Does credit make you vulnerable? Published by CSA

As business continues to grow (at least for most), I have heard many people say that we are likely to lose as many dealers as we lost in the downturn. While that may be a stretch, I do think there is significant risk for some companies who have depleted their balance sheets.

As supply tightens, prices are going to continue to rise. For many of you, that’s a good thing because it means more profit dollars if you can hold the same percentage of margin. But for some, it hinders the ability to purchase inventory. In that situation, your choice is to purchase inventory and hope it turns quickly AND that the customer pays promptly or you can tighten inventory to the point that it may be difficult to fill orders. Neither option is good if you have no cash left and your bank doesn’t want to help you with a line of credit.

I recently had the opportunity to look in depth at one solution to this problem. It won’t work for everyone, and even some who might see benefit will simply not be interested. Still, it has proven to be a good option for some of our members, and I think some others would see a tremendous benefit from using it.

The program is BlueTarp Financial. They’ve been around for some time now and have been an active member of CSA. They partner with dealers to take the credit risk, and provide the dealer with a steady flow of cash.

It seems to me that BlueTarp offers two key advantages to a dealer. The first is that you lose your credit risk. They have really sophisticated programs and algorithms in place to make prudent credit decisions. This is an area where some of our members, even in the best of days, had issues. Credit is complicated, and dabbling in it only makes you dangerous. Given that so many of today’s customers have bankruptcies and slow payments on their credit histories, it’s difficult for anyone but an expert to determine which of those are reasonable risks.

The second advantage is cash flow. You know when you make a sale that your cash is coming at a predetermined time (as determined by you – daily, weekly, monthly, etc.). You don’t have to wonder if your customer is going to pay – that’s BlueTarp’s problem.

I also realize there are a few objections to using something like this. The most obvious is that it’s not free. There is a cost for using BlueTarp. Only you know exactly what the cost of credit is for your business (staffing, using credit reporting services, collections, and the opportunity to do something with your money that someone else is hanging onto after you’ve delivered the product). My guess, however, is that most people underestimate how much this really costs them. I also know some dealers who spend a significant amount of their time chasing owed money. This can be awkward, but it’s also probably not the best use of an owner’s time. What other part of the business could you be focusing on if you didn’t have to drive around picking up checks?

Another objection is fear that your customers will either not be happy or will be treated poorly in the collections process. BlueTarp knows this and offers a rewards system that you can choose for your customers to help ease the pain of transition. As for treatment on the back end, I had the opportunity to visit their call center and hear live calls going out and coming in for customer service and collections. It was impressive and non-confrontational. Of course, my seeing it and you believing it are two different things.

I’m not endorsing this program nor am I telling you that you should rush to sign up. For those who have strong balance sheets and are confident in their credit abilities (and are not spending an arm and a leg on credit/collections), this may not interest you at all. But I have talked with enough of you who do have cash-flow problems and don’t have credit expertise in house to know that this could solve some problems and help you sleep better at night.

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