Credit Risk Score Generation from Invoice Payment Records
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Solution Overview
Problem
Small businesses often face cash flow difficulties due to slower payment practices from larger trading partners, lacking visibility into payment timelines and influencing payment behaviors.
Innovation Solution
A method and system for generating a credit risk score of a business entity by analyzing invoice payment records and statistics from a business management application, using a pre-determined formula to assess payment behavior and generate a credit risk score, which includes selecting trading partners based on business activity measures and integrating with a credit scoring service.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If small businesses transact with larger enterprises, then business volume and opportunities increase, but payment delays and cash flow difficulties worsen
Solution Approach 1:
The system implements feedback by collecting and analyzing payment behavior data from multiple trading partners through the business management application, generating credit risk scores that feed back into decision-making processes for extending credit or setting payment terms, thereby creating a closed-loop system that continuously improves cash flow management based on actual payment performance
Solution Approach 2:
The credit risk scoring system acts as an intermediary between small businesses and large enterprises, providing an objective assessment mechanism that enables SMBs to evaluate enterprise payment reliability without direct confrontation, thus mediating the power imbalance and enabling better negotiation positions regarding payment terms
2Loss of information
If small businesses lack visibility on customer payment behavior, then customer relationships remain opaque, but cash flow prediction accuracy deteriorates
Solution Approach 1:
The system leverages the business management application's existing multi-functionality to not only manage transactions but also collect payment behavior data, analyze credit risk, and generate predictive scores, thereby transforming a general-purpose tool into a specialized credit assessment system without requiring separate infrastructure
Solution Approach 2:
The system performs preliminary analysis of payment behavior patterns and generates credit risk scores before transactions occur or before payment deadlines approach, enabling small businesses to proactively assess cash flow risks and take preventive actions rather than reacting to payment delays after they occur
Data Source
AI summary
A method for generating a credit risk score of a business entity. The method includes identifying a business management application (BMA) used by the business entity and a plurality of trading partners of the business entity, selecting, from the plurality of trading partners, a plurality of selected trading partners based on a pre-determined business activity measure of each of the plurality of trading partners, obtaining, from the BMA, a plurality of invoice payment records of the business entity paying the plurality of selected trading partners, analyzing, by a computer processor, the plurality of invoice payment records to generate a plurality of invoice payment statistics representing payment behavior of the business entity, and generating, by the computer processor and using a pre-determined formula, the credit risk score based on the plurality of invoice payment statistics.