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Take These 8 Steps
Scott Simpson is President and CEO of BlueTarp Financial. BlueTarp is a B2B credit management company that pays suppliers upfront on their sales and protects them from risk, so they can fund the growth of their business. Headquartered in Portland, Maine, BlueTarp has partnered with over 2,000 suppliers since 1989. You can reach Scott at firstname.lastname@example.org or 207-797-5900.
We work in a cyclical industry, and after seven years of “recovery,” an economic downturn will come—it’s just a matter of when. Many experts think its 12-18 months out. At BlueTarp, we already see contractor delinquency rates steadily rising, so the unease is not just a gut feeling. The time to prepare is now. Here are eight steps to survive, and even thrive, in a downturn.
1. Tighten “screens” for new credit applicants. Raise your minimum credit criteria for in-house accounts and moderate the size of credit lines. Enforce your A/R terms. You’re not a bank; don’t carry slow-pays.
2. Maintain high standards for credit scores. Monitor your customers’ credit through credit monitoring agencies. For chronic slow-pays or those with bad credit, move them to COD.
3. Offload risk. Bring in a credit management provider (like BlueTarp) who will assume risk, pay you upfront on all of your B2B sales, and even collect A/R if you elect to use that service. You receive fast, guaranteed cash flow over the long-term.
4. Extend your bank line of credit now. Credit is hard to get in a recession. Even if you don’t need the cash now and have to pay some fees for the unused line, extend your LOC. It’s better to know you have more ability to borrow…if you need it.
5. Line up access to non-bank sources of cash, just as a worst-case back-stop, either through mezzanine financing or a family member who can lend cash.
6. Analyze your accounts to determine the profitability of each and every one. Are gross margins really as high as they should be for all accounts, including discounts and account maintenance costs? (You’ll find you are actually paying some customers, rather than the other way around.) Shed unprofitable accounts or raise their prices to compensate for your costs. Collect late fees. Don’t allow customers to pay in-house accounts with credit cards.
How to survive, and even thrive, in both good times and bad.
7. Refine your lien processes. Don’t wait to refine the lien process during the recession. Processing liens should always be a well-oiled machine.
8. Take the worst case off the table. Do you have any single account that would bring down your company? Mitigate that risk now. Consider credit insurance.
The next recession is coming. Dealers that prepare now will be in a good position to survive and thrive in good times and bad.