Using Payment Behaviour Data for Credit Risk Modelling

Authors: Wilson N.; Summers B.; Hope R.

Source: International Journal of the Economics of Business, Volume 7, Number 3, 1 November 2000 , pp. 333-346(14)

Publisher: Routledge, part of the Taylor & Francis Group

Buy & download fulltext article:

Price: $50.43 plus tax (Refund Policy)

Abstract:

In this paper we evaluate payment scores in two contexts; that of predicting future payment behaviour and that of corporate failure prediction. The assessment of the ability and willingness of a firm to pay its creditors, and the likely timeliness of payments, are a major focus of both credit risk analysis (from the trade credit perspective) and government policy, although the latter issues have not been much studied in the academic literature. While failure prediction models are traditionally used as indicators of payment behaviour in the UK, payment behaviour prediction models are estimated and made available in the USA by the leading credit reporting agencies and the predictive abilities of such scores in the UK context are, therefore, worthy of consideration.We also consider the contribution that payment behaviour scores can make to predicting corporate failure. An important question is whether the availability of payment behaviour scores increases the overall information content of the credit report or merely re-packages information represented elsewhere. We find that payment behaviour data can be used to predict successfully future payment behaviour in a trade credit context, and can add incrementally to the predictivity of corporate failure models.

Keywords: CORPORATE FAILURE; PAYMENT BEHAVIOUR; TRADE CREDIT; CREDIT RISK

Language: English

Document Type: Research article

Publication date: 2000-11-01

More about this publication?