Credit scoring is a system used to rate credits and thus try to automate the decision making process at the time of purchasing a loan, and to [...]
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As a consequence of this pandemic and economic situation in which we have found ourselves for the last two years, with the intention of better protecting the interests of businessmen and customers, from Gamco We have prepared this article in anticipation of those readers who may be thinking about how to detect delinquent customers and avoid defaults.
Artificial intelligence provides us with a very powerful tool to generate assistants that, based on data, detect changes in the behavior of our customers that may indicate future problems in the payment of their invoices or credits.
In the following we will review those 10 reasons that are often the cause of those changes detected by machine learning, which we have:
Before looking at these 10 reasons or signals, it is important not to lose sight of the fact that the most important data about our customers are the commercial transactions with them: services or products invoiced and payments. And atomic data, not aggregated, each delivery note or invoice line of each customer.
You may be interested in: How do I know if a customer will pay me?
If the customer begins to change his orders: volume, expense or frequency of these orders, it may be an indicator of future payment problems or that he may abandon you and go to a competitor.
An obvious question is: does your customer respect the payment terms you have granted him, or is he trying to change them? If his payments are irregular, this is a clear signal to detect delinquent customers as he is probably suffering from liquidity problems.
Beyond the above: if the customer changes his payment behavior (something similar to the first issue), it may mean that he is doing so because of liquidity problems, especially if he is increasing the number of days late from the due date.
Are you noticing more frequent and unusual requests for payment extensions? This type of request can sometimes occur, but when it becomes systematic or increases the number of times it occurs it is a further sign that there is a risk of non-payment.
This issue is a corollary of the two previous ones for the most serious cases in which the situation of default is more imminent. If a customer makes continuous non-payments and always looks for an excuse every time he does not make the payment on time, he is probably going through economic difficulties.
This question and the next two can be answered through data sources external to your company, mainly from credit bureaus.
If your client has just signed a sale with a buyer whose situation is uncertain, he is not managing his credit policy well. The failure of one of your buyers can affect you through the domino effect.
Is your customer looking for new financing, new banking partners or making frequent inquiries for more credit? If so, it may be that his current bank does not want to give him any more financing.
If your client is subject to a constant flow of credit checks from his creditors, he may have difficulty paying them, offsetting his financial losses or keeping his cash flow balanced.
Changes in a company are often unusual and this may give you a clue that the customer is going through bad times. Of course, it should be assessed if the location of the facilities moves to a better area, but if not, it is a clear signal to detect delinquent customers as they may be going through financial problems.
If the phone keeps ringing and doesn't answer every time you call, there's a problem. And if your customer doesn't call you back despite your messages, you need to act quickly.
And the last point to detect delinquent customers and avoid non-payments is to control your customer. For example, if you see that he is selling a large part of his business, has reduced production or cancelled expansion plans,... he may have financial problems.
Indicate that some of these developments may be legitimate, but seeing these warning signs will allow you to prepare for the possibility of non-payment and adapt your credit management policy.
As mentioned in the introduction, one of the most innovative solutions already used by large companies and which will save you a lot of headaches is use the artificial intelligence to prevent SMEs from defaulting on payments in advance.
This is made possible thanks to Gamco's ARM SaaS software and its default predictionThis allows us to detect those customers who present a high risk of non-payment, thus minimizing losses and reducing the time it takes us to make decisions.
ARM SaaS is a GAMCO solution for SMEs. It is a modular tool that can be adapted according to the client's needs in order to adjust to different risk policies and achieve integration with corporate systems.
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