Distribution & Wholesale Company Credit Management Services
When it comes to credit management for wholesale and distribution firms, the issue most credit managers have is that they can become complacent dealing with the same great customers all day long.
The wholesale and distribution market for credit and collection firms is not significant in terms of account volumes; however, it can be quite large in dollars outstanding. Like transportation and freight companies, in general, wholesale and distribution firms deal with a relatively small number of customers, making management of the portfolio reasonably simple.
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When a major customer of a wholesale or distribution company has financial troubles, credit professionals never see it coming until it’s sometimes too late.
Typical Warning Signs That We See In Your Industry
Credit Professionals and owners of wholesale and distribution firms should watch for early warning signs such as:
- Larger than normal purchases
- Order volumes increasing during what would typically be a slow part of the season
- Significant reductions in order volumes
- Increased DSO (Days Sales Oustanding) calculated by customer, not the total customer base
- Number of disputed invoices or warranty claims jumps dramatically
- A drop in customer credit scores
Complacency or time is usually the most significant factor to review after you have experienced a loss. Looking back on the relationship, credit professionals and business owners don’t often act quickly or decisively enough when dealing with a long term customer. When this happens, the losses they experience are higher than they otherwise would be.
High Margins Also Means High Risk
Business owners of wholesale and distribution firms experience some fantastic margins on their products. This can prevent them from considering the painful losses of a surprise customer receivership.
For example, if your net margin (profit) is 10% and you take a $500,000 loss with a customer’s surprise receivership, you will need $5,000,000 in new additional sales to break even. This does not factor in your cost to generate new sales.
Tips for Mitigating Risk in Your Industry
PCM Corp can help with credit management for wholesale and distribution companies but there are certain things you can do to mitigate your risk:
- Join a credit group and gather intelligence from your peers.
- Consider a commercial credit monitoring service.
- Invest in credit analyst training and professional development for staff so they are aware of warning signs.
- Coach your sales teams to monitor larger than usual orders and report it.
- Retain an arms-length relationship with a credit control and collection firm. This will allow you to obtain unbiased opinions about your customer’s current credit quality so you can act quickly to recover funds owed in the event warning signs are discovered.
PCM Has Experience with Many Wholesale & Distribution Companies
At PCM Corp, we offer credit management for wholesale and distribution companies that can include a variety of professional credit control services such as:
- Credit Checks
- Credit Decisioning and Approvals
- Receivables Monitoring (Manual and Automated)
- Third-Party Collections and Litigations Management
When dealing with the extension of credit to large purchases, it makes good business sense to perform your due diligence and obtain your data and professional opinions from an arms-length source. Whether you take the advice or not is still up to you; however, you at least have obtained and considered the recommendation of an unbiased source.
Let Us Help You with Credit Control
Ask us about our personalized credit control manager training programs.
To learn more about Priority Credit Management Corp or if you still have questions about credit management for wholesale and distribution companies, please call us at 1-866-766-9195, or contact us online.