Tools of the trade Featured

8:00pm EDT October 26, 2007

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