Limiting and monitoring risk without decreasing sales in economic downturns.(selected topic)

Since September 2008, there have been numerous articles and points of view regarding how the current U.S. financial meltdown occurred, why it occurred and what can be done in the future to prevent another crisis of this magnitude. Just over a year ago, in October 2007, the Dow hit a high of 14,000. Now it's a good day if it doesn't fall below 8,000.

NACM members have been prepared for this type of crisis with additional training and designations for years. NACM members know how to deal with this type of downturn and actually look forward to proving their worth. These are the times when opportunity knocks on our office doors and propels the credit department into senior management meetings to plan strategy for this coming year. The item most on everyone's agenda is how to continue to maintain sales levels without taking added risk. Or, how to grow sales by taking more risk with accounts that otherwise would not be approved.

Many companies had already experienced decreased sales well before the September crisis began, as reported in NACM's Credit Manager's Index (CMI). The sales component of the CMI for the calendar year (January-December) 2007 averaged 59.5% as opposed to the sales average for 2008 of 49.2. As of this writing, the record low so far was 27.2 in December.

We are now well into a recession, which apparently started in December 2007 and ever since the crises became obvious, we have been on edge, waiting for a diagnosis and a plan. As soon as this diagnosis is made, treatments can begin to made the return to good health.

What can credit professionals do to assist with business decisions during this downturn? First it's very important to do lots of research. It will be necessary to research your current portfolio. Use all available resources such as online services, credit reports, news articles and do not take anything for granted. Document every action you take to protect the company assets.

Once it is determined which accounts are higher risk, seek assistance from senior management on long-term goals. Should business be continued with these high-risk accounts? If so, can some sort of security or personal guarantee be obtained to give some added protection to company assets? If the decision is made to continue doing business with these accounts, build relationships with the controllers and treasurers of these companies. If possible, make company visits. Watch the accounts carefully for any change in payment trends. Maintain terms and credit limits. If an account has a credit limit of $100,000 with net 60 terms and is over 60 days old or over the credit limit, require a payment on the account before approving new orders. Always be honest with your accounts from the beginning. This can avoid misunderstandings or future lawsuits.

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