New D&B Failure Score and Recommended Credit Limit Models for UK and Ireland

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1 New D&B Failure Score and Recommended Credit Limit Models for UK and Ireland Please click the links below Customer Frequently Asked Questions What is changing? When will the changes happen? Why are we making the changes? What does it mean for you? How will the Failure Score change? How will the Recommended Credit Limit change? How will expert rules (overrides) change? How will comments in products change? How will the relationship between the 1 to 100 Failure Score and the probability / incidence of failure change? Will the relationship between the 1 to 100 Failure Score and Risk Indicator change? Why will it take several weeks to rescore all UK and Irish businesses? How can I tell if a business has been rescored using the new models during the transition? How will products change? How many businesses in the UK and Ireland will have a Score and Limit? Why wouldn t a business have a Score or Limit? Why would the Score or Limit for a business change as a result of the new models? What action can a business take to improve their own Score / Limit? What is changing? The Failure Score calculation for UK and Ireland. The Recommended Credit Limit calculation for UK and Ireland. o The Credit Limit for the largest businesses will reduce. This is to better align our limits to those actually given by customers and in response to feedback from customers and industry. Scoring processes that will improve consistency and explanation for customers, specifically the way we process expert rules (overrides) and the comments shown in products. When will the changes happen? Implementation of the changes for both the UK and Ireland will be during the last week of January We will then rescore all UK and Irish businesses over the following weeks and months, starting with the businesses our customers are most interested in. Why are we making the changes? The business environment is constantly changing and to ensure our insight continues to be the most predictive in the market, D&B are investing over $1 million to implement new risk scores for the UK and Ireland.

2 The new models have greater predictive power, include new data elements that make use of our sophisticated analytics and insight, and remove some known issues that create customer dissatisfaction. What does it mean for you? The improved predictive power of the new Failure Score and Recommended Credit Limit combined with our unrivalled data coverage and accuracy will help you to identify more opportunities and higher risk businesses than ever before. The transition to the new models will generate an increase in the number of changes to Scores, Ratings and Recommended Credit Limits for businesses, particularly in the first few weeks after the implementation. This will naturally create an increase in the number of updates we send to customers. For example, the number of Monitoring Notices we send will increase. You should review the cut-offs for decisions based on the 1 to 100 Failure Score as the relationship between this and the percentage of businesses that are likely to fail at each Score (typically referred to as the Probability or Incidence of Failure ) will change. The relationship between the 1 to 100 Failure Score and Risk Indicator is not changing. We are also changing the way we process expert rules (overrides) to give better consistency across all our products, and improving the commentary in our products to help you better understand the factors that influence the Score and Credit Limit. How will the Failure Score change? The new models have greater predictive power, include new data elements that make use of our sophisticated analytics and insight, and remove some known issues that create customer dissatisfaction. New data elements include analysis of the financial strength of the domestic ultimate parent for a subject business to better evaluate the total risk within groups of businesses, a nationwide trading condition to compliment regional risk assessment, categorisation of mortgages and charges, and comparison of the subject business payment trends to industry averages. We will continue to use multiple scorecards within the Failure Score model to target characteristics of different segments of businesses; however we have changed how those segments are divided in order to improve consistency and also to ease explanation when a scorecard change does happen. How will the Recommended Credit Limit change? New Recommended Credit Limits for businesses will be more aligned with limits now given by creditors. The largest impact will be seen by the highest Recommended Credit Limits currently as these are likely to reduce significantly. We will continue to use business size, industry and risk (the D&B Failure Score) to calculate the Recommended Credit Limit for a business.

3 How will expert rules (overrides) change? Expert rules (overrides) will be applied at Raw Score level (the most granular result from the Failure Score model) instead of at Risk Indicator level. This will improve the consistency of presentation in products including allowing us to display the Failure Score where before it was suppressed when an expert rule (override) was present. How will comments in products change? Following feedback from customers we have improved the logic used to generate comments in products so now comments will change more frequently as the Score changes, especially if the Risk Indicator for a business changes. How will the relationship between the 1 to 100 Failure Score and the probability / incidence of failure change? The 1 to 100 Failure Score is a relative measure of risk, whereby 1 represents businesses that have the highest probability of failure and 100 the lowest. It shows how a business risk of failure compares to other businesses within a country by ordering and segmenting that country s database into 100 equal percentiles. Each Failure Score represents 1% of businesses within that country with the same risk of failure and has an associated probability of failure. The business environment is constantly changing with the UK and Ireland having experienced significant economic challenges in the last few years. Rates of failure in both the UK and Ireland have changed, leading to an adjustment in the distrbution of businesses compared to risk. Will the relationship between the 1 to 100 Failure Score and Risk Indicator change? The relationship between the 1 to 100 Failure Score and Risk Indicator is not changing for the UK but is for Ireland. Note; the Risk Indicator will still be available for UK and Ireland. UK Current and New Models Failure Score Risk Indicator Ireland Current Model Businesses With Balance Sheet Current Model Businesses Without Balance Sheet New Model Failure Score Risk Indicator Failure Score Risk Indicator Failure Score Risk Indicator N/A

4 Why will it take several weeks to rescore all UK and Irish businesses? Some customers have given feedback that they would like their portfolio of businesses to be rescored quickly to take advantage of the improvements in the new models, however other customers have given feedback that they would like their portfolio of businesses rescored over a longer period of time to help them manage the change. Therefore to manage these conflicting requirements we will rescore all UK and Irish businesses over a number of weeks and months starting with the businesses our customers are most interested in. How can I tell if a business has been rescored using the new models during the transition? In Business Information Reports the Failure Score History Graph (available in the Comprehensive report) will show an additional line and indicate the Score has been recalculated using the new model. The Algorithm ID shows which scorecard has been used to calculate the Score for a business and is available in batch data products. New Algorithm IDs for the UK Failure Score model are 1040, 1041, 1042 and New Algorithm IDs for the Irish Failure Score model are 5000, 5001 and How will products change? Changes to products that impact customers are being communicated directly to those affected customers. However in general, we will not be suppressing information in products and Scores will be more consistent when an expert rule (override) is present. The Business Information Report will highlight with the Failure Score History Graph when a business has been rescored using the new models. How many businesses in the UK and Ireland will have a Score and Limit? Approximately 3 million UK businesses and 400,000 Irish businesses that demonstrate signs of economic activity or trading. Why wouldn t a business have a Score or Limit? We will not publish a Score for a business that is already out of business (based on our definition of failure), a branch record (which will assume the Score for the headquarters), a foreign registered office, or any business that does not demonstrate signs of economic activity or trading. Signs of economic activity and trading include minimum data standards and usage / enquiry statistics. Why would the Score or Limit for a business change as a result of the new models? Although the underlying data for a business may not have changed, the new models use the data differently in the score and limit calculations. There are also additional data elements used in the new models that were not used previously.

5 What action can a business take to improve their Score / Limit? D&B s Scores and Limits are based on the information held about a business so it is important to ensure all information is complete, accurate and up to date. Contact your local D&B Customer Service team: Netherlands: +31 (0) Belgium: +32 (0) UK and Ireland: D&B also provide Score consultancy services to help businesses understand the factors that influence their own Scores. Please contact the D&B Customer Service team for further information about this service. For score definitions and how we develop models, please click here.