If you don’t think your company’s credit score matters, it does! Just ask your vendors and other business relationships.
In a Blue Book customer survey, we found Blue Book scores (and ratings) were the most favored feature by members.
And, based on daily interactions between Blue Book and the produce trade, nearly all say they pay close attention to Blue Book scores.
George Agorastos, sales and office manager for importer/exporter Arizona Sky Produce, Inc. BB #:269689 in Nogales, AZ, confirms the importance of customers having a good score. “It shows they have a good track record, are responsible, and handle their business well.”
John Hein, managing member of Fresno, CA-based grower and shipper Specialty Fresh, LLC BB #:300123, agrees. “It’s important for my customers and business partners to have a good Blue Book score so we can effectively evaluate their business performance prior to and or while we decide on our level of financial exposure.”
The aforementioned is the foundation for why most companies monitor and manage their own credit profile, and ensure their Blue Book score is the best it can be.
WHAT IS A BLUE BOOK CREDIT SCORE?
Scores have been here since 2006, so most industry veterans know how to interpret them. But for new entrants to the industry or those who aren’t as familiar, a Blue Book credit score is a three-digit output derived from reported trading experience data.
The score is used to suggest the financial stability and reliability of a company and if it will pay its obligations in a timely manner. In other words, Blue Book scores predict the likelihood of a company becoming delinquent and or going into default.
Blue Book scores range from 500 to 999. The higher the value, the less risk of a negative event; the lower the value, the greater the risk. Our scoring “risk bands” are as follows: 500 to 599 = high risk, 600 to 699 = moderately high risk, 700 to 749 = moderate risk, 750 to 799 = moderately low risk, and 800 to 999 = low risk.
Scoring risk bands, also known as score ranges, categorize credit scores into different levels of risk based on historical credit events that have occurred within a particular band. This helps credit extenders assess the risk of lending to a buyer based on where its score falls within the outlined bands.
For example, your customer portfolio might have five companies scored at 900, five at 800, and two at 550. Your overall risk portfolio would indicate you have 10 customers at a low risk of becoming delinquent or going into default, while two are high risk.
To further discuss risk, here’s a quick quiz.
What does a score of 600 mean to a credit extender? Answer: It would suggest the scored company pays obligations in a variable manner, often beyond terms. This would be considered a “moderately high risk” score.
What does a credit extender do with this insight? Answer: It depends, first and foremost, on risk tolerance. Credit extenders know they may receive payments more slowly than a higher-scored company, or in some cases not at all.
What does a score of 800 mean to a credit extender? Answer: Contrary to the company scored at 600, it would suggest this company would pay its obligations in a timely, consistent manner. This would be considered a “low risk” score.
This short Q&A might be obvious to most, but not all understand how scores are derived. In Blue Book’s recent survey, we found that 58 percent knew where scores came from, while 35 percent somewhat understood, and the other 7 percent said they really didn’t know.
This is an excerpt from the Credit and Finance department from the November/December issue of Produce Blueprints magazine. To read the whole issue, click here: https://www.producebluebook.com/#november-2024-produce-blueprints-magazine/1/
