Business credit for business owners - Credit Management Association

Business Credit for Business Owners
Presented by Mike Mitchell, CAE
February 4, 2015
®
www.creditmanagementassociation.org

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
tcampos@emailcma.org

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
mmitchell@emailcma.org
(818) 972-5340
• www.creditmanagementassociation.org
• www.encyclopediaofcredit.com
• www.nacm.org
• Slide presentation posted to SlideShare

Business credit for business owners - Credit Management Association

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