Fighting the credit crunch Experts provide tips on how to ease the tension


Pat Peale, owner of a small, upscale bridal shop in Rockville who buys from national apparel companies, is fuming.

"I feel like my head is on the block," she complains. "I'm 60 days past due with this [supplier], but they won't bend. They know I have a deadline order for a gown, and they aren't willing to ship to me even if it's COD. I need to get the dress in the shop by this date, and if I miss my bride she's going to spread that around, and then I'm really in trouble.

"For years I've let them tell me what to do. Forget that. From now on, I'm telling them this is how it is. And with the market the way it is, they're going to turn down my order? If they want my business, they're just going to have to work with me."

Ms. Peale's complaints illustrate the tension between business owners fed up with inflexible suppliers and credit managers anxious to collect what's due them.

Amid the lingering recession, corporate credit managers are being pressed to keep payments coming in. But by following some simple guidelines, suppliers can keep customers happy -- and prevent the tension from escalating into full-scale war.

Credit managers must deal with late payments regularly. Debtors nationwide are taking longer to pay their bills. Sears Roebuck & Co. told its vendors in August they would have to "carry" the huge retailer an additional 30 days or more before they get paid. And the Columbia-based Credit Research Foundation Inc. says companies it tracks were getting paid in an average of 41 days -- an industry measure known as "days sales outstanding" -- during the second quarter of 1991. Most of them are supposed to be paid within 30 days.

The good news: The number has gone down from 42.5 days in the last quarter of 1990, says Robert F. Thompson, the foundation president. "I think this tells us the recession has come to a halt, and we're beginning to see an improvement in economic activity."

Kevin Hall, a partner with KPMG Peat Marwick in Baltimore, says compromise, not confrontation, usually works best in the battle between debtors and creditors.

If a customer who is usually reliable needs extra time to pay TC bill, creditors should grant a little leeway, he suggests. At the same time, the creditor may want to reduce the amount of credit that customer can have. Such a compromise shows that the creditor wants the customer's continued business and is willing to find ways to make the relationship work.

Don't expect credit managers to ease up on their credit policies just yet. Debtors still have some catching up to do.

In the bakery supplies industry, for example, some companies are taking longer to pay their bills.

"Since the recession, we've probably lost about a day in turnover for our accounts receivable," says Thomas O. Williams, vice president of finance for Frank A. Serio & Sons, a Jessup-based bakery supplies distributor. "While that may not sound like much, for a business of our volume you could be talking about $250,000 a day.

"Since the beginning of summer we've had to be a little more aggressive" in collecting bills, he says.

Bakeries often ask the company to wait a few extra days for payment, Mr. Williams says. When that happens, the company's credit staff and salespeople ask plenty of questions.

"Any time a company asks you to do something that is out of the norm, you have the right to ask why," he says. "We ask for current financial statements to see if it warrants it, ask how long they need, and ask what's the plan to get back on normal terms.

"Its hard to tell somebody no," he admits, "But we don't want to be in the banking business . . . ."

Creditors have every right to get curious if they are asked to accommodate a debtor in a pinch or take on a new credit risk, Mr. Hall says.

"You shouldn't assume everyone is a good customer," he advises. "Do your homework. A Dunn & Bradstreet [financial ratings check] is obvious. You should also be getting financial statements. And there's no substitute for third-party confirmation. Talk to other suppliers your customer might be using, any kind of bank references they might have."

For new credit accounts, Frank A. Serio & Sons requires customers to fill out a credit application which lists their name, address and bank, along with three trade references to verify their payment history.

The bakery supplies company requires cash on delivery for orders from new companies with no business histories. After three to six months, they are granted a credit line, once they have established a track record and comfort level with the credit and sales departments.

Service companies that sell ideas instead of commodities need to play by the same credit rules as manufacturers and distributors. John Ammon, vice president of the Baltimore architectural firm Kann & Ammon Inc., adds that "chemistry" of the new client relationship is as important as a financial record check.

"I think a lot has to do with the personal feeling you get," says Mr. Ammon. "You can feel through their personality pretty quickly" whether they will be a good credit risk.

Strict credit policies don't apply to every circumstance, he says.

"Sometimes they come to you and say, 'I know I'm late, but bear with me.' " If they come to the company in good faith and try to discuss their payment problems, he says, the firm tries to work with them.

"Know your customer and know their ability to pay," he says. "You should also know your customers' customers. Their ability to pay you is contingent on their ability to collect from their customers.

"With new customers, delineate what your terms are and how important you believe those credit terms are to be met. A lot of companies are bashful about their credit terms. But it's your money, it's your product and you deserve to be paid for it in a timely way."

Adriane Miller is a free-lance writer who often covers business issues for The Sun.

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