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Business Credit for Business Owners

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Business Credit for Business Owners Presented by Mike Mitchell, CAE February 4, 2015 ®
Transcript
Page 2: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 3: Business Credit for Business Owners

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.

Copyright 2015 Credit Management Association®

Page 4: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 5: Business Credit for Business Owners

Credit Management Top 10

1. Maximize sales and growth opportunities2. Increase cash flow3. Manage risk of selling on open terms 4. A critical part of great customer service5. Increase company’s competitive advantage6. Supports the company’s business strategies and

priorities7. 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

Copyright 2015 Credit Management Association®

Page 6: Business Credit for Business Owners

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)

Copyright 2015 Credit Management Association®

Page 7: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 8: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 9: Business Credit for Business Owners

Know Your Customers

Make sure you know with whom you’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.

Offer very strict credit terms if granting them at all. Make sure you do your due diligence when vetting current as well as potential customers.

-- Kim Avery, Credit Manager at AcuSport Corporation

Copyright 2015 Credit Management Association®

Page 10: Business Credit for Business Owners

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.

Copyright 2015 Credit Management Association®

Page 11: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 12: Business Credit for Business Owners

Business and Credit Information

• Secretary of State Search

• Google Maps

• Credit Groups

• Credit Networks

• Credit References

• Credit Reports

Copyright 2015 Credit Management Association®

Page 13: Business Credit for Business Owners

Copyright 2015 Credit Management Association®

Page 14: Business Credit for Business Owners

Google Maps

Copyright 2015 Credit Management Association®

Page 15: Business Credit for Business Owners

Credit Groups in 1966. That was then…

Copyright 2015 Credit Management Association®

Page 16: Business Credit for Business Owners

…this is now.

Copyright 2015 Credit Management Association®

Page 17: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 18: Business Credit for Business Owners

Credit Group Alerts

• Bankruptcies

• Ownership changes

• Collections

• NSF Checks

• Slow pays

• Custom comments

• Instant email notifications

Copyright 2015 Credit Management Association®

Page 19: Business Credit for Business Owners

NACM National Trade Credit Report

Copyright 2015 Credit Management Association®

Page 20: Business Credit for Business Owners

anscersX multibureau credit reportFrom 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 PlusCopyright 2015 Credit Management Association®

Page 22: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 23: Business Credit for Business Owners

Copyright 2015 Credit Management Association®

Page 24: Business Credit for Business Owners

California Lien Law for California

• Presented by Shaaron Bangs, Esq.

• Today at 12:30 pm

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

• Learn the rules for entitlement, notice, and enforcement of the various liens.

Copyright 2015 Credit Management Association®

Page 25: Business Credit for Business Owners

Collecting Receivables

Don’t hold on to your severely delinquent customers until they are dead or out of business. Consider placing accounts with a collection partner when:

• customer is no longer buying• no longer communicating• has gone 90-120 days past due

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.

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

Copyright 2015 Credit Management Association®

Page 26: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 27: Business Credit for Business Owners

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 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.

-- Source: Encyclopedia of Credit, edited by Michael C. Dennis, CBF

Copyright 2015 Credit Management Association®

Page 28: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 29: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 30: Business Credit for Business Owners

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

Copyright 2015 Credit Management Association®

Page 31: Business Credit for Business Owners

Expert Advice

Often, your goal in connection with Credit and Collections is not to maximize or minimize, but to optimize.

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.

The trade off is that your company may lose business and lose customers. So, the answer is to find the right mix or balance of risk vs. reward.

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

Copyright 2015 Credit Management Association®

Page 32: Business Credit for Business Owners

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, CBF, Risk Manager at Flextronics Int’l

Copyright 2015 Credit Management Association®

Page 33: Business Credit for Business Owners

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

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

Copyright 2015 Credit Management Association®

Page 34: Business Credit for Business Owners

Top 10 Credit Topics in January 2015

1. History of Credit2. The Cs of Credit3. Terms of Sale Examples4. GAAP – Generally Accepted Accounting Principles5. Commercial vs. Standby Letter of Credit6. Collection Practices7. Days Delinquent Sales Outstanding8. 10 Tips on Using AutoCash9. Credit Department Core Activities10. Credit Granting Authority

Copyright 2015 Credit Management Association®

Page 35: Business Credit for Business Owners

Join CMA’s Linkedin Group

Copyright 2015 Credit Management Association®

Page 36: Business Credit for Business Owners

CMA Contact Info

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

• www.creditmanagementassociation.org

• www.encyclopediaofcredit.com

• www.nacm.org

• Slide presentation posted to SlideShare

Copyright 2015 Credit Management Association®


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