I want to say thank you to ProSales for covering such an important and timely topic with this year's accounts receivables survey for the building materials industry. ("Slow Flow," November.) Based on the responses, it is evident that the tumultuous market conditions now affect all dealers throughout the country, causing them to take more assertive actions than ever before to collect what's due.
We have noticed that the majority of the actions are related to better collections and recovery of the money once credit has been extended. We agree that having multifaceted, consistent, and aggressive collections practices are a critical component of succeeding in this market.
However, we also know that collections practices alone will not adequately protect a business. Dealers must be just as vigilant and disciplined with their decisions to grant credit and to whom.
In this business environment, we have relied heavily on our front-end and ongoing credit evaluation processes and our ability to adjust them based upon new information to avoid deterioration of days sales outstanding and bad debt. Important practices for your audience to consider include:
- Using credit bureaus and bank and trade references in addition to the dealer's history with a customer to decide where to extend credit and how much
- Develop a consistent set of criteria with which to make those decisions, and refresh the criteria to qualify for credit based on the changes you are experiencing in your customer market
- Regularly review accounts based on the revised standards and make adjustments to credit limits or terms where needed
- Analyze delinquent accounts and bad debt for missed red flags and other warning signs of trouble that could have been prevented, and apply that knowledge to the rest of your customers.
It is important to remember that, no matter how effective your collection practices are, there are certain customers to whom extending credit will result in a loss for the dealer. The front-end credit processes and ongoing management are critical for determining both where the risk is too severe and where it makes sense to extend credit in order to grow your business.
Particularly in this economic market, change takes time, patience, and perseverance. The changes made today in the credit cycle will take several months before you realize their full benefits. As one dealer commented: "Our customers are in denial about their own financial health, thus, we must be very aware of any warning signs and act promptly to secure our A/R." Now is not the time for denial, but time to take action to position yourself for better times and ensure your business' long-term viability.
We applaud your readers for tackling these issues head on, and offer our assistance and expertise for those ready to make a change. Thank you, ProSales, for keeping the issue front and center.
Director of credit risk management
BlueTarp Financial Inc.
True Value Rental Market / Jan. 7-9, 2009 / Orlando, Fla. / Contact: 773.695.5000; www.truevaluecompany.com ...Michigan Lumber & Building Materials Assn. Great Lakes Products Expo / Jan. 16-18 / Mount Pleasant, Mich. / Contact: 517.394.5225; www.mlbma.org ...Do it Best Winter Conference & Expo / Jan. 15-16 / Orlando, Fla. / Contact: 260.748.5316; www.doitbestcorp.com ...Emery-Waterhouse Annual Marketplace / Jan. 16-19 / Providence, R.I. / Contact: 800.283.0236; www.emeryonline.com ...Northwestern Lumber Assn. Northwestern Building Products Expo / Jan. 18-20 / Bloomington, Minn. / Contact: 800.331.0193; www.nlassn.org ...NAHB International Builders' Show / Jan. 20-23 / Las Vegas / Contact: 800.331.0193; www.buildersshow.com ...Florida Building Material Assn. Winter Meeting / Jan. 21-23 / St. Augustine, Fla. / Contact: 352.383.0366; www.fbma.org ...ProSales Excellence Awards Breakfast / Jan. 22 / Las Vegas / Contact: www.psexcellenceawards.com ...Guardian Building Products Market / Jan. 25-27 / Las Vegas / Contact: 864.297.6101; www.gbpd.com.
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