, the quicker you can act. And that's a very good thing indeed.
For help detecting hidden customer or supplier risks in your portfolio, contact us for a personalized risk assessment.
And, read the 'Credit Crowd-Sourcing' research paper
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of over 58,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96% accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z” score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.