Table by BlueTarp showing how quickly customers' credit standing changes

The probability of a pro contractor paying you on time can change markedly in less than a year, a new study by the credit management firm BlueTarp suggests. This table from the company shows how.

The numbers are drawn from the more than 120,000 accounts that Portland, Maine-based BlueTarp manages for more than 2,000 companies nationwide, almost all of them in lumber and building materials. BlueTarp assigns each account into one of six risk classes based on how likely they are to be seriously delinquent--more than 90 days past due in the next 12 months.

For this study, BlueTarp tracked how customers' risk class changed between May 2014 and April 2015. To see what happened, read the table above horizontally. It shows that 67% of the people in the "low" risk class in May 2014 remained in that class in April 2015, but 24% of the "low" group in May 2014 moved to "moderate" status, 8% went into the even worse "medium" risk class, and so on.

Clients who started in a worse risk class could get either better or worse, and both happened. For instance, 35% of the clients rated a medium risk in May 2014 had improved by April 2015 to the low and moderate categories, while 16% of those who were medium went into one of the three more severe categories. The other 50% rated a medium-level risk kept that status.

"Wild swings are where dealers get hurt [by failure to repay] or where dealers miss opportunities [by failing to extend credit to improving customers]," said Scott Simpson, BlueTarp's CEO. "Most every dealer acknowledges that they should pull credit and monitor credit. This gives a view of how credit can change in a short period of time."

“Most people aren’t changing rapidly, but if you’re having losses, they can happen quickly," Simpson added. He regards the table as "a sign of how dynamic risk can be if you’re not watching it closely.”

Previously from BlueTarp: Why Are Payments Slowing? Blame the Worst Customers and Top Months for Late Payments