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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 ®


Business Credit for Business OwnersPresented by Mike Mitchell, CAEFebruary 4, 2015

1Companies and individuals join CMA for many different reasons. Why did you join?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 certificationNetworkingCredit Information and AR Management Services

Over 1,200 members and 65 Industry Trade Groups Copyright 2015 Credit Management AssociationWhat CMA stands forWe 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 AssociationInformation is power; Ultimately, CMA helps you make better credit decisions, which means better outcome for your company.3A Great Credit ManagerA 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 UnlimitedCMA member since 1990Copyright 2015 Credit Management AssociationCredit Management Top 10Maximize sales and growth opportunitiesIncrease cash flowManage risk of selling on open terms A critical part of great customer serviceIncrease companys competitive advantageSupports the companys business strategies and prioritiesProvides effective and efficient order to cash processes.Provides management with critical information on trends and customer status.Resource to the Sales Team with unique domain expertiseHelps manage supply chain risk

Copyright 2015 Credit Management AssociationCredit & the Bottom LineRevenuesApprove more customers: Increase salesCreative credit options: A competitive advantage, increase salesDecrease past due balances: Increase cash flow ExpensesReduce bad debt write-offs: Reduce expenseReduce process delays and errors: Lower overhead expenseReduce the Cash to Cash cycle: Increase company liquidity, reduce the need for borrowingThe Bottom Line (Net Income)Copyright 2015 Credit Management AssociationExpert AdviceUnderstand 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 DistributionCopyright 2015 Credit Management AssociationEffective Credit ManagementKnow your customersAlign with companys strategies and prioritiesBe seen as the go to resource by salesConsistent, fair and predictable decisions Effective performance measurements and targetsKeep management informed on risks and trendsManage your receivables efficientlyManage and motivate a well trained staffContinuous education and networkingCopyright 2015 Credit Management AssociationKnow Your CustomersMake sure you know with whom youre 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 CorporationCopyright 2015 Credit Management AssociationAlign with companys 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 AssociationNew Account SetupPre-sale investigationCredit ApplicationRisk Assessment: Request for Info; form of business; bank references; financialsRisk Mitigation: Terms & Conditions (disputes, collection costs, venue, terminating credit sales)Legal Considerations: ECOA, FCRAObtaining Credit InformationTrade/Bank References; Credit experience (trade data) from Credit Bureaus and Industry Credit GroupsCredit EnhancementsPersonal Guarantee, letter of credit, credit insuranceCopyright 2015 Credit Management AssociationBusiness and Credit InformationSecretary of State SearchGoogle MapsCredit GroupsCredit NetworksCredit ReferencesCredit Reports

Copyright 2015 Credit Management Association

Copyright 2015 Credit Management AssociationGoogle Maps

Copyright 2015 Credit Management AssociationCredit Groups in 1966. That was then

Copyright 2015 Credit Management Association15Credit Groups offer the best of networking, professional development, and customer specific credit information, NACM and CMA are best known for their industry credit groups. This is our most popular service that combines information from member exchange and trade data contributions. Credit groups may have looked different back then, but they still provide the same value today.this is now.

Copyright 2015 Credit Management AssociationSave time - submit RFIs toYour Credit Group and Credit Networks Trade references on your credit applicationsTrade references already on fileAny other companies in your industryCMA operates a West Coast Landscape Supplier Credit Network

Copyright 2015 Credit Management AssociationCredit Group Alerts

BankruptciesOwnership changesCollectionsNSF ChecksSlow paysCustom commentsInstant email notifications

Copyright 2015 Credit Management AssociationNACM National Trade Credit Report

Copyright 2015 Credit Management AssociationCombine credit group information from NACM Affiliates from all over the nation.19anscersX multibureau credit reportFrom Equifax:anscersX ReportBCRSScoreTrade ExperiencePublic Record Data (Legal & Tax)From D&B:Paydex ScorePayment Analysis by Industry (trade experience)FirmographicsFrom Experian:Company InformationSummary TradeIntelliScore Plus

Copyright 2015 Credit Management AssociationFree Credit Report AssessmentNACM Trade Credit ReportanscersXExperianEquifaxD&BMonitoring/AlertsPortfolio ScoringDecisioningCanadian/Intl Reports

Contact Terry Campos for a FREE assessment andFREE sample reports to help you decide.(818) [email protected]

Copyright 2015 Credit Management Association21So many choices, so little time.Protect Your Lien RightsHire 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 CorporationCopyright 2015 Credit Management Association

Copyright 2015 Credit Management AssociationCalifornia Lien Law for CaliforniaPresented by Shaaron Bangs, Esq.Today at 12:30 pmIdentify 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 AssociationCollecting ReceivablesDont 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 buyingno longer communicatinghas 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 AdjustmentsCopyright 2015 Credit Management AssociationAR ManagementStay on top of accounts receivable callsIncorporate work flow products to automate AR managementUse third party collection servicesRefer to articles on Collection Tips and Techniques in the Encyclopedia of CreditCopyright 2015 Credit Management AssociationDebt Collection TipsUse 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, CBFCopyright 2015 Credit Management AssociationExpert AdviceHire 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 HalfCopyright 2015 Credit Management AssociationExpert AdviceAssuming 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 ServicesCopyright 2015 Credit Management AssociationCredit PolicyEstablish the credit standard, a profile of an acceptable credit customerDetermine credit availability, how the maximum amount of available credit is computed and managed, including decision criteria for reducing or increasing a customers 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 AssociationExpert AdviceOften, 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 Intl

Copyright 2015 Credit Management AssociationMeasures of SuccessDSO (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 dueBad debt write-offs as a % of total sales-- Michael Dennis, CBF, Risk Manager at Flextronics Intl

Copyright 2015 Credit Management AssociationFree 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 Association33Great refresher and a desktop reference and great training tool for credit department.Top 10 Credit Topics in January 2015History of CreditThe Cs of CreditTerms of Sale ExamplesGAAP Generally Accepted Accounting PrinciplesCommercial vs. Standby Letter of CreditCollection PracticesDays Delinquent Sales Outstanding10 Tips on Using AutoCashCredit Department Core ActivitiesCredit Granting Authority

Copyright 2015 Credit Management AssociationJoin CMAs Linkedin Group

Copyright 2015 Credit Management AssociationCMA Contact InfoMike Mitchell, President & [email protected](818) 972-5340www.creditmanagementassociation.orgwww.encyclopediaofcredit.comwww.nacm.orgSlide presentation posted to SlideShare

Copyright 2015 Credit Management Association