October 27, 2005
JBT to Begin Rating all Accounts
In January 2006, the Jewelers Board of Trade will introduce its enhanced credit rating system, designed to provide information to members on a broader spectrum of accounts. As a result, all accounts in JBT's database will have some rating level.
The first enhancement will enable JBT, the industry's credit clearinghouse, to give payment scores to certain accounts currently unrated something it never permitted before. The second enhancement will allow JBT to better explain why it has been unable to assign a given account a capital rating, which is one factor used by members to assess relative credit risk.
The changes respond to requests from JBT members that the clearinghouse enhance its rating criteria, because the old criteria were no longer allowing it to rate a substantial number of accounts. In addition, says Dione D. Kenyon, JBT president: "New technology, effective with our recent IT conversion, gives us the flexibility to do more with the data our members provide to JBT."
JBT will apply a payment score (1, 2, 3, 4) to all accounts in its database, independent of whether a company submitted financial information, as long as there are adequate trade references on file and the company has a sufficient track record (including claims history) for JBT to monitor. If there's insufficient trade information, lack of a track record or a company is currently in bankruptcy/receivership, the payment score will be listed as "0."
Non-rated accounts will be assigned a descriptive "other condition" rating code to explain why a full capital rating has not been assigned. There are 10 potential ratings, expressed as three-letter codes, such as "FIN" for lack of current or complete financial statements, "BKR" for bankruptcy and "NEW" for businesses established less than three years ago.
These two actions will serve to eliminate all non-rated or "blank" accounts, according to JBT. All accounts in its database will now have either capital ratings or descriptive conditions and payment scores. Says JBT: "Because lack of a capital rating will not, in and of itself, preclude a payment score, we expect a significant increase in the number of rated accounts with descriptive conditions and/or payment scores. This means more information for our members to assess relative credit risk among accounts."
Kenyon says she also hopes more of the industry will prioritize sharing trade reference information "so we can better do our job for them, i.e. have more data to rate more accounts." The JBT enhancements will also help companies who must now abide by the USA Patriot Act anti-money-laundering rules, points out Kenyon. When the rules go into effect at the beginning of 2006, industry companies will be required to increase their due diligence on business partners (know your customers and your suppliers), and the enhanced JBT ratings will help its members do so.
JBT says its capital ratings will remain the same, as will its definition of ratable capital. It will still require adequate financial disclosure, a track record in business, a minimum listing period with JBT, as well as other prerequisites before it can be considered for capital rating. JBT payment scores will continue to be based on the same 1-4 system it uses now.
The payment score and other condition codes will be published in JBT's Red Book (starting in March 2006), a special CD Rom edition (January 2006), the weekly Service Bulletin (for changes) and directly on each credit report.
"Members communicated to JBT the need for added information for evaluating the credit worthiness of the companies we track and we believe these enhancements are a significant step toward accomplishing this task," says Michael J. Poissant, JBT board chairman. "JBT is a valuable resource to our industry, assisting [us] in making good credit decisions every day."
There's one other benefit to the enhanced ratings, says JBT: "From a marketing perspective, the expansion of the rating system will allow members more options to select mailing lists that are better segmented to reach target markets. JBT label and list criteria will include the expanded rating options, allowing members to order not only by geographical location, but also by payment score, capital ratings and (new) other condition codes."
JBT says members who need help making the transition to the expanded ratings should call (401) 467-0055 and ask to speak with an investigator or email email@example.com. The JBT Redbook will contain the amended rating key and guidelines.
by Peggy Jo Donahue