Credit Analysis Without All the Facts

Of course, certain situations call for special terms, Gillis says, such as a big one-time sale due to a seasonal surplus. Or, with a large retailer like Walmart, terms tend to be more flexible, since creditors are more confident about the customer’s asset composition and its business volume.

Working Smarter
Timing, as they say, is everything. In perishables, even more so—but a critical misstep can be needing credit in a hurry. An applicant who wants to rush the process, perhaps due to a possible lost opportunity, can give credit lenders the wrong idea.

“If somebody is anxious about needing an order right now and needs to put it on credit, that’s a red flag,” Lott confirms.

If a buyer is in such a rush, why not use a credit card, check, or cash? “If a customer can’t wait the three to five days it takes me to get information back on a credit application, then that’s a customer we probably don’t want to work with,” Lott asserts, though concedes there are special situations, such as around holidays.

Rushing a credit decision can be risky, Gillis notes. “You have the most leverage before the order is taken; this is why we have good standards in place. Do we sometimes lose a sale? Yes, we could.”

While losing a sale to a questionable credit risk is not a bad thing, losing good customers due to an overly lengthy process is. On this front, technology is helping streamline both the time and costs involved in gathering information.

“Our goal is to expedite the process as quickly as possible by calling or faxing over bank and trade references,” Gillis explains. “Unfortunately, we’re at the mercy of the receiver to reply. Generally, it takes a phone call and a second request.”

There are also fees involved. Banks can charge $15 to $25 for a reference request. “I don’t pay for references,” Lott declares, though she will pay a third-party $35 to prepare a credit application, which can save valuable time in some situations.

Business Conditions
Sometimes a credit manager has the luxury of choosing the most creditworthy customers, for instance, when demand exceeds supply, but this is rarely the case. “I always want to choose the most creditworthy customers—that’s a perfect scenario,” Gillis says.

Yet she also takes into account the ‘domino effect’ of her customers’ customers. “All those things come into play in your decision making,” Gillis shares. It may be that a customer your client is selling to doesn’t have good credit, which she says can create a roadblock. In perishables, even the location of a customer is noteworthy, as well as the weather.