June 23rd, 2008 by Cortera
In my last post I wrote about some hypotheses around why more credit & collections professionals don’t do more batch portfolio scoring.
Here are some thoughts that address each of the barriers in order.
|Tradition – “I don’t trust credit scores. A credit professional should conduct a more thorough review of trade experience, public records, references etc. in order to truly analyze a company.”||In a world of “do more with less,” it’s all about the 80/20 rule. If you learn to trust credit scores on the long tail of your accounts (e.g. individual customers that make up a small percent of your A/R) you will have more time to do the necessary analysis on the larger exposures. The result will be a happier credit manager and a happier CFO.|
|Hassle – “It’s a hassle. First I have to fight with IT to get the resources to pull the file. Then I have to deal with my sales rep who will then submit the file to corporate for processing. After a week or two I get a file back. It’s just not worth the effort.”||The fact is that technology has continued to evolve it’s easier than ever to get data out of source systems. If your IT person tries to tell you otherwise, it’s more likely that they are trying to avoid a bit of work than anything else. Also, if you are contributing your trade tape to one of the bureaus, you have a starting point for portfolio scoring right there.
Separately, new batch portfolio tools like BOOST put you in charge. You upload the file, you get the file back, you decide how and when to download and analyze the results.
|Overwhelmed – “I don’t know what to do with the data when I get it back. If I get scores back on 5,000 accounts, where do I start and how do I make sense of it?”||The easiest thing is to dump the file into a spreadsheet and sort it by credit score. If you have added corporate linkage to your file you can sort on LINK ID and then sort by score. And just as its easier to get data out of source systems, it is also much easier to get data back into source systems for further analysis and/or credit limit setting and order blocking.|
|Budget – “Where do I get the budget for it? It’s a large one-time fee that could potentially consume my entire budget for the year.”||It might be a bit counter-intuitive but batch scoring could actually give you more data for less money. The following example helps to illustrate the point:Company X has 10,000 customers and typically pulls 1,000 credit reports per year on the largest customers at an average cost of $10.00 per report. For the 9,000 smaller customers, the credit department may do a bank reference or a trade reference, but probably not.What if Company X spent that $10,000 budget in the following way:
It’s the same $10,000 budget but every account has been touched at least once, the largest accounts have been analyzed quarterly using a consistent score and there is still time and money left over to do detailed reviews on the very largest customers as and when needed.
|Freshness – “Batch scoring is a good way to get a view of the portfolio at a point in time, but what about the other 11 months of the year? I’d rather pull a credit report as and when I need it so I get the most recent data.”||See the example above. Using the right tools, you could end up with more data on your key accounts than you’ve ever had before. You may even have budget left over to batch score smaller portfolios on an ad hoc basis throughout the year.|
As ever, let us know what you think.