It's the LBM equivalent of the "Sandwich Generation," the pressure Baby Boomers feel from having to deal simultaneously with their parents and their children. ProSales surveys have found dealers fret about getting paid by their customers and, at the same time, about the flow of money from their bank. In recent years, builders' slow payments have worried dealers more than their bank relations. But this year, the reverse is true.
A ProSales survey in August found 29.5% of participating dealers said their bank credit line has been cut this year, typically by 30% to 60%. In addition, 30% of respondents said their bank has requested additional collateral.
In contrast, the average accounts receivable days for dealers' customers rose just one day this year, to 45.7, from 44.7 in 2009. (See chart.) That contrasts with three prior ProSales surveys of dealers–which aren't totally comparable, because the respondents were similar but not identical–in which dealers reported payments slowed 2-1/2 to 4-1/2 days from one year to the next.
Continued vigilance by dealers appears to be keeping accounts from aging further. On the other hand, no amount of diligence appears to be enough to make the banks happy.
"We use a local bank that has always been fair and easy to work with ... until last August," wrote one dealer, who like all others was promised no personally identifiable information would be released. "First [they wanted] more collateral, then once they got it they cut the line of credit. Then they refused to renew short-term debt. During this six-month period they also required extensive financials DAILY. Banks are not the sole cause of the current meltdown but ARE the main reason we can't recover."
"We are very afraid that our bank will not renew our line even though we are in the black this year and have not missed a payment to a vendor or a bank," said another. "We have ample collateral too, but banks are not interested in collateral." The dealer is looking now at alternative financing, and in that area he's not alone: Roughly 23% of dealers said they have had to find other sources of credit aside from a bank.
"There is no banking," another declared. "Banks are keeping away from housing and construction. Banks don't want to deal with you anymore."
Financial institutions certainly have reason to be shy. According to the Federal Deposit Insurance Corp, 16.9% of the roughly $383.3 billion in construction and development (C&D) loans by banks were more than 90 days past due as of June 30, and the banks already have charged off 5.1% of the dollars loaned. C&D lending accounts for nearly 5% of all bank loans.
On the A/R side, just under half the dealers said they had changed their accounts receivables policies, typically by being more vigilant. "A new customer or one who we feel could get strung out is followed closer than white on rice," one dealer said.
"Pester, pester. Lien quicker," said another. "Reduce credit limits until a customer can manage." Just under 30% had increased the number of liens they were issuing compared with 2009. Still, 26.6% of dealers said they had increased their bad debt reserves this year. The average increase was 34%.
"We started calling a lot more frequently and are asking tougher questions," a dealer wrote. "Just like our banks are to us."
ProSales' online survey received a total of 228 responses, of which 185 were from general building material dealers, specialty dealers, and molding/millwork firms. The rest of the responses came from wholesalers, manufacturers and "other" respondents. The percentages cited in this story were taken solely from the dealer responses.
Of all dealers, 46% were at facilities with $1 million to $10 million in sales, while 27.9% were in the $10 million to $25 million bracket and 15.5% had $25 million to $100 million in sales. The rest were above $100 million or below $1 million.