Trade credit rating agency
From ACT Wiki
Trade finance - trade credit - credit risk.
Trade credit rating agencies evaluate the credit strength of businesses to meet their obligations to their suppliers.
Suppliers and potential suppliers use the trade credit rating agencies' reports to determine whether to grant trade credit to business customers and potential business customers, and - if so - what credit limit to apply to them.
Trade credit rating agencies use a combination of public and other information to make their evaluations.
Key public information includes accounts and other filings at the companies registry.
Other information includes data on payment behaviour, shared by suppliers.
- Trade credit and private equity
- "The UK trade credit rating market is dominated by four 4 main players: Creditsafe, Experian, Dun & Bradstreet, and Equifax...
- These agencies have existed for many years, and their scoring methodologies vary, as do their outputs, report formats, and many other elements. Due to the disparate nature of having multiple players in the market, there can be, and is, disparity in how they score the same business...
- Whilst the agencies choose and incorporate different data elements, they also have very different algorithms. These algorithms use your data and, based on the values, put different weighting or importance on each variable or criteria taken into consideration. For example, for one agency, missing a single supplier payment might have little impact, but for another it could be of high importance.
- [In relation to PE backed businesses, there] are nuances about how the debt/equity can be structured, but if we take a vanilla PE structure of using a moderate level of equity and the majority in loan notes, then this “debt burden” is seen as negative, even though it is only payable on the event of a sale.
- This means the same business can have huge variance in the credit ratings and recommended credit limits that they are given."
- The UK Trade Credit Agency Backdrop And Private Equity - James Piper AMCT, Founder & CEO, Lightbulb Credit Ltd - September 2024
See also
- Agency
- Algorithm
- Companies registry
- Credit
- Credit limit
- Credit rating
- Credit rating agency
- Credit reference agency
- Credit risk
- Creditworthiness
- Equity
- Loan note
- Private equity (PE)
- Trade credit
- Trade finance
- Vanilla
- Variance
