Take a New Look at Your Old Customers – and Their Current Creditworthiness - Receivables
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Take a New Look at Your Old Customers – and Their Current Creditworthiness

By Bill Newton

Article Date: 10-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.

Start with annual, independent credit reports on your largest aftermarket accounts – and those that are currently delinquent.

Everything changes over time.
We all pay attention to the changes in our personal lives but for some reason, in business we often take changes for granted, especially with our customers – and we virtually ignore change. Think about it. Is your company the same as it was five years ago? And what about your customers’ companies? Not paying attention to their changes can cost you big time. And in today’s economy it could be disastrous.

Construction is slow. Companies are laying off employees in order to keep their heads above water. Your new equipment sales have decreased dramatically, but you may see an increase in parts and service. Customers are holding on to older equipment for want of projects, cash and financing for big ticket items.

You can’t change that situation but you can protect yourself, stabilize your parts and service receivables and get a good feel for your customer base by updating their information.

Companies you have been dealing with for years may not be the same as they were five years ago when you established their credit lines. Some have grown but many may not be as stable or creditworthy as they were.

So protect yourself and update their credit information to get a financial snapshot of what your customers look like today. Doing this will not only help you minimize losses, but also could give you information that would allow you to fill customers’ current aftermarket needs and increase your parts and service revenue.

First, don’t even look at that five-year-old credit application, and to be honest, I would not ask for a new one either. In my opinion, the only valid information on a credit application are the basics and the personal guarantee if you have one. I have seen credit applications with good references and even some with fraudulent information, but I have never seen one on which the customer listed credit references with whom they knew they had a bad payment history.

Instead, my recommendation is that you establish a standard operational procedure and have your credit department use independent services to develop financial information on your customers. There are a number of good economic information services available that can provide you with up-to-date information on your clients that you can use to evaluate current credit lines.

Equifax (www.equifax.com) offers good, current credit information on businesses and also has a credit scoring system available to rate a company’s creditworthiness. Accurint (www.accurintbusiness.com) and Lexis Nexis (www.risk.lexisnexis.com) will give you risk and information analytics, corporate information to include officers, other locations, UCC-1 filings, bankruptcy information, pending litigation, tax liens, vehicles and equipment registration, and a lot of other useful information.

Your people don’t have the time and it is not necessary to order and evaluate these reports on all of your clients. But, where reports should be updated are on larger customers and high balance delinquent customers.

If they’re paying your dealership for parts and service on credit, you need to know their current creditworthiness – before they rack up thousands of dollars in invoices they can’t pay.

A new look at an old customer will allow you to adjust their line of credit to fit their financial situation today. By the way, don’t think you are protected because you had one of the principals sign a personal guarantee. The guarantee is only as good as the guarantor. I have seen some guarantors who couldn’t get water on credit if they were on fire. I highly recommend you spend the money (less than $10 per report) and get an updated credit bureau report annually on all guarantors on larger accounts. If the guarantor is going bad, odds are his or her company is too.

Information is the key to success and stability.
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Article Categories:  Financial  »  Taxes