Soon, produce industry credit decision makers will have another tool at their disposal when analyzing the ability of their customers to pay their bills.
Blue Book Services is expected to launch a new on-line feature this month that will allow participating companies access to aggregated Account Receivables (AR) data confidentially contributed by other sellers on buyer firms. Bill Zentner, director of rating services at Blue Book Services Inc., recently explained to WG&S how the program will work. He said companies that contribute their AR reports to the Blue Book electronically will have access to an aggregated report on pay performance trends on buyers where data is prevalent. Instead of just being privy to your own receivables position and how fast a company is paying its bills to you, a contributing shipper will now be able to view other aging receivables from other confidentially contributing sellers, thus providing a look at a much larger sample size.
Zentner emphasized that the new service is not meant to replace The Blue Book’s time-honored ratings or predictive scoring of buyers, but rather can supplement those offerings to provide an enhanced metric in evaluating a current or prospective buyer. In fact, The Blue Book has been using electronic AR reports it has been receiving for the better part of the past decade to help supplement its long standing ratings process.
The Blue Book Services executive explained that for the past 115 years, since The Blue Book began offering credit information to the produce industry, the fundamental process has remained somewhat unchanged, though the method of gathering and access to information with the advent of technology tools has certainly allowed the process to evolve. The company establishes ratings and pay practice designations by collecting financial information on each firm and combining that with trade experience reports from the customers of that particular buyer. The Blue Book is continuously sending out reports to its thousands of members asking them to basically rate the firms they do business with. Plugging that data into its own system, the Blue Book’s ratings department then analyzes a produce company on several fronts, including its credit worth in dollars, its trade practices ranging from excellent (XXXX) to poor (X), and its pay description ranging from within 14 days (AA) to 60+ days (F).
For the past decade, Zentner said The Blue Book staff has used AR reports to supplement that information. While the aggregate nature of the trade experience model works well, Zentner said that model does rely on customers to submit those reports completely and accurately. By using AR reports internally, The Blue Book has been able to validate its ratings.
As more and more firms have seen the value in providing electronic AR reports, Blue Book Services recognized the value of developing this new feature as a way to share the information and provide a value proposition to the trade. Over the past 15 months, Zentner said The Blue Book has been in a testing and refinement phase, as well as gauging the interest of the industry. “We are now at the point where we are about to introduce this service as an on-line feature,” he said, noting that it is being added with the basic justification that “more is better.”
Blue Book Services ratings are basically a measure of how a customer has operated in the past, and Blue book Scores predict the likelihood of default, though, through regular updates, the new ratings feature will help identify emerging trends. He explained that with a real time AR report, credit decision makers will be able to look at the numbers and make their own informed determination when extending credit.
Zentner expects that as the service is used by more and more produce industry firms, the data points will increase and the information will logically present a very accurate picture of how a company is paying its bills right now. Unlike a trade experience report, the electronic AR is going from a shipper’s computer directly to the Blue Book data base and will contain information on all of its customers.
Besides showing early trends of slower pay, Zentner said it may also enhance a credit profile of a company’s improved pay performance. He noted that sellers typically are quick to report slow pay, but for well paying customers, it’s important to recognize their efforts. An electronic AR file will reflect this information as well.
Matt McInerney, senior executive vice president of Western Growers, said he sees the value of this new feature to the association membership. Western Growers has long worked with its members in many different ways helping them judge the credit worthiness of their customers. After all, getting paid for their production is as important as any other aspect associated with producing that crop. “We view this as another spoke in the wheel that will allow shippers to actively manage their receivables,” he said.
The WG executive especially likes the feature that this service will only be available to those who are participating by submitting their own AR reports. He believes that will build participation to a point where the information being reported will be extremely relevant and allow a credit manager a “great opportunity to analyze the pay practices of their customers and any emerging trends.”
McInerney said past experience has revealed that an aggregated AR report is most useful when participation is widespread. If there are only a few people reporting, the information just might not truly reflect the pay practices of the buyer in question.
Research has long shown that there are almost always warning signs before a company officially runs into financial trouble. This new Blue Book service should make those warning signs more visible, as well as giving an electronic shout out to the many companies who diligently pay their bills on time.
Zentner said that once the service is launched, customers who use the electronic version of the Blue Book will be invited to participate. He indicated that the new offering will also be marketed to customers through other channels.