Is there a better way?

March 2, 2016 Tracey Richardson-Newton

How Your In-House Credit Program Differs from a Professional Credit Management Service

In-house credit management can take as many forms as there are building materials suppliers. Oftentimes the credit manager is a family member or someone who grew up in the business who’s good with numbers and people. An in-house credit manager will also likely wear many hats —covering the front desk and phones, taking orders and doing other things in addition to handling billing and collections.

An alternative is to partner with a professional credit management service that provides an end-to-end solution. Companies like BlueTarp offer credit analysis, risk protection, customer service, billing and collections —everything you need to manage your credit program in one relationship.

To better understand the differences between an in-house program and a professional credit management service, it helps to look at how they both function in four important areas: sales growth, cash flow, risk protection and time management.

When it comes to growing sales, a professional credit management service has flexibility that in-house credit managers usually don’t — the ability to offer your customers larger lines and longer terms. This helps your customers go after bigger jobs with slower pay cycles and encourages them to spend more with you. Increased lines and terms can be a powerful way to grow sales with current customers and attract new customers — all without added risk for you.

Some credit services offer online tools that help professional customers save time and better manage their business. These tools allow customers to quickly review their balances, check available credit and better manage cash flow. BlueTarp, for example, enables customers to track purchases by SKU, PO, purchaser or delivery location. These services are provided under your brand so customers see them as another benefit of doing business with you.

Rewarding your best customers is another way to build sales and loyalty, and if you’re handling this in-house, it can require a fair investment of time and money. A professional credit management service can offer generous loyalty programs that reward your customers for their purchases with a choice of thousands of  merchandise, travel and event options. 

Improving you cash flow

Your in-house credit manager is keenly aware of what your company’s aging report looks like on a daily, weekly and monthly basis and its impact on your cash flow. As manager of accounts receivable, this person usually has a good sense of how long you’re waiting for money, and can only do so much to get that money in faster. While few people like to make them, collections calls provide some relief. This task is often shared by sales — putting them in the difficult position of trying to collect a payment and close a sale. Not an ideal situation for you or your customers.

A professional credit management service can turn your average accounts receivable aging from 45+ days into 15 or less.

Even with reliable customers who always pay in 45 days, cash flow can be impacted enough to prevent you from making seasonal purchases, taking advantage of discounts, building inventory or making other business investments. The scramble to cover cash flow can mean going to the bank for a line or a loan, or asking customers to pay early. Either way, your business can be hamstrung by cash flow problems despite your best efforts.

Assessing and Reducing Your Credit Risk

When a new customer comes into your shop, it’s up to your credit manager to handle the initial credit check. If diligent, that will include completion of a credit application, pulling
a credit report, checking references and then working with the customer to set credit limits and terms.

A professional credit management service often has access to more information as well as credit evaluation tools. Their use of multiple business and consumer credit reports and proprietary credit scoring models provides you with a more complete risk assessment of new customers. And, a credit service will recheck and update credit three or more times a year for all your customers, so you know if an existing customer’s credit risk has changed.

In-house credit managers often make credit decisions to save the sale or preserve the customer relationship and this approach can open you up to unnecessary risk. A credit service doesn’t want you to lose a sale either. Their credit team will bring to the table an in-depth risk assessment while evaluating how they can support the sale and encourage more spending with you.

A professional credit management service takes the unpredictability and guesswork out of your cash flow — turning your average accounts receivable aging from 45+ days into 15 days or less. Look for a service that pays on a daily, weekly, twice-monthly or monthly basis — whatever frequency you choose. And ask if they offer online tools that allow you and your in-house credit manager to see exactly what your cash flow will be.

When it comes to your customers, few people know them better than your in-house credit manager, and that relationship is an important part of almost every credit decision you make. A good credit service will build relationships with your customers, as well as partner with your in-house credit manager, to better understand that human dimension that doesn’t show up in any credit bureau report.

Time is a valuable commodity for you and your staff —and everyone wants to spend as much time as possible focused on your customers and growing the business. Professional credit management services take care of all the back office work involved in your credit and collections so you can focus on growth. That means your sales team is dedicated to selling, not collections. And the time and energy you currently spend on credit issues can be spent on other aspects of your business.

Instead of stuffing envelopes and handling billings and payments, your in-house credit manager can devote more time to solving customer problems and making business improvements. They’ll also play a key role with your credit service provider, advising on credit and collections decisions with your most important customers, as needed.

There’s a lot to think about as you consider the best way to manage your credit —especially if you want to maximize business growth during the economic recovery. A professional credit management service like BlueTarp is uniquely qualified to help improve your sales and cash flow while reducing risk, in ways that your in-house function probably can’t match. Plus, you and your staff win back more time to focus on what matters most —your customers and the growth of your business.

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About the Author

Tracey Richardson-Newton

Tracey serves as Vice President of Credit Risk Management, responsible for complete oversight of the credit risk management function as well as credit and collection operations.

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