In today’s fast-paced business environment, the need to secure credit approval
for merchandise purchases or services in a timely fashion has never been greater.
Unfortunately, for many companies, the
process of working with vendors, suppliers, financial institutions and other creditors can be a slow and arduous task.
In order to speed up the credit approval
process, Comerica is offering services
called credit mitigation tools.
The portfolio of services has a number of
benefits, says Syd Saperstein, senior vice
president, division manager of Comerica’s
Special Corporate Financial Services
Division. “Companies using this service
can increase their profitability, increase
their market penetration and increase customer satisfaction,” he says.
Smart Business spoke with Saperstein
about the importance of obtaining credit
approval in a timely manner and how the
process can be facilitated.
Why is it so important for companies to be
able to obtain credit approval in a timely
manner?
Fulfilling customer orders in a timely
manner is critical to any good customer
service position that retailers or wholesalers need to maintain. If they can’t get
credit approval in a timely manner for the
goods they would like to order, then their
customers will not get the product in the
time frame that they expect it.
How does the composition of the supply
chain affect credit decisions?
Products in a supply chain may go
through as many as five or six wholesalers
and distributors before they get to a retailer. Manufacturers usually don’t sell direct
to retailers or consumers. Manufacturers
sell to distributors who sell to wholesalers
who sell to regional wholesalers who sell
to retailers who sell to consumers. Every
step where goods change hands is a credit
risk decision that is going to be made by
credit managers or the policy of a particular company about how and when they want to be paid and whether they are going
to ship goods before they’re paid.
What are some methods that can be used to
facilitate the credit approval process?
We substitute a trustworthy payer in the
middle of the distribution chain I just mentioned. Instead of a wholesaler/manufacturer/distributor having to decide how
much to trust a customer with a net worth
of say $250,000, we substitute the customer
with the bank that has $58 billion in assets.
We replace the risk that would have been
assumed by the wholesaler/manufacturer/distributor by putting the bank in the
place of the customer.
Of what does the credit mitigation tools portfolio of services consist?
The portfolio of services is devised to put
reliance on the creditworthiness of the
bank in place of the higher risk ‘promise to
pay’ of the distributor or retailer. To put it
into a consumer context, let’s say you want
to purchase a product from an online Web
site and it costs $350. You would supply
your credit card or checking account number to that seller. The seller would immediately collect the money from your account.
When the seller gets the money, it tells the
wholesaler/manufacturer/distributor to
drop ship those goods that you just bought.
If the Internet seller has a credit line with
a supplier and hasn’t exceeded its allotted
credit for the month, then the wholesaler/manufacturer/distributor will ship the
goods within four to five days. The customer is happy, and the retailer is happy.
The wholesaler/manufacturer/distributor
incurs a risk because it has a sale but does-n’t have any money yet. It has to wait until
the end of the month and see if the retailer
is going to actually pay the bill. So there is
a limitation on how much credit the supply
chain will permit to the retailer. The credit
mitigation tools portfolio addresses these
concerns.
How can companies benefit from this service?
In addition to increasing profitability and
market penetration, companies using this
service can increase the depth of product
availability because they will never be out
of stock. They can increase the breadth of
products that they can offer for sale
because they will no longer have barriers
that will keep them from being able to fulfill their orders. If they were buying only
from those suppliers where they have
established credit, they would not be able
to buy enough variety. For example, they
may only have four or five manufacturers
who grant them the credit they need.
Credit mitigation tools can reduce this risk.
Also, companies will be able to speed up
the turn of inventory to whatever the consumer-driven demand is.
SYD SAPERSTEIN is senior vice president, division manager of
Comerica’s Special Corporate Financial Services Division. Reach
him at (415) 477-3246 or [email protected].
