Credit Management - Calculate Risk Scores

Part of the new Credit management feature is the ability to calculate Risk scores for your Customers. There is a little bit of setup initially, but the value that can be derived from calculating a Customer's potential risk is tremendous!

Setup Scoring Groups

The first step is to define what Scoring groups you would like to use to help categorize your Customers. Navigate to Credit and collections > Setup > Risk > Scoring groups. Here, you will define what criteria will define how you weigh the Customer's risk factor. 

When defining a new Scoring group, you must select what Group type this Scoring group will be defined as. These scoring groups have functionality built into them that will use fields in the system to calculate values.

Define Group type on Scoring group
Scoring groups - Define Group type

You can define the following:

  • User defined
  • Average payment days
  • Customer since
  • In business since
  • DSO (12 months)
  • Average balance (12 months)
  • Credit management group
  • Account status
  • Country

User defined is just like it sounds. This is a group that is defined by you! The system allows for flexibility if you want to create your own method of risk scoring. In the Contoso demo data, there is a great example of D&B Ratings (as seen below). As you can see, the worse your D&B rating, the higher your risk score.

Risk scoring using D&B ratings
Scoring group using D&B ratings

Average payment days is a calculated value. The system tracks this data and supplies it in a field that is tucked away within the Collections information on your Customer record (yes, this is in older versions of AX as well, just super hidden!). You can easily access this information in D365FO on the Related information pane, in the Credit statistics area. 

Average payment days on Customer Credit statistics
Average payment days

Customer since will calculate how long a Customer has been doing business with you. If you recall, there is a new field on the Customer record that allows you to denote when you started doing business with them. You can then score based on your years of experience with them. 

In business since will calculate how long this Customer has been in business. Similar to Customer since, this field calculates from one of the new fields on the customer record that lets you denote what year the business was established. From there, you can use this to value their track record of staying in business. In the example below, you can see that a less established Customer will get a higher score in their risk calculation.

Easily calculate how long a Customer has been in business
Easily calculate how long a Customer has been in business

DSO (12 months) calculates the Days Sales Outstanding (DSO) on the Customer over the past year. 

Average balance (12 months) calculates the Customer's average balance over the past year. 

Credit management group is a field that is defined on the Customer as one of the new fields that came with the Credit management feature. The Credit management group allows you to group together similar Customers and apply Blocking rules or Risk scores consistently. 

Account status is also a new field on the Customer record that allows you to further define what your Customer's status is. This can be used to help guide decision-making by easily allowing business leaders to see what is happening with a Customer (i.e. Good standing, Bankruptcy, In arrears, etc.)

Country allows you to give Customers from certain countries higher risk scores based on your experience with how well they pay. This pulls from the company's primary address field. 

Risk scores

Once you have defined the Scoring groups, you must now determine how they will calculate into Risk scores. Navigate to Credit and collections > Setup > Risk > Risk classification. Here you can define the levels of risk. Typically, Risk will fall into low, medium, and high categorizations and you can assign visual indicators that will appear throughout the system to help you quickly and easily assess a Customer's risk level.

Risk classification
Risk classification with indicators

Calculating Risk

Ok, this is all great information, but how do we actually calculate the Customer's Risk scores and where can we see this information? 

There is a task located at Credit and collections > Periodic tasks > Credit management > Update risk scores. This is a job that can be set to run in the background or you can run it periodically on your own. 

You can review the Risk scores that get calculated on the Customer record. Navigate to the Credit management tab in the ribbon and select Risk score. 

Risk scores on the Customer record
View Risk scores on the Customer record

This is where you can see the calculated and user defined risk contribution values for your Customer.

Risk score and risk classification
Risk score and Risk classification

From here, you can use the Risk score to generate Automatic credit limits. 

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