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GuideStar launches sector-friendly credit-scoring tool

Finance | Tania Mason | 7 Oct 2009

GuideStar Data Services has launched a ‘charity-friendly’ credit-scoring and financial health check tool.

The Third Sector Scorecard is already being used by capacity-building intermediaries as an ‘early warning system’ to identify sector organisations that are getting into financial difficulties and helping them to target their interventions most effectively.

The primary use of the GuideStar credit-scoring tool is to help local authorities and Primary Care Trusts (PCTs) to measure whether charities bidding for contracts are financially sound.

Currently, GuideStar uses the tool as part of a bespoke service for statutory bodies and provides them with the third sector-friendly score alongside Experian’s commercial Delphi scorecard.

GuideStar director Les Hems (pictured) said that when charities are credit-scored using standard commercial ratings, it is very difficult for them ever to score above 80 per cent, putting them at an immediate disadvantage to private sector providers when completing Pre-Qualification Questionnaires (PQQs) at the start of a bidding process.

Experian, along with NCVO and CFDG, has helped GuideStar to develop measurements more suited to not-for-profit organisations, such as around sustainability or reserves.

Hems added that the tool had also proved itself to be a useful “early warning system” to identify sector organisations that are getting into financial difficulty, enabling them to access relevant help and thus be saved from eventual collapse.

“The main benefit of this, as I see it, is the potential for targeted capacity-building,” said Hems.

Use of the scorecard will be restricted to statutory funding bodies, grantmaking trusts, and capacitybuilding organisations, but not by major donors or journalists.  However, charities will be able to access their own scores and will be provided with the scores for other organisations of similar sizes and activities, enabling them to benchmark themselves against their peers.

Over the next few months funding and capacitybuilding bodies will be able to sign up for alerts so they are emailed if an organisation they are monitoring has a significant change in their score.

Hems is now pondering how best to align the credit-scoring service and early identification of problems, with the sort of practical capacitybuilding help that could help charities survive the recession.

Separately, GuideStar and Experian have unveiled the Third Sector Intelligence Service, a database of comprehensive information on the activities, structures and finances of all incorporated and regulated sector organisations - around 225,000 in total.

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Directory: Charity Finance Directors' Group (CFDG) | National Council of Voluntary Organisations (NCVO)
Who's Who: Tania Mason | Les Hems