The Finance Performance Indicator (FPI) predicts the likelihood of a company defaulting on payments within the next 90 days. The indicator ranges from 0-9, 0 being most likely to default, 9 being least likely.


Indicator NumberRAG Score
0, 1, 2Red
3, 4, 5, 6Amber 
7, 8, 9Green 


RAG Score
Characteristics
Red
  • Companies often have current account values which have been close to zero or negative over the past 10 months and appear to be decreasing.
  • Companies with a loan often have a repayment amount which is deemed to be unaffordable based on current account values.
  • Companies often have a negative net value* throughout the past 10 months.
  • Companies with a loan often have a poor history of loan repayments, with the outstanding balance often increasing.
  • 30% of companies had late payments of 30 days or greater.
Amber
  • Companies can have low current account values which are close to zero or negative, but the values do not appear to be decreasing.
  • Companies with a loan often have a repayment amount which is on the cusp between affordable/unaffordable based on current account values.
  • Companies often have a negative net value* throughout the past 10 months.
  • Companies with a loan often have a mixed history of loan repayments, with the outstanding balance remaining generally constant.
  • 12% of companies had late payments of 2 days or greater.
Green
  • Companies often have current account values which are high (above £5,000) over the past 10 months, and do not appear to be decreasing.
  • Companies with a loan often have a repayment amount which is affordable based on current account values.
  • Companies often have a positive net value* throughout the past 10 months.
  • Companies with a loan have a strong history of making loan repayments, with the outstanding balance decreasing.
  • 99% of companies had no late payments in 2023, with the remaining 1% being late by 2 days on average.


*Net value = Current account value + total negative debt value 


Criteria


In order for a company to have a Finance Performance Indicator, they must have:

  • At least one current account. 
  • The current account data should have at least 10 months history.


There are additional factors that can be considered when generating a score:

  • If a company has a loan, this is used in the score but can not be assessed on its own without having a current account present.


Please note only current accounts and loan data currently being provided to us via the CCDS scheme is currently considered within the Finance Performance Indicator.



What variables are considered when generating a Finance Performance Indicator?


The below factors:

  • Total values of all current accounts for the past 10 months.
  • Average values of all current accounts for the past 10 months.

If a loan is available, the following factors are also considered:

  • Total value of all active loans
  • Average repayment amount of loans

The variables used as the current account values have been found to be highly predictive of payment default. Loan information increases the accuracy of the prediction, however it is not necessarily required for a finance performance indicator.

Using these variables, we are able to form positive (higher FPI) and negative (lower FPI) patterns.


Positive Patterns:

  • Current accounts show trend of increasing value.
  • Current accounts do not have large fluctuations.
  • Current accounts are not consistently in overdraft.
  • Loan repayment amount is high but not greater than average value of current accounts (if loan information available).
  • Loan repayments have remained consistent (if loan information available).


Negative Patterns:

  • Current accounts show trend of decreasing value.
  • Current accounts have large fluctuations.
  • Current accounts are consistently in overdraft.
  • Loan repayment is too high compared to current account values, and deemed to be unaffordable (if loan information available).
  • Loan repayments are extremely low/inconsistent (if loan information available).


For example, a company that only has positive patterns will receive an FPI of 9, the highest. A company with only negative patterns will receive an FPI of 0, the lowest. A company that seems to have a bit of both will receive an FPI between 3 and 6 inclusive.



What is the difference between the credit score and the Finance Performance Indicator?


The Creditsafe score predicts the likelihood of a business failing over a 12 month period whereas the Finance Performance Indicator predicts the likelihood of a company defaulting on a payment within the next 90 days.


The Creditsafe score is influenced by factors such as CCJs, payment data, financials filed, business sizes, industries and director changes whereas the finance performance indicators uses key data points provided to us via the CCDS scheme.



Finance Performance Indicator Distribution



The graph above shows the distribution split of the population, based on average population per month over the year 2023. The black line reflects the bad ratio (right hand y axis), the percentage of companies we expect to have a payment default for that finance performance indicator. The red bars represent the percentage of companies (left hand y axis) rated as having the specified finance performance indicator (x axis).


In the red zone (FPIs of 0, 1 or 2), we can see that the bad ratio is very high, 30% at FPI 2, 40% at FPI 1, and 50% at FPI 0. The bad ratio drops steeply at FPI 5, where we expect around 2% of companies to have a payment default, and it drops further to 0.05% at FPI 9. So, at FPI 9, we expect around 1 in 2000 companies to have a payment default. Converse, at FPI 0, we expect around 1 in 2 companies to have a payment default.



Gini Coefficient


The average Gini is 88%, with it fluctuating between 80% and 92%.


This means that if you deal with a company that has a higher FPI, there is a significant chance that the business is less likely to default on a payment when compared to a company with a lower FPI, as there are positive financial trends within the finance agreement data.


By combining the Creditsafe risk score and the FPI, you are able to make business decisions that reduce the chance of dealing with slow payers who are more likely to default on payments and fall into a definition of failure.



FPI links with insolvency


Whilst FPIs are not specifically targeted at predicting insolvencies, there is a link between the FPI and a company’s chance of insolvency.


Below is a look at the RAG Score from 25th December 2022, and the percentage of companies that went insolvent some time in the year 2023.



FPI RAG ScorePercentage Insolvent
Red24%
Amber 17%
Green 5%


If we look at the RAG Score from December 25th 2022 and look ahead at the next 6 months up to June 25th 2023, we see the following results:



FPI RAG ScorePercentage Insolvent
Red30%
Amber 22%
Green 5%



Distribution Split


Below is an example distribution for the month of December 2023. We can see a much greater percentage of payment defaults at FPIs of 0, 1, 2, than we can at FPIs of 7, 8, 9. Notably, at FPI 0, we expect about one in two companies to have a payment default within 90 days. At FPI 9, we expect about one in every 2,000 companies to have a payment default.



Finance Performance IndicatorPercentage Default (within 90 days of indicator)
053.5%
150.3%
229.9%
323.6%
47.7%
52.4%
61.2%
70.4%
80.1%
90.05%