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The Value of Credit Industry Groups
Credit Industry Groups are formed by credit professionals who represent a specific industry segment and get together each month to discuss their delinquent accounts. For example, there are several credit groups within the building supply industry. There are electrical groups, plumbing groups and a host of other groups, all related to construction. There is value in these credit industry groups.
Most credit industry groups are hosted by national or regional credit bureaus. Participants in the credit groups are required to sign a non-disclosure agreement that prevents them from sharing other data such as sales numbers and customer lists. Sharing information on delinquent accounts is the objective of credit industry groups.
Advantages of Credit Industry Groups
There are numerous reasons a business-owner would want their credit manager to attend and actively participate in credit industry groups. A creditor’s valuable contribution to the group meeting makes for successful credit management within a financially strong and vibrant industry.
The first advantage of credit industry groups is to help an industry manage marginal customers. Under normal conditions, sales at a profitable level can only be maintained if orders are accepted from a certain percentage of marginal customers on credit. Selling these border-line accounts profitably is where the credit professional demonstrates their real worth. This entails not only keeping losses within acceptable levels, but also keeping receivables in good shape so that your working capital is not strained by slow credit.
It is in the management of these marginal customers that a credit industry groups really demonstrate their value. Immediate losses must be avoided, and eventual losses must be justified on the basis of sales volume. Success comes from good judgment, experience, and knowledge. Active participation in industry credit meetings can go a long way to providing that knowledge and judgment.
A marginal account operating in a depressed geographical area is far more risky from a credit perspective than the same quality account in a prosperous area. The usual sources of credit information such as the credit bureaus do not account for this aspect. However, regional information is another advantage of credit industry groups.
Another advantage of credit industry groups has to do with long-term credit evaluations. In some circumstances, a customer may have been declined credit, only to see them thrive and become a major player in the marketplace. The customer won’t forget being turned down and your sales staff will hit a brick wall. This can be avoided with knowledge from credit industry groups.
Trade credit references and credit bureau reports are inadequate for determining the long view of a new business customer. The information you lack may be available through personal contacts that can be made in credit industry groups.
Long term credit decisions are more difficult to perform. However, they are very rewarding to your firm when they are sound. Confidence in a new customers business is rarely forgotten and years later will serve to cement a customer’s business like no other loyalty program can. A credit manager can have few higher paying dividend investments than those close acquaintances made at credit industry groups.
Don’t be hesitant to join local, regional or national credit industry groups.
