 |
|
|
| Share this AP Matters Article |
 |
AP professionals turn to credit groups to swap information about late payments, bounced checks, and other issues
With economic turmoil in the marketplace, and customers in good standing suddenly becoming slow payers, companies and suppliers want to do everything they can to protect themselves against bounced checks and bad risks without sacrificing potential sales.
Fortunately, there’s a simple way to stay informed and keep your company on stable ground through what are known as credit management associations and industry credit groups. These groups, which vary in size and focus, allow members to:
• Know whether a client is paying your competitors on time and within terms.
• Find out whether a late payment from one of your clients to another company is based on insufficient funds or a dispute over the product.
• Be immediately informed if a key person at the business you supply has become ill or died.
Although credit groups have been around in some form or another for more than 100 years, modern technology now allows members to get almost instantaneous reports on bounced checks, slow payments, and important changes within a company on a local, regional, or national basis.
“You always want to know how your customers are treating other companies,” says Scott Tillesen, director of credit for small and mid-sized business accounts at Tech Data Corp. in Clearwater, Fla.
As one of the world's largest distributors of hardware and software, with annual sales of $25 billion, Tech Data has a huge stake in making sure that when it extends credit, it is keeping its own risk low.
Without regular group meetings and weekly or daily “flash” reports, a company such as Tech Data may not have a clear picture of what’s going on with its corporate customers.
Tillesen says industry credit groups may not have the immense reach and staffing of a huge firm such as Dun & Bradstreet, but the small group setting allows members to know exactly who is reporting a late payment, bounced check, or other issue. The more typical reports from Dun & Bradstreet may note the same late payment, but the source remains anonymous to users of the report.
Without the ability to know the origin of the information and to communicate with other members in the group, a company might not know that a reported slow payment is, in fact, due to a dispute over the color or quality of an item rather than the payer’s lack of funds.
Companies understand that some disputes or misunderstandings are unavoidable in the course of doing millions or even billions of dollars in business. So if credit managers can gain extra insight into the reason for a delayed payment to another company, they can make more informed decisions. Indeed, they may go ahead and approve another transaction with the company in question rather than lose a big sale because they denied credit based on incomplete information.
Credit groups can be local, regional, or national, and nearly every sector of business has one. Some broad-based suppliers may be members of several groups.
Tech Data belongs to a credit group with about 40 other suppliers who share data about the payment behaviors of common clients. But they don’t exchange information about prices or the exact terms of credit. Doing so would violate antitrust regulations
That’s where the National Association of Credit Management’s affiliates and other privately run credit services companies play an important role, facilitating neutral third-party weekly, monthly, or yearly meetings and monitoring communication between members.
Proud history
Credit groups have never been more vital to businesses that have to make fast decisions about selling their services and products on credit.
Thousands of businesses rely on the rapid reports available to those who join industry credit groups. And they depend on the organization to act as a watchdog on proposed legislation that could adversely affect credit professionals.
NACM is the largest and best-known of these oversight management groups. Based in Columbia, Md., and founded in 1896, the association has come a long way since a few affiliates were linked by mail and telegraph from coast to coast. Today the NACM supports more than 18,000 member companies and their business credit and financial professionals through face-to-face meetings and seminars, e-mail, and Internet-based seminars.
One of the largest of the affiliates – NACM/Chicago-Midwest – manages those activities for more than 1,600 companies in 70 credit groups. NACM/Chicago-Midwest has offices in Illinois, Missouri, Nebraska, New York, and Wisconsin. Even in the current economic climate, the group has maintained a steady membership, although attendance at meetings has declined a bit as corporate travel budgets shrink.
Members range from companies that do business with home-supply centers to those that supply religious items. But all industries must make decisions about whether to extend credit and under what terms, says Phil Lattanzio, CCE, president and chief operating officer for NACM/Chicago-Midwest.
“In these times, where the economy is not doing as well, industry credit groups come to the forefront,” Lattanzio says. “People need to know what’s going on in their industry and with their customers. You need to make sure your customers are paying all their suppliers well.”
Lattanzio explains that if Company A is an essential supplier to Store B, then Store B may continue to pay Company A while it delays payment to other suppliers. But if Company A doesn’t know Store B is slowing down its payments, it may continue to extend credit for a large inventory purchase when that very next transaction could turn risky.
And Company A would not know about the recent payment history without the data collected and shared by the credit group members and the NACM.
Through their educational offerings, NACM offers members three levels of professional credentials: CBA, CBF, and CCE. These can be a distinct advantage when a credit professional applies for a job, Lattanzio says.
“These days, you never know what tomorrow brings,” he says. “Tomorrow you could be looking for a new job, and you want to stand out among other candidates.”
Many affiliates such as NACM/Chicago-Midwest and Smyth Solutions of South Plainfield, N.J., also offer fee-based financial services as well as free access to informational resources.
Membership fees vary according to local markets, size of the company, and level of service, but many start at well below $1,000.
Virtual and international
The Smyth group, founded in 1906, manages about 40 different credit groups for NACM in the New York City and Mid-Atlantic area.
Although Smyth Solutions’ Credit Services division will administer, monitor, and take minutes at regular meetings of credit groups to make sure members stay within antitrust guidelines, it also has set up some credit groups that are completely virtual. Those members trade information but never meet in person, says E. John Broderick, president of Smyth Credit Services.
Meeting online can be easier because the scheduling is flexible and it saves travel time.
As within its regular groups, Smyth also regulates the official e-mails between members of the credit group to make sure comments about customers are accurate. In other words, the comments must be about actions taken, not actions contemplated or speculation about a customer’s circumstances.
E-mails get routed first to Smyth monitors for review. If group members want to alert others about a slow-paying customer or a bounced check, they may do so. But if a member writes something along the lines of “I wasn’t paid by the ABC Co., so I’m going to hold up its orders,” then the monitor will ask the member to revise the wording to a factual statement.
It would be perfectly acceptable to alert other members, for instance, that “Orders from ABC Co. have been placed on hold” when that actually happens.
Smyth has created a formula that allows group members to see the probability of being paid on time by a certain customer.
And in an effort to collect even more data on the payment histories in certain specialized areas, the company recently started a trial program that allows new credit groups to form without membership fees.
The group members, however, must agree to contribute a certain amount of data on the payment behavior of their corporate customers. The data can then be repackaged and sold to other customers who want the specialized information.
The economic climate has changed all around the globe, Broderick says. Until recently, many European companies tended to extend credit with the backing of a credit insurance company, but the recent upheaval in credit markets has changed that practice dramatically.
Smyth Solutions is on the verge of starting its first international credit group and is working with the European business community to comply with privacy and antitrust laws.
“We see that model as being a world model,” Broderick says. “The paradigm has shifted.”
Jay Hamburg is a freelance writer and editor in Orlando, Fla. Prior to that, he spent 29 years as a journalist at newspapers that included the Orlando Sentinel and The Tennessean in Nashville. He has written extensively about a wide variety of subjects, ranging from transportation to religion to science. He is a recent contributor to several city magazines and also writes informational materials for organizations. Hamburg has a master’s degree in communications from the University of Kentucky. He can be reached at HamburgJay@aol.com.
|
