Business credit for business owners - Credit Management Association

Business Credit for Business Owners Presented by Mike Mitchell, CAE

February 4, 2015

®

www.creditmanagementassociation.org

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What is CMA?

• Non-profit association, originally established in 1883 • An Affiliate of the National Association of Credit

Management (NACM)

• Provides services to credit and financial managers and small business owners: – Professional education and certification – Networking – Credit Information and AR Management Services

• Over 1,200 members and 65 Industry Trade Groups


What CMA stands for • We believe that effective business credit

management is critical to the success of your business.

• Vision – Every trade creditor will treat effective business credit management as a business best practice.

• Mission – Help trade creditors achieve their financial objectives through effective business credit management.


A Great Credit Manager

“A great credit manager is not only responsible for protecting one of the largest assets of a company, the accounts receivable, but is also very instrumental in

helping to increase sales AND in implementing processes and procedures to ensure timely collection of

receivables.”

--- Mary Lynn Jordan, Credit Manager at Projections Unlimited

CMA member since 1990


Credit Management Top 10

1. Maximize sales and growth opportunities 2. Increase cash flow 3. Manage risk of selling on open terms 4. A critical part of great customer service 5. Increase company’s competitive advantage 6. Supports the company’s business strategies and

priorities 7. Provides effective and efficient order to cash processes. 8. Provides management with critical information on

trends and customer status. 9. Resource to the Sales Team with unique “domain

expertise” 10. Helps manage supply chain risk


Credit & the Bottom Line

• Revenues – Approve more customers: Increase sales

– Creative credit options: A competitive advantage, increase sales

– Decrease past due balances: Increase cash flow

• Expenses – Reduce bad debt write-offs: Reduce expense

– Reduce process delays and errors: Lower overhead expense

– Reduce the Cash to Cash cycle: Increase company liquidity, reduce the need for borrowing

• The Bottom Line (Net Income)


Expert Advice

Understand that you may be good at creating and growing a business however you may not be good at managing credit. Ensure you have sound contracts that can be enforced and know your customer. Remember that a customer will pay any price for your goods and services especially if they have no intention of paying. Cash flow is a critical component of any business don't risk it.

-- Steve Thomson, Credit Manager at Menzies Distribution


Expert Advice

If granting credit, start slow and get to "know your customer"!!!

-- Patrick Spargur, Credit Manager


Effective Credit Management • Know your customers

• Align with company’s strategies and priorities

• Be seen as the “go to resource” by sales

• Consistent, fair and predictable decisions

• Effective performance measurements and targets

• Keep management informed on risks and trends

• Manage your receivables efficiently

• Manage and motivate a well trained staff

• Continuous education and networking


Know Your Customers

Make sure they know with whom they're dealing and develop a network of contacts within the industry and share information about mutual customers. Join an industry trade group and make sure any information shared is strictly factual. And get everything in writing. Most important, they have to answer one question - "Is it a sale until the money's in the bank?" If the answer is no, have very strict credit terms if granting them at all. If the answer is yes, make sure you do your due diligence when vetting current as well as potential customers. Hope that helps! -- Kim Avery, Credit Manager at AcuSport Corporation


Align with company’s strategies and priorities

Only give terms when absolutely necessary. Credit cards, ACH/EFT are much better options than net terms. If you must offer terms, make them as short as possible...due upon receipt or Net 10. Bill often...try to coincide with your payroll to match cash flow needs. Follow up constantly if customers go past terms. Withhold service when customers don't pay within terms; don't let them keep buying without paying. Finally, have a contract with your terms and enforce the terms of the contract.

-- Pam Krank, President, The Credit Department Inc.


New Account Setup

• Pre-sale investigation

– Credit Application

• Risk Assessment: Request for Info; form of business; bank references; financials

• Risk Mitigation: Terms & Conditions (disputes, collection costs, venue, terminating credit sales)

• Legal Considerations: ECOA, FCRA

– Obtaining Credit Information

• Trade/Bank References; Credit experience (trade data) from Credit Bureaus and Industry Credit Groups

– Credit Enhancements

• Personal Guarantee, letter of credit, credit insurance


Business and Credit Information

• Secretary of State Search

• Google Maps

• Credit Groups

• Credit Networks

• Credit References

• Credit Reports



Google Maps


Credit Groups in 1966. That was then…


…this is now.


Save time - submit RFIs to… • Your Credit Group and

Credit Networks • Trade references on

your credit applications • Trade references already

on file • Any other companies in

your industry • CMA operates a West

Coast Landscape Supplier Credit Network


Credit Group Alerts

• Bankruptcies

• Ownership changes

• Collections

• NSF Checks

• Slow pays

• Custom comments

• Instant email notifications


NACM National Trade Credit Report


anscersX multibureau credit report From Equifax:

• anscersX Report

• BCRS Score

• Trade Experience

• Public Record Data (Legal & Tax)

From D&B:

• Paydex Score

• Payment Analysis by Industry (trade experience)

• Firmographics

From Experian:

• Company Information

• Summary Trade

• IntelliScore Plus


Free Credit Report Assessment • NACM Trade Credit Report

• anscersX

• Experian

• Equifax

• D&B

• Monitoring/Alerts

• Portfolio Scoring

• Decisioning

• Canadian/Int’l Reports

Contact Terry Campos for a FREE assessment and FREE sample reports to help you decide.

(818) 972-5361 [email protected]


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Protect Your Lien Rights

Hire someone to monitor Mechanic's Lien Rights and make sure they understand those laws in the states where work is performed. That can go a long way to adding extra security when doing work on credit terms in that type of environment.

-- Kim Avery, Credit Manager at AcuSport Corporation



California Lien Law for California

• Presented by Shaaron Bangs, Esq.

• Today at 12:30 pm

• Will identify the liens available to licensed contractors and suppliers of material and/or labor to a California public or private construction project.

• You will learn the rules for entitlement, notice, and enforcement of the various liens.


Collecting Receivables

You should not hold on to your severely delinquent customers until they are dead or out of business. Once a customer is no longer buying, no longer communicating and has gone 90-120 days past due, you should place them with your collection partner. The probability of collection significantly decreases the older the debt gets and in reviewing the files that our clients place with us that are un-collectible, 90% of the time the file could have been collected if our client placed it in a timely matter. I know most business owners don't want to pay fees to a collection agency and this is the primary reason that they hold the files, but holding the file way beyond the point of no return brings NO cash from that customer to your company.

-- Sam Fensterstock, Senior VP, Business Development at AG Adjustments


AR Management

• Stay on top of accounts receivable calls

• Incorporate work flow products to automate AR management

• Use third party collection services

• Refer to articles on Collection Tips and Techniques in the Encyclopedia of Credit


Debt Collection Tips • Use the telephone as your primary collection tool. • Shorten or eliminate grace periods before calling to inquire about

past due balances. • Always remain polite and professional. • Start your collection discussion by asking for immediate payment of

the entire past due balance. • Don't be in a hurry to make any concessions to a delinquent

customer. • Never make a concessions until you have received enough

information to conclude that the customer needs and deserves additional time to pay the past due balance.

• Approach the debt collection process systematically. • Set specific and measurable collection calls for yourself and if

applicable for your subordinates. -- Michael C. Dennis, CBF


Expert Advice

Hire a credit professional to manage your asset, don't think your accountant can do a great job while doing everything else.

-- John DeFelice, Consultant at Robert Half


Expert Advice

Assuming that sales volume would support a credit professional, hire one. Establish a written credit policy with collaboration from all departments, including and most importantly, sales. Publish and enforce the credit policy, and support the credit manager when those difficult decisions need to be made. Moreover, understand that a competent credit manager/department is as much a sales tool as anything if properly utilized, and realize that the credit manager is responsible for one of, if not the largest balance sheet assets and therefore should be held in appropriate esteem.

-- Rich Adams, CEO, Southwest Business Credit Services


Credit Policy

• Establish the credit standard, a profile of an acceptable credit customer

• Determine credit availability, how the maximum amount of available credit is computed and managed, including decision criteria for reducing or increasing a customer’s availability of credit.

• Set credit terms for each class of customer. • Define collection policy, criteria for regular

collections and exception collection procedures for past due amounts. – Source: Encyclopedia of Credit, edited by Michael C. Dennis


Expert Advice

Often, your goal in connection with C and C is not to maximize or minimize, but to optimize. Let me explain this with an example: It is easy to lower bad debt losses by taking fewer credit risks. It is easy to eliminate [to minimize] write offs by refusing to offer customers open account terms.

Here is another example: It is easy to reduce payment delinquencies by holding orders as soon as an account becomes past due. The trade off is that your company will lose business and lose customers if you hold orders too often. So, the answer is to find the right mix or balance in which credit holds is rarely used option.

-- Michael Dennis, CBA, Risk Manager at Flextronics Int’l


Measures of Success

• DSO (Days Sales Outstanding)

– [Ending Accounts Receivable Balance / Sales] Times the number of days in the period

• % of A/R that is in the current column

• % of the total A/R that is past due

• % of A/R over 90 days past due

• Bad Debt write-offs as a % of total sales

-- Michael Dennis, CBA, Risk Manager at Flextronics Int’l


Free Credit Tool -- Encyclopedia of Credit Access to over 500 articles on credit tools, processes, best practices,

laws, forms, and many other business credit related subjects.


Top 10 Credit Topics in January 2015

1. History of Credit 2. The Cs of Credit 3. Terms of Sale Examples 4. GAAP – Generally Accepted Accounting Principles 5. Commercial vs. Standby Letter of Credit 6. Collection Practices 7. Days Delinquent Sales Outstanding 8. 10 Tips on Using AutoCash 9. Credit Department Core Activities 10. Credit Granting Authority


CMA Linkedin Group


CMA Contact Info

• Mike Mitchell, President & CEO [email protected] (818) 972-5340

• www.creditmanagementassociation.org

• www.encyclopediaofcredit.com

• www.nacm.org

• Slide presentation posted to SlideShare


mailto:[email protected]

http://www.creditmanagementassociation.org/

http://www.encyclopediaofcredit.com/

http://www.nacm.org/

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