Magazine article Business Credit

Ways and Means

Magazine article Business Credit

Ways and Means

Article excerpt

As the recession took hold of the world economy, it left an overwhelming number of firms with marginal credit worthiness. To determine whether to sell to marginal accounts is a headache that continues to plague today's credit managers. One must avoid the trap of generalization and evaluate each company on its own merit. There are numerous variables to consider. Other than the obvious factor of financial standing, it is important to investigate:

* the integrity and background of the principals

* the trend of the customer's industry

* the acceptance in the industry of the customer's product

* the probability of repeat orders

* the reason for their selection of our products and services versus the competitor's

* the size of the order

I am not suggesting that these factors are the only ones to consider. However, they usually represent the constants of credit checking. Traditional credit checking requires the verification of applicant's references. This is often futile though, considering the customer almost always submits its best references - a couple of key suppliers it depends on to survive. This is where credit agency reports can be helpful. Their payment surveys are indiscriminatory and therefore generally representative of the customer's payment habit.

Negotiation and the Sales Connection

One of the most critical phases of the credit process is negotiation. I am not going to explore its value at length at this time. However, this is not to say the credit manager must undermine its importance. Be prepared, determine the merits and facts of the case. The logic of your proposal has to be unequivocal. Nevertheless, if a compromise is reached, the terms and conditions must be clearly stated. A letter should be sent, addressed to the person authorizing the payment. That person would then understand that his or her commitment to the terms agreed upon will be verified at maturity date.

The involvement of the salesperson or staff in the negotiation process is usually necessary. A common goal of the credit manager and the salesperson or staff is the continual increase in revenue. However, as it is said, a sale is not a sale until the money is collected. Credit worthiness being the key, full cooperation between the sales and credit departments is necessary. When all information is gathered and weighed and the credit manager makes a decision, the salesperson, in some cases, should be informed before the customer is told. Often, there are certain subtleties, nuances in a sales effort that the credit manager is unaware of. Nevertheless, no matter how sensitive the situation is, the sales person has to communicate to the customer exactly what the credit manager wants. Any compromise should be worked out with the credit manager.

Intercompany connection. It is important to determine and understand the company's affiliation to a parent or subsidiary in cases of marginal credit worthiness. A cross-corporate guaranty should be requested and signed by an officer of the parent. Often, parents are reluctant to supply such a guaranty. They would do it only on a specific order. One alternative is to request it directly from the parent. If the debtor is a small corporation and has no strong parent or affiliate, you may need a personal guaranty signed by the owner. …

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