Magazine article Business Credit

Why I Switched to Credit Scoring: A Company in Transition

Magazine article Business Credit

Why I Switched to Credit Scoring: A Company in Transition

Article excerpt

The rhetoric related to commercial credit scoring is often focused on two distinct eras in a business' history: how business is done before credit scoring and how business is done after its implementation.

However, it's important to remember that credit scoring doesn't happen overnight. It isn't a program that is simply installed on a computer; inserting the disc in the drive and hitting "execute" before leaving the office, to arrive the next morning with an exorbitant increase in productivity and a reason to trim back the headcount of the credit department. The implementation of scoring is a process, and the transition is often overlooked.

Helena Chemical Company is one organization that currently occupies this transitional stage and one credit manager who has recently found himself in the middle of it all is Robert Baxley, Helena's Division Credit Manager for Georgia, Alabama and a portion of Florida. "We haven't completely switched to a scoring model," said Baxley. "We're continuing to evaluate it."

Baxley's industry is agriculture, which may have certain adverse affects for the potential use of scoring models. "In some areas, you get a good bit of information if you're selling wholesale," he said. "But if you're selling to farmers or individuals, you've got a limited amount of information that you can readily download and do scoring models on." Baxley also noted that for his industry, there have been no sudden improvements or increases in the speed of business. "A lot of the information that goes into the model, particularly on the retail side, we have to manually put in," said Baxley. "It's time consuming," he added.

Baxley also noted that larger customers weren't always much easier to score in the scheme of business, when compared to their smaller counterparts. "[ For] our larger customers," Baxley said, "we manually put more information in [and] evaluate them a lot deeper because that's where our risk is." However, because of the more thorough analysis and the greater amount of available company information, Baxley noted that scoring works better on larger customers. "The models will be more effective and should support our decisions on the customers where our highest risk is," he said.

The agriculture industry is predominantly decentralized, meaning that the credit function reports to a central location while personnel are distributed in different remote offices. "In my area, it's myself and a credit analyst, and we have some part-time help," said Baxley. "Helena has 13 other credit managers," he added. "Each of us is staffed fairly similarly."

"We've got a tremendous amount of experience in this industry," said Baxley. "Most of the credit folks... have 15 to 20 years' experience."

Some might wonder, in this environment, why a company would decide to make the switch to credit scoring. When Baxley was asked if there had been any notable advantages to the implementation of the scoring model, his answer was simple: "At this point, no, not really." Baxley also harped on the problem of entering data in order to get the model to work properly. "Our biggest challenge is, a lot of what we're having to do is manual on our larger accounts," he said. "That's probably fairly unique to the larger companies out there. …

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