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Credit Congress '10: Look Within Own Ranks, For Warning Signs When Dealing with Large Customers

Written by SuperUser2.

Landing a business relationship with a large company could pay many dividends for a vendor. However, dealing with big business can include different dangers and require varying levels of credit analysis, said panelists at a Tuesday Credit Congress session titled, "Pragmatic Approaches to Quickly Analyze Large Credit Risks."

While landing an account with a large company can mean a significant boost in revenue, Camilo Gomez, oPh.D., of Lone Pine Mesa Consulting, noted it can be a double-edged sword, so to speak. "When a lot of your revenue is coming from one place, that can be a little dangerous," said Gomez. However, Gomez noted dealing with a large company that is publicly traded comes with the advantage of having more, credible information on the company via various required filings and stock market data than is usually available on smaller, private firms.

Ed Bell, CBA, CICP, W.W. Grainger Inc., notes having a policy to deal with smaller transactions from larger companies quickly is critical, asking "if it's only $20,000, do I really need to approve that transaction?" Bell stressed that credit departments need to ensure they strengthen relationships with operational and sales department partners so that the large company coming on board provides a variety of critical information.

Bell also touched upon the importance of looking out for key warning signs, both when just starting the business relationship and once it is firmly established, that the large company is in some level of distress. Bells' top 10 watch topics are as follows:

  • Changing payment patterns

  • Changing buying or selling habits (such as loading up on inventory from you)

  • Shrinking cash flow

  • Sudden high customer demands (e.g., asking for discounts or terms)

  • Large accruals

  • Withholding financial information

  • High DSO with your company or others

  • Changes in management, especially sudden ones

  • Persistent negative rumors

  • Tax Liens

Brian Shappell, NACM staff writer


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