Credit Today Benchmarking Survey: Order Approval

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Tomorrow’s tools for today’s Credit Professionals
CONTENTS
LEAD STORY:
Credit Today Benchmarking
Survey Results: More orders than
you’d imagine are on hold at any
given time in the U.S. economy!
Hard data on this critical process
revealed. How efficient are you?����������1
CREDIT INSURANCE TODAY
A Tumultuous Time in the Credit
Insurance Industry. Two experts
give the low-down on what’s happening today.����������������������������������������1
DISPATCHES:
• Receivable-based borrowing on the increase
• Do you have unclaimed property on your A/R?
• New portal announced by SunGard for placing claims with
multiple collection agencies
• Early warnings on distressed
small businesses ................4
CREDIT & THE LAW:
Are there regulatory protections in
factoring? �����������������������������������������������5
CREDIT DEPARTMENT PROFILE - EMI CGG Distribution:
Yes, Virginia, You Can Integrate
Sales and Credit, Sometimes! ���������������8
STREET BUZZ:
CREDIT ON THE MOVE������������������12
LEADERSHIP PROFILE:
Scott Goen, Credit Manager, Big
Lots Stores, Inc., Wholesale Division, Columbus, OH����������������������������15
www.CreditToday.net
May 2010
Credit Today Benchmarking
Survey: Order Approval
Parameters and Processing
By David Schmidt
Order approval is maybe the most visible
of all credit department activities. It is a
critical function that often forces credit
to perform a balancing act. As Jaco
Kruger, Director of Financial Services
with William M. Bird & Co. observes,
“There is a fine line between upsetting a
customer in order to raise their credit to
meet our requirements and promoting/
supporting the sale. We are all in sales,
including the credit department. However, we have the additional responsibility to ensure payment by balancing credit
versus risk.”
Given the importance and prominence
of the order approval process, we were
surprised to discover that a significant
number of credit departments are struggling to cope with this task. This is
reflected by:
• A high percentage of orders hitting the hold queue – 25 percent
report over 1 of 4 orders are held
• A lot of time spent releasing orders
– 24 percent report order approval
takes 3 or more hours of their day
• Repeatedly checking the orContinued on page 2
Credit risk Today
Understanding Credit
Insurance Today
There is a pervasive misunderstanding today of what credit insurance can do
for you. The confusion has a lot to do with its roller coaster history during the
past decade. During boom times it was readily available very cheaply. With the
Recession, premiums soared as availability evaporated. Now, with the economy
improving at least for some industries, it has become widely available at low
cost again.
“This is a perfect time to look for insurance,” declares Frank A. Musto,
vice president and CFO of Franklin
Electronic Publishers. “Insurers are all
hungry. You can get yourself a pretty
good policy at reasonable rates. It almost
doesn’t matter what business you’re in.
It depends on the type of accounts you
have, but most companies have decent
accounts.”
Tom Corbett, a credit insurance broker
with Marsh USA, recalls working for a
carrier that insured $4.5 billion in sales
for a miniscule $1 million premium with
a very small deductible back in boom
times. “But if you think of what’s hapContinued on page 10
May 2010 CREDIT TODAY 1
Continued from page 1
CREDIT TODAY
OUR MISSION: To give you the tools and
insights that will empower you to excel in
credit, customer service, and business, while
providing a forum for the best thinking in
the field.
Editorial Advisory Board
Elizabeth Aurelio
Vice President of Credit & A/R
Nintendo of America, Inc.
Bill Balduino
Leader, Credit Segment, D&B
William Creim, Esq.
Creim, Macias & Koenig, LLP
Bill Edgar
Credit Manager, Zippo Manufacturing
Ronald J. Hoffman
National Group Management Corp.
James H. Hopkins, Esq.
General Counsel, Sicklesteel Cranes, Inc.
Pete Knox, Director of Credit & Collections, Nestle U.S.A., Inc.
G. Fred Marlatt
Chairman, Turnmire Logistics, Inc..
Michael D. Rodgers
Executive Vice President
FINACITY Corporation
Patrick J. Rohan
Vice President, National Retail Credit,
CIT Group Commercial Services, Inc.
Robert S. Shultz
Partner, Q2C
David L. Uranga
Director of Financial Services
Bell MicroProducts
Managing Editor: Wayne Muller
Contributing Editors:
Dave Schmidt
Leigh Anne Kelley
Ann Morales Olazábal, MBA, JD
Editorial Consultant: Robert Ferris
Customer Service: Anne Lawson
Publisher: Rob Lawson
Credit Today is published monthly by Credit Today,
LLC. Subscription rate $129 a year. Copyright 2009 by
Credit Today, LLC. Reproduction without permission is
prohibited.
POSTMASTER: Send address changes to Credit Today,
Box 720, Roanoke, VA 24011. Subscribers may send
address changes to Webmaster@ CreditToday.net. or call
540-343-7500. Send submissions to Credit Today, P.O.
Box 720, Roanoke, VA 24011.
Subscriptions: 540-343-7500; Fax 540-343-3222;
E-mail: [email protected]. Credit Today does not
render legal, accounting, or other professional services.
Legal and other expert assistance should be sought from
competent professionals.
2 CREDIT TODAY May 2010
Benchmarking Order Holds & Approvals:
Constant Pressure
der queue – 26 percent check it
more than 10 times each day
• Lack of an automated approval mechanism – 25 percent are wholly manual
This group is in contrast to the significant segment of credit departments
that appear to have the order approval
process well under control.
• 57 percent report no more than 1
out of 10 orders hit the hold queue
• 42 percent spend less than an
hour per day on order approval
• 48 percent check their order queue
four or fewer times per day
• 39 percent are able to clear their credit
holds within two hours, on average
Clearly, there are striking dichotomies
relative to order approval efficiency. We
point these out more fully in the following write-up of the survey findings, and
trust you will find this survey useful in
benchmarking your operations against
those of the rest of the credit profession.
The survey results should help you to
itemize areas for improvement, establish reasonable performance goals, and
build a case to garner the support of your
executive staff.
What is interesting about the chart
below (“Please tell us about your order
approval environment”) is the seeming
disconnect between the findings that,
while most credit departments are pressured to release orders and most orders
are released after a phone call to the
customer, most respondents are of the
opinion that orders are not being put on
hold unnecessarily.
On the surface, it would appear that having fewer orders flagged for credit hold
would result in somewhat less pressure to
get orders off hold. That most orders are
able to be released with a phone call also
suggests that the problem is not so much
creditworthiness, but the timeliness of
collection follow up efforts. If collection
efforts were up to date, one could assume
that more orders could be released without having to make a phone call. Taking
this train of thought a step further, if
you were confident that all delinquent
customers were being contacted within
an appropriate time frame, you should be
able to loosen up your credit hold parameters. Then again, the current economic
climate may dictate otherwise.
A key advantage to fewer orders hitting the credit hold queue involves the
amount of time spent approving orders.
The survey found that the typical credit
pro spends 2 hours, or about 1/4th of
their day approving orders. Our concern
is that it also means that a very large
number of credit pros are spending more
Tell us about your order approval environment...
True
False
The credit department is
under constant pressure to
release orders
67.2%
32.8%
Most hold orders are released
after a call to the customer
69.8%
30.2%
More orders get flagged for
credit hold than is necessary
36.2%
63.8%
Sales or customer service are
notified when orders are not
approved
90.6%
9.4%
than 2 hours per day working on orders.
In fact, 15 percent of those surveyed
spend over half their time approving
orders. When that is the case, you are
not left with much time for other critical
activities and life becomes a constant
fire drill. In contrast, 42 percent of our
sample spent less than one hour daily on
order approvals, which we believe is very
commendable.
The amount of time spent on order
approval is a factor of how many orders
need to be released from credit hold and
percent of our survey sample reported
over a 40 percent hit rate while nearly
two-thirds of the sample kept that figure
under 20 percent. As a rule of thumb,
you might want to review your order
approval systems and policies if more
than 1 out of 4 orders are being flagged
as credit holds. The issue is proportionality, and anything more than a 25 percent
hold-rate is indicative of a credit hold
process that is out of balance. In contrast, 57 percent of our sample realized a
hold rate of 10 percent or less.
How Many Hours Per Day Do You
Spend Approving Orders? (in hours)
how often you check the order queue. Of
course, how efficiently you can approve
orders is another factor, but the more
orders there are and the more often you
check the order queue, the more time
you will spend releasing orders.
When we examined how frequently the
order queue is being checked for holds,
we found that 19 percent check on
orders at least twice per hour compared
to the 48 percent of the respondents
that review orders four or fewer times per
day. The former group that frequently
checked orders averaged 2.6 hours per
day working on orders compared to an
average of 1.7 hours for the latter group
that checked orders much less frequently.
The difference of nearly an hour has the
potential of being a significant factor in
overall performance.
In terms of the percentage of orders
that are initially put on credit hold we
found a similar disparity. In this case, 15
least 24 hours. The median figure was 6
hours, which still seems somewhat high,
though the economy is possibly a factor
here. This is a statistic we will certainly
revisit in a future survey. Nonetheless,
39 percent of our sample reported that
the average time an order spent on credit
hold was less than two hours.
It is also interesting that 25 percent of
survey participants reported that their
systems could not be programmed to
automatically release orders that satisfied
specified parameters. That is a higher
number than we expected, and imposes a
manual burden on the credit department
to review each order. That takes valuable
time, especially when you consider that
most orders will be released without further action. However, when we isolated
the two groups, those that do not have
an automated release system only spent
1.9 hours on order approval, while the
automated group was fractionally above
the 2 hour overall average.
This finding suggests that many of those
with automated order release systems
are not taking full advantage of those
In light of the pressure credit departsystems or possibly that there are limitaments are under to release credit holds,
tions associated with their automation
the average amount of time an order
that is counterproductive. Kim Braun,
spends on hold is critical. We were
Credit Manager with FS Partners notes
surprised to learn that the average was
that their computer system isn't capable
14.3 hours, which generally means that
of handling this type of process. “We
credit holds are being released the next
must put the
customer on hold
What percent of orders are
until payment arinitially put on credit hold?
rangements have
been made and
then advise the
billing location
when this has
been lifted. They
cannot invoice
a customer that
is on hold until
we take it off
and download
business day. Obviously the average was
an updated file to them. Unfortunately,
skewed upward because 30 percent of
this doesn't stop them from sending the
our sample reported that, on average,
product out the door.” Good policies and
credit hold orders stay in the queue for at
Continued on page 7
May 2010 CREDIT TODAY 3
Dispatches FROM THE CREDIT FRONT
Receivable-Based Borrowing on the Increase
Asset-based financing—chiefly secured with accounts receivable and inventory—was estimated to be three to four times the
dollar amount of factoring last year. For many companies this
has provided sorely needed replacement of working capital lost
when their bank lines of credit were cancelled or reduced. But it
comes at a steep cost, and is certainly more expensive than the
lost bank lines.
“It often entails more rigorous reporting on receivables and
collections, while providing less flexibility in negotiating terms
with customers, Guy Guinn, a partner at Squire Sanders
Dempsey told CFO Magazine. And since lenders may impose
tight controls over the borrowing company’s cash flow, “it can
result in a big loss of self-esteem and independence.”
Asset-based lenders screen clients’ books extensively to decide
which receivables are eligible for the “borrowing base,” says
Laurence Kaplan, executive vice president of Gerber Finance, an asset-based lender. Some red flags that will lower the
dollar amount the lender is willing to advance:
• Concentration (more than 20 percent of sales with one customer).
• Dilution (a high percentage of returns and chargebacks).
• Excessive aging.
Kaplan says that government and foreign receivables often
won’t qualify at all and that the lender will also demand that
borrowers provide “robust” weekly reporting on portfolio trends.
Do You Have Unclaimed Property
In Your Accounts Receivable?
Cash strapped states are aggressively targeting unclaimed
property collections as a significant source of revenue, and old
receivables balances that haven’t been returned to customers are a favorite target. Depending on the state, a receivables
balance becomes unclaimed after you have had no contact with
the owner for three to five years. At that point you have a due
diligence responsibility to attempt to contact the customer. If
there’s no response after 30 days, the balance must be turned
over to the state.
Failure to comply can result in penalties and interest charges,
not to mention the time, expense and aggravation of an audit
through your financial records.
“Unclaimed property, which can amount to tens of billions
of dollars, provides many states with the working capital that
would otherwise have to be raised through taxes,” said Noel E.
4 CREDIT TODAY May 2010
Hall, Jr., principal and practice leader for the unclaimed and
abandoned property service line at Ryan, a major tax services
firm. “Today, both the largest companies and also smaller companies are increasingly being targeted for aggressive collections
efforts.”
When you identify an unclaimed receivable balance, he says,
you should remove the item from the AR aging ledger, shift it
to unclaimed property and hold it until it’s time to report. If
the state fiscal year ends June 30, as 80 percent are, it must be
reported by November 1.
Send a letter to the customer at their last known address indicating that your books and records show an item of question,
giving the date and amount and stating that if they fail to reply
within 30 days, according to state law, you will be required to
turn funds over to the state.
“At one time you could relax on this due diligence, but not
anymore,” says Hall. “The states are now aggressive in enforcing
that rule. Unlike some other forms of unclaimed property, the
receivables issue is very, very contentious because the burden
of proof falls on the shoulders of the holder of the property to
show that the item truly is not unclaimed.”
Incorporated in Delaware? WATCH OUT!
A company incorporated in Delaware is particularly vulnerable,
since the state has a look-back period going back to 1981. “No
company that I’m aware of maintains detailed records going
back to 1981,” he continues, “so if you’re identified as an audit
target, this allows Delaware auditors to extrapolate an exposure
number, which could run into the millions.”
What he is most concerned about are those credit managers
who routinely write off these items as income. Many, he says,
still have that policy of small-balance write-offs today. The
problem is that, with unclaimed property, there is no de minimus rule. Even it it’s a penny, it’s separate and still reportable to
the state.
“A lot of companies take the position that they’re not going to
research any overages or underages at a certain threshold,” he
says. “It could be $50 or $1,000. That doesn’t make these funds
unclaimed property. It’s just that you’ve made an executive
decision that you’re not going to research or do any work on it.
“Typically a company may have hundreds of transactions with
a customer, and there may be underages and overages. The first
thing you do to total them up to find a net balance. If that’s a
net credit balance, the state’s position is that they’re going to
take possession of that money and hold it for the owner.”
Editor’s Note: Be sure to check out CreditToday’s comprehensive
Unclaimed Resources Portal at www.CreditToday.net. There
you’ll find sample unclaimed property policy templates, checklists,
contact info for all states’s unclaimed property info, spreadsheets with
state escheatment dormancy periods, and much more...
New Portal Announced by SunGard
For Placing Claims With Multiple
Collection Agencies
Juggling collection work between two or more outside agencies
is one of those challenges that often makes outsourcing less efficient and more time consuming that it should be.
“It can be highly manual and complex, creating a lack of efficiency and transparency for both the company and agency,”
points out Credit Today editor David Schmidt, also principal
of A2 Resources, a consultancy firm focused on credit and collections best practices.
“For this reason, many clients and agencies are migrating
toward technology that provides portal access and advances in
networking, resulting in an improvement in claims recovery.”
Announced in late April, SunGard’s Avant Gard is an agency
placement portal, designed as an extension of its AvantGard
Receivables solution, to help streamline the placement of
claims. Described as a comprehensive solution offering credit
risk, collections, dispute management and cash application
processing, Sungard is intended to benefit agencies by earlier
and more complete transmission of claims, thereby helping
them deliver enhanced service to their clients, according to the
announcement.
For creditors, the purpose is to “manage the placement of accounts and invoices, as well as putting controls into place for
the tracking, reporting and reconciliation of all collections data
that is placed at an agency,” says Jim Mangano, senior vice
president of receivables solutions for SunGard’s AvantGard
business unit. “Faster and earlier delivery of claims will help improve recovery rates, helping agencies to deliver a greater level
of service to their customers.”
Early Warnings on Distressed
Small-Business Customers
Are any of your small-business customers in danger of becoming severely or chronically delinquent on a commercial credit
card, installment loan or lease or other financial instrument
within the next 12 months? If so, Experian’s Small Business
Credit ShareSM financial acquisition score is designed to warn
you.
The scoring system was developed from performance data taken
both before and after the Recession to make it highly relevant
and predictive, according to Allen Anderson, president of
Experian’s Business Information Services in an April announcement of the new service. “The aim is to maximize clients’
customer relationships by providing them with more attractive
credit terms and limits.” 
credit and the LAw: The situation
Are There Regulatory Protections in Factoring?
By Ann Morales Olazábal, MBA, JD
Harbor Bay Industries had a cash-flow
problem. Despite the best efforts of
Credit Manager Jake Walters and his
staff, DSO was higher than it had ever
been, and the sales picture was getting
grimmer by the day.
The CFO had approached Harbor Bay’s
bank about a line of credit secured by
the receivables portfolio and been turned
down flat. She summoned in Jake, told
him the bad news and gave him a new
assignment.
“See what you can work out with a factor,” she told him.
Jake got right to work checking out
factors, and what he learned was that
there seemed to be no end to the variety
of deals available. The first few outfits
he researched offered such a range of
requirements—from a requirement that
all receivables be factored to the need to
route all communications with customers through the factor’s office and to the
automatic purchase of credit insurance
along with the factor’s services.
Besides variation in the discount to be
charged, the fees from one factor to the
next were variable—some charged new
account setup fees, management fees, per
transaction fees, line of credit fees, wire
transfer fees, and others didn’t. There
just diwdn’t seem to be any way to compare apples to apples.
After reading the fine print on a few of
the proposals and mulling over all of
these questions, it struck him that something didn’t make sense.
Factors clearly play a role in the financial industry, so shouldn’t there be some
federal or state law guidelines establishing minimum standards or maximum
constraints on a factor’s services?
Does the law provide any guidance here?
Make your decision and turn to page 6
for the answer!
May 2010 CREDIT TODAY 5
Continued from page 5
Credit & the Law: Analysis
Factoring Is a Business Proposition
Short Answer: No.
A factoring arrangement is like any
other business proposition. The parameters of the relationship are established
and governed by the terms of a written
agreement, which will be interpreted and
enforced by the general law of contract.
Factoring, also sometimes known as
invoice factoring, accounts receivable financing or funding, or “sale” of accounts
receivable, is an ancient financing niche
available as long as business has been
business, indeed to as far back as Roman
times. In more recent years, factoring has
always been a fairly mainstream option
for smallish, expanding businesses to turn
receivables into cash rather than incur
debt.
And in today’s economic climate, when
delays in receiving
payment may be
longer than usual,
more and more small
and large creditors
may be turning to
factors to provide
cash-flow relief. So,
it is important for
the credit manager
considering factoring
to understand some
legal basics.
The Factor
Owns the
Invoices
But in the current environment, the
factoring arrangement is highly variable. Because the market is the only real
constraint on factoring services, they
have become increasingly complex and,
perhaps somewhat like insurance, hard to
compare directly. In fact, many factoring
facilities today do not amount to factoring in the traditional sense at all.
Instead they involve financiers who
simply advance a percentage —usually
somewhere between 80% and 90% of the
invoice value—against current invoices
and take their fees out of the balance, returning the remainder when the invoice
is collected. This type of “factoring”
does not involve legal assignment of the
account, and therefore
would not in itself give
the so-called “factor”
any right to contact the
customers or to collect
in court in the event
the receivable were not
paid.
...You should read proposed factoring agreements very carefully,
and, in addition to
analyzing their financial
impact on the firm, also
seek professional counsel before committing
to what may be a less
desirable arrangement
from a legal standpoint.
At its heart, the standard factoring arrangement involves the
creditor “assigning” – or selling – its right
to receive payment of its receivables to
the factor, at a discount, in exchange for
immediate cash. After the creditor has
assigned all or a portion of its receivables
to the factor, legally, the factor steps into
the shoes of the creditor for collection
purposes. So rather than the invoices
6 CREDIT TODAY May 2010
acting as security for a loan, the factor
actually buys the invoices and has the
exclusive right to collect them.
Like a Loan,
But . . .
Like a loan, the
discount rate attached
to a particular factoring arrangement is
dependent upon some
underwriting, which
frequently considers such things as the
spread (or concentration) of receivables
over customers, creditworthiness of the
customers, and the typical age of the receivables. Though factoring facilities are
similar to loans, they are almost always
more expensive than credit.
And unlike a loan, factoring does not
require tangible collateral like real estate,
Key Definitions
Factoring - The process of selling
a receivable for immediate cash.
The factor buys the receivable at a
discount and collects the receivable.
Assigning - The process of turning
over a receivable to a third party,
typically a factor.
Recourse - Means the factor can
come back to the company selling
the receivable if the debtor doesn’t
pay. Usually, you’ll pay a lower fee to
the factor if they have recourse, as
that shifts the risk to you (the seller
of the receivable).
Discount Rate - This is the fee
charged by the factor, typically 3 to
5% of the value of the invoice, or
how much the invoice is “discounted” from face value.
and it does not generate either a longterm liability or an interest expense.
Indeed, precisely because it is not a loan,
the factoring arrangement avoids all of
the federal regulation that loans trigger,
as well as the constraints imposed by
state usury laws.
Therefore, you should read proposed
factoring agreements very carefully, and,
in addition to analyzing their financial
impact on the firm, also seek professional
counsel before committing to what may
be a less desirable arrangement from a
legal standpoint.
Ann Morales Olazábal, MBA JD is
Associate Professor of Business Law at
University of Miami School of Business
Administration. She can be reached at
[email protected]. 
Continued from page 3
Benchmarking Order Holds & Approvals: Constant Pressure
procedures are vital no matter what your
level of automation.
Not surprisingly, nearly all automated
release systems account for credit limits.
Other popular parameters (see the graph
to the right) include past-due balance,
total balance due, and orders in progress
but not yet billed. These are all traditionally accepted AR risk parameters.
There was less acceptance of other riskbased parameters such as flags to mark an
account “always hold for review” or “always release,” and the ability to factor in
customer-type in the review algorithm.
For other release parameters see the table
on the bottom right.
What we did find surprising was that
only 29 percent of our sample reported
having approval authorities built into
their order release systems. With
compliance issues holding a lot of
corporate attention, we expected most
respondents would have some sort of
capability to restrict who could release
an order based on order amount, total
customer exposure, or some other factor.
Usually, approval authority parameters
are stipulated in the credit policy
manual, and are not usually difficult to
program into the order release software
system. 
Other Factors Used in Order-Release Algorithms
✓✓A flag for hold and do not allocate inventory
✓✓A flag to hold for review all orders that include specialty items or require labor
✓✓Allowance for chargebacks/deductions
✓✓Assigned risk factor
✓✓Automatic approval below a set limit
✓✓Credit days
✓✓Credit expiration date/last review date
✓✓Credit status
✓✓Customer terms
✓✓Customer first order
✓✓Days past due/Grace days
✓✓Fixed dollar amount past due
✓✓Inactive beyond a set number of days
✓✓Master level hold
✓✓Maximum order amount
✓✓New customer
✓✓No payment in last 30 days
✓✓Pending credits
✓✓Percent past due
✓✓Promised payments
✓✓Price discount – percentage off list price
✓✓Sovereign risk
✓✓Third party finance flag
May 2010 CREDIT TODAY 7
Credit Department Profile - EMI CGG Distribution
Yes, Virginia, You Can Integrate Credit and SalesSometimes
T
wo-thirds of EMI CMG Distribution’s
customer base accounts for only 4 percent
of the company’s sales volume. But until
two years ago, a $300 delinquency with one of
these small customers—typically a mom-and-pop
music and book stores—would take up the time of
a credit specialist.
This was hardly the most effective use of the credit department’s professional
staff, and the problem was aggravated because the company was in a downsizing mode due to contraction throughout the music industry. So John Vogelaar, then credit services director and now customer services and sales support
director, was asked by senior management to come up with a reorganization
plan.
Now complete, the most conspicuous aspect of this reorganization has been
the creation of the position of Customer Services and Support Representative (CSSR). Two CSSRs now integrate all telesales, all credit and collection
responsibilities and all customer service needs with all of these small accounts.
They thereby free up the other seven members of the department to the needs
of the medium-sized and larger accounts. As something of a bonus, the CSSRs
have significantly improved relations with the smaller accounts.
One Phone Call
“Usually they’re dealing with one person who handles all responsibilities,”
Vogelaar points out. “If there are two, they’re sitting next to each other. They
can get a lot of things handled in one phone call that before might have taken
two or three people, and we get a lot of customer satisfaction with that. These
customers no longer have to talk to one person about one thing and another
person about something else.”
Kelee Littrel had ideal qualifications when she was assigned to a CSSR position two years ago. She’d been a book store manager before joining the EMI
CMO telesales group in 2007, so rapport with the 150 to 170 customers—even
delinquent customers—she’s responsible for came naturally.
“Customer relationships are the bottom line,” she says. Most calls, even col8 CREDIT TODAY May 2010
lection calls, start as sales calls. These calls are
a great way of saying, “We want you to get this
new product, but you’re a few days late.” If she
knows she’s talking to someone other than the
owner or manager, she’s very discrete. Sometimes the owner doesn’t want the store’s music
person to know the financial situation. She’ll
ask to speak to the person she knows is handling
finances. If that person isn’t available, they’ll
transfer her to that person’s voice mail.
Often the person she reaches doesn’t realize the
account is past due. It may be a mom-and-pop
operation where the owner has so many pieces
of mail to open that they haven’t gotten to
it. Or it may have slipped their mind, or they
thought their husband or wife had sent the
check. With the rapport Littrell has developed
over time, these customers can speak more
comfortably about payment issues. “They know
that, if need be, I’m going to work with them
on a payment plan that won’t be going into any
kind of collection service,” she says.
The Reorganization Study
When Vogelaar was directed in 2008 to look
into the feasibility of reorganizaing the department, he was given about 30 days to do it. In his
research, he tried to find companies with similar
programs. He did locate people who had made
such reorganizations involving the integration of credit, sales and customer service and
interviewed them to find out what had worked
and what hadn’t. Some, he found, hadn’t liked
the results and had gone back to the traditional
methods and organization.
“What we found was that it works really well in
some circumstances and not so well in others,”
he says. “That’s why we didn’t integrate
roles for our medium- and larger-sized
customers. It’s a real challenge to juggle,
not just the two priorities of credit and
sales, but the time that it takes as well.
What I’ve found in talking to other managers was that, invariably, one was favored and the other suffered. That’s why
we decided to have some roles integrated
and others remain specialized.”
Today, in addition to the two CSSRs,
the team consists of three sales specialists
and two credit specialists.
The sales specialists work with mediumsized independent stores and small
and regional chains but not with the
larger chain customers. Vogelaar notes
that retailers have gone through a lot
of changes themselves in recent years.
Typically there will be an owner, a buyer
or a floor manager who takes care of the
music or the video area and another who
takes care of the books. So there are specialized roles with those customers.
For some customers, the sales specialists
are the only sales reps who work with
them. But there is also a field staff of four
people around the country, and some of
these customers are field-served. So the
sales role is a cooperative arrangement
between the field rep and the inside sales
person.
Of the two credit specialists, one focuses
on credit and collections and the reconciliation aspects of the relationships with
major accounts and the other specializes
in working with medium-sized retailers. There’s also another position that
specializes on the customer service needs
of the major accounts, sales support and
customer service, as well as supporting
the account managers who work with
those accounts.
Everyone on the integrated services team
shares customer service responsibilities.
Bifurcated Reporting
Responsibility
ers all worked within more a traditional
organizational structure, as indeed the
rest of the company still does. Sales and
Customer Service reported up through
the sales and marketing organization and
Credit reported up through the finance
side of the company.
But now Vogelaar has a bifurcated
reporting responsibility to the sales
and marketing VP and the other to the
financial VP and CFO. This is not a
problem, he says, because it’s all become
one “cohesive thing.”
“My two bosses have their own specialized interests in what the team is doing,”
he notes. “They’re the ones who had
to agree to do this, and I’ve always had
fairly strong relationships with both of
them. I consider myself to be a progres-
sive credit manager—not willy nilly pro
sales—although I’d take offense if we
were called the sales prevention department.
“What we’re trying to do is maximize
profits,” he continues. “And the way you
do that is by maintaining a good balance
between sales and credit. Because of that
there hasn’t been any significant tension
between the credit and sales functions.
We were able to transition smoothly because, prior to this reorganization, these
functions were already working smoothly
together.”
For companies where there is this tension, he believes there would be more
of a challenge in making this kind of a
transition.
We wondered why the word “Credit”
Continued on page 13
Credit Department - EMI CMG Distribution
At-a-Glance
Corporate Headquarters: Brentwood, TN
Credit executive reports to: Financial vice president and CFO and
to the Sales and Marketing vice president.
Staff size: Nine
Type of computer information system: Legacy
Major responsibilities: Leading the Customer Services and Sales Support Team in a fashion that assures maximum profitability and customer
satisfaction.
Main credit interchange group: National Christian Suppliers Credit
Group (administered by NACM Midwest)
Number of active credit customers: 1,000.
Major current challenge: Decreasing physical music product sales and
the continuing consolidation and contraction in the Christian retailer
market.
Biggest achievement: Helping create and lead this integrated team.
Professional publications read regularly: Credit Today; Customer
Relationship Management (www.destinationCRM.com); CRF’s The
Credit and Financial Management Review; Vendor Compliance Federation’s Business Credit Report
Prior to the restructuring, these staffMay 2010 CREDIT TODAY 9
Continued from page 1
Credit Insurance:
After Some Rough Years, Things Are Easing Up For Buyers
pened in the Recession, insuring those
kinds of dollars at those prices, you can
see why the insurance companies were
getting nervous.
“Now, as things are getting better and
credit managers are happier with their
insurers, it will go back to the way it was.
Insured creditors will see fewer of their
policies canceled, except those customers who everybody knows are about to go
down the chute.”
What Is
Insurable
If you buy, you have a cancelable limits
policy, which means
that the insurer
reserves the right to
cancel the limit at
any time based on
any information they
pick up that makes
them believe it’s a
bad risk. So you’ll get
a notice saying, “We
approved that limit
for $3 million on X
Company. We don’t
like it anymore. We
think it’s a bad risk.
So we’re coming off
cover on this date, after which you won’t
have coverage anymore.” Anything up to
the date of cancellation is covered.
So policy holders around
the world have been
slammed with a high
volume of limit cancellations, which naturally
upset them. It wasn’t
just on a couple of buyers. It was on a large
number of buyers.
No insurance is
supposed to cover
events with relatively
high probabilities of
occurring. Insurance
should be for losses
that you can’t predict
or afford, no matter
what you’re insuring. Credit insurance
is written either as
cancelable or noncancelable, and it’s
essential to understand the differences
between them.
For cancelable credit insurance the
basic premise is that carriers know more
about your customers than you do and
that they, therefore, should be the ones
making the credit decisions. A whole
turnover policy (WTO) covers all of
your credit sales—domestic, international or both. There is also Key Buyers’
coverage (usually the largest buyer) and
Single Buyer coverage. All of these
policy types can be bought on cancelable
or non-cancelable limits.
The most common type of credit insurance policies sold are WTO cancelable
limit policies, and, in the US, these
policies are offered primarily by Euler,
Coface and Atradius. You might say, says
10 CREDIT TODAY May 2010
Corbett, “I have $1 million in revenue to
insure. Here’s my list of buyers. Tell me
which you’ll approve.” They will look at
the top 20 and say, “We like 17 for the
credit amount you’ve requested and will
approve those. One we won’t approve at
all because we think it’s a bad risk. There
are two we’ll approve for half or two
thirds of the limit you want.”
“What happened for years is that you’d
get that occasionally, but you didn’t see a
tremendous amount of it,” explains Corbett. “So you might not have liked it, but
nobody got hysterical about it, and often
you could see the rationale for it. But for
the past 18 months, with worldwide economic distress, insurers have chosen to
protect themselves by being much more
aggressive in canceling limits.”
Through all the good years the carriers
for the most part would approve limits of
certain sizes in the absence of negative
information. When the losses started
to mount what they all did was look at
those limits and decide they were not
Frank Musto
good enough anymore. It couldn’t just be
the lack of negative information. They
needed financials—annual and interim
financials—otherwise they were sitting
on a time bomb.
So policy holders around the world
have been slammed with a high volume
of limit cancellations, which naturally
upset them. It wasn’t just on a couple
of buyers. It was on a large number of
buyers. Some said, “I can’t stand getting
these limits cancellations. I should have
a non-cancelable. I don’t care what it
costs or if the deductible is bigger.” But
getting non-cancelable credit insurance
isn’t that simple.
Non-cancelable coverage in the US is
offered by Ace, FCIA, Chartis (formerly
AIG), HCC, QBE and Zurich. Many
who have cancellable policies wouldn’t
qualify for non-cancelable coverage since
the underwriting perspective is very different.
As noted above, in a cancelable policy,
the insurance company’s position is that
it knows more about your customers than
you do. They will tell you when it’s a
good risk or a bad risk, and you have to
accept that.
In stark contrast, non-cancelable carriers underwrite your company. They
assess how good you are at managing
risk, how effective your credit staff is,
what kind of policies and procedures you
have, what kind of history of bad-debt
losses you have. You’ve got to be a pretty
high quality company in most respects.
Typically, they’re looking to underwrite
larger companies with very good credit
departments and very low bad-debt loss
histories.
The non-cancelable companies don’t
employ all the risk underwriters (equivalent to credit execs) that the cancelable
insurers like Atradius, Coface and Euler
do. These companies have thousands
of people around the world looking a
buyers’ risks. The non-cancelables have
a handful of people, relying on their customer base—the insured—to be experts
on their own customers.
Glossary of Key Terms
Cancelable insurance - Credit insurance carriers can write policies where
the buyer’s credit limits are defined as either “cancelable” or “non-cancelable.”
Obviously, cancelable gives the insurer the right to cancel a credit limit with
very little notice. The premise is that the cancelable limits carriers have more
knowledge about your customers and keep control in their hands
Non-cancelable insurance – In contrast to a cancelable policy, a non-cancelable policy provides coverage on buyers that the insurer cannot withdraw
coverage on. To be eligible for such a policy, you must meet certain strict criteria as defined by the credit insurer for them to be comfortable with your credit
risk policies and procedures. The onus of monitoring your receivables under
the policy shifts from the insurer to the insured.
Discretionary Credit Limits (DCLs) – When an insurance carrier offers you the flexibility to make credit decisions without their prior approval
this is known as your Discretionary Credit Limits or DCL. This is offered on
both cancelable and non-cancelable however will likely be much higher on a
non-cancelable limits policy. There will be terms and conditions to your DCL
coverage
The second part of a non-cancelable
policy is a much larger deductible. The
insurer is saying, “We’re giving you a lot
of autonomy, so we want you to share
more of the risk than if we were offering a cancelable policy.” In that vein of
autonomy, non-cancelable carriers also
provide large Discretionary Credit
Limits (DCLs) which enable you to
make credit limit decisions without prior
carrier approval.
Whole Turnover Policy (WTO) – This is a credit insurance policy that
covers all of your credit sales – domestic, international or both. It can be either
cancelable or non-cancelable.
So if you’ve got a non-cancelable policy,
you’ve got a large deductible, and you’re
going to have to take some losses before
you even think about making a claim.
Prudent Insured – This is a concept, particularly in reference to a noncancelable credit insurance policy on a customer, which requires you to act
prudently when confronted with obviously bad news about a customer. Even
though the insurer can’t cancel your policy, if you knowingly ship to a customer
that is obviously going down the drain, it may void the coverage. You must act
as a “prudent insured.” The concept is also in force on cancelable policies.
A non-cancelable policy means the insurance company can’t send you a notice
saying they think a customer is a bad risk
and you don’t have that limit anymore.
But the policy language still requires
you to be proactive in your credit risk
management, so the onus of cancelling a
limit switches liability from the insurance company to you (the insured). If
you see in the newspaper that a customer
just hired a chief restructuring officer and
has admitted they may be in violation of
Key Buyers Credit Insurance - There is a credit insurance policy that
covers a group of key customers, usually your largest buyers. It can be either
cancelable or non-cancelable.
Single Buyer Credit Insurance – Very similar to Key Buyers credit insurance, it does just as it says—covers a single customer. As with other policy
types, it can be purchased with either cancelable or non-cancelable limits but
non-cancelable is much more common.
their bank loan covenants, you can’t just
continue to ship saying, ‘I’ve got a noncancelable limit.”
The policy requires you to act as a prudent insured, which means you would
continue to ship on your own if you
didn’t have an insurance policy.
Would a reasonable person continue to
ship if all they’re seeing is bad news? You
get financials from a private company
and they’re not pretty. You must realize that having non-cancelable limits
doesn’t mean you’re free and clear to ship
no matter what is going on economically
in the big picture and for that company
Continued on page 14
May 2010 CREDIT TODAY 11
Street Buzz: Credit on the Move...
Christine Alix
Thom Beaupre
Steven Berz
Karen Brown
Bill Lovitt
Dave Panicko
Randy Perry
Michael Puccinelli
Mary Reschke
James T. Rimmer
Adam Ross
Jay Snyder
Dave Zahller
Christine Alix, CICP, Corporate Credit
Manager, The Chamberlain Group,
Elmhurst, IL is on the Board of Directors
for NACM/Chicago-Midwest.
Credit and Collections Manager, Klein
Tools, Lincolnshire, IL was elected to
the NACM/Chicago-Midwest Board of
Directors, for a term ending in 2013.
Thom Beaupre, CCE, Corporate
Credit Manager, Metal One America,
Inc., was elected to the position of
Chairman of the Board of NACM/Chicago-Midwest.
Dave Panicko, CCE, Director of
Credit and Collections, Unisource,
Itasca, IL is on the Board of Directors for
NACM/Chicago-Midwest.
Andy Stavrou
Randy Perry, CCE, Credit Manager,
Dearborn Wholesale Grocers, Chicago,
IL, is on the Board of Directors for
NACM/Chicago-Midwest.
Manager, Anixter, Inc., Mt. Prospect,
IL was elected to the NACM/ChicagoMidwest Board of Directors for a term
ending in 2013.
Michael Puccinelli, CCE, Director
of Global Credit & Collections & AR
at Verisign, Mountainview, CA, was
awarded CMA's Credit Executive of the
Year for 2010.
Jay Snyder, Global Credit Manager,
Shure, Inc., Niles, IL continues in his
role on the NACM/Chicago-Midwest
Board of Directors, with a term ending
2011.
Mary Reschke, CBA, Senior Credit
Collection Representative, Elkay
Manufacturing, Oak Brook, IL is on the
Board of Directors for NACM/ChicagoMidwest.
Andy Stavrou, Director of Credit &
Office Services at Ball Horticultural
Company, West Chicago, IL continues in
his role on the NACM/Chicago-Midwest
Board of Directors, with a term ending
in 2012.
Steven Berz, Manager of Credit Services, Syngenta Horticultural Services,
Lisle, IL is now serving in the role as
Councilor of the Board of Directors of
NACM/Chicago-Midwest, just finishing
his year as Chairman of the Board.
Karen Brown, CBF, Credit Executive, United Stationers, Deerfield, IL was
elected to the NACM/Chicago-Midwest
Board of Directors, for a term ending in
2013.
John LaRocca is now Director of Global Credit at Hitachi Data Systems, Santa
Clara, CA. He was a founder of Quote to
Cash Solutions LLC and formerly Senior
Vice President, Corporate Credit, Marketing and New Business Development
for CreditPointe, Inc.
Bill Lovitt, CCE, CICP, Corporate
12 CREDIT TODAY May 2010
James T. Rimmer, CCE, CICP, USG
Corporation, Chicago, IL, was elected
to the position of Vice Chairman of
NACM/Chicago-Midwest.
Adam Ross, CCE, Regional Credit
Dave Zahller, Regional Credit Manager, Smurfit Stone Container Corp.,
Creve Coeur, MO, was elected to the
position of Treasurer of NACM/ChicagoMidwest 
Continued from page 9
Working Well: Integrating Credit and Customer Service
appears nowhere in his job title. “We debated that when creating the structure,”
he told us. “Before we said it was Credit
Service or Customer Financial Services.
But then we had the sales side of what
we’re amalgamating together, which
had been called Telesales and Customer
Service. So it came down to figuring out
what it was all about.
Extending Credit
To Make Sales
“The reason we extend credit is to make
sales, and all of these things together
are really services that we’re performing
for our customers. Whether it’s credit
or its sales service, we’re not trying to
get customers to do something that they
shouldn’t do. We’re helping them and
enabling ourselves to make profitable
sales.”
says, “but the people-cost of managing
those customers is also down significantly. So we say we know we’re not keeping
tabs on those customers as closely as we
did, but it’s also costing us a lot less to
do that. We haven’t taken any bad-debt
losses.”
in the past, thinking that they probably
wouldn’t be that effective,’ he says. “But
I’m glad we tried it. It’s certainly not anything like 100 percent effective, but it’s
effective enough to help make up for our
inability to provide personal collection
service to all these customers.
Recently, they began supplementing
monthly statements and personal collection efforts with a mid-month dunning
notice, and they’ve liked the results
enough to begin using it with some of the
lower-balanced medium-sized customers
that the credit specialist is handling.
“Yes, collection is a service—you do your
customer no favor if you allow past-due
debt to accumulate into an impossible
situation!”
“We hadn’t employed dunning notices
0154-10 - Account Advantage - Credit
John Vogelaar can be reached at:
615.371.6938 or via email at jvogelaar@
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The company’s legacy computer system
is just as customized as the reorganized
department. “It’s old,“ he says, “but it’s
really been supplemented with plenty
of data extraction capabilities. Information in the system can be pulled out in
almost real time to data bases that can be
queried.”
Effective risk management is often
a complex and tangled process –
especially when it comes to managing
risk for business customers.
Before the transition, Vogelaar himself
was focused mainly on the credit and collections, but now he has less time to do
that. He’s “juggling a lot of things.”
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The organizational transitions, he continues, have had no significant impact
either positively or negatively on such
metrics as DSO because the majority of
volume has not been affected. “We still
have specialized people handling most
of our business,” he notes. “In terms of
customer count, the integrated system is
huge, but not as a percentage of volume.
“Since we’re not managing collections
with the smaller customers as closely, I
know that payments from those customers have probably slowed somewhat,” he
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May 2010 CREDIT TODAY 13
Continued from page 11
Qualifying for Non-Cancelable Credit Insurance
specifically.
Values Beyond Risk
Mitigation
“Beyond just trying to minimize risk as a
credit manager, I’ve always tried to look
beyond the numbers,” says Musto. “I look
at the benefit of cash flow. Some of these
values include the following.
Increasing revenues—You may be
leery about increasing your exposure to
certain accounts. You may say, “Well, we
don’t have enough information.” Or, if
you do have some financial information,
“I just don’t like the ratios I’m seeing.”
But if you have some credit insurance,
you’d feel more comfortable so you have
the benefit of potentially increasing
revenues.
Musto especially values the “comfort
level” credit insurance can provide.
“Let’s say we were doing $50 million in
sales comfortably, but I’d capped out on
the amount of risk I wanted on some of
those larger accounts. Now if I had credit
insurance and I could insure the amount
I was comfortable with, I can almost
effectively double the amount we were
doing before in terms of credit.”
Qualifying for NonCancelable Insurance
Generating new sales—There may be
accounts you haven’t sold to before, but
now you have credit insurance and you
may be willing to take the leap.
What can companies do internally to
qualify for non-cancelable insurance? “I
think they have to tighten their belt in
terms of the credit files they maintain
on each prospective account,” Musto
replies. “An insurer will look at historical information, at the payment track
record. If an account is having problems,
they’re going to get stretched out on AR
turnover, so historical information does
have some value.
Improving your borrowing capacity—The banks love companies to have
credit insurance because you have the
receivables or a basis for them, allowing
you to increase your advance rate under a
working capital line.
“If you’re able to get financial information you should do some ratio analysis.
Look at leverage, debt to equity. If it’s an
asset-intense company, look at what your
overall asset leverage is. You have to be
able to provide enough information for
them to make an intelligent decision on
whether they should extend credit.”
Agency reports are often inaccurate and
out of date, he continues, but at least
you get some corporate information
(e.g., who the players might be). If you’re
lucky and the company provides financial information, it gives you a basis.
Reach out and build a relationship with a
potential or an existing account and keep
good notes on file, he advises. That’s the
best information because, if you have a
relationship with an account, nine times
out of ten you may get somebody to give
you some inside information. That’s what
a credit insurer is looking for. They want
to know how well you’ve established
credit procedures and policies.
“You can build yourself into qualification for non-cancelable insurance,” he
sums up. “It takes a lot of hard work, but
it’s something that almost any company should be doing anyway. Maybe
it’s making it a bit more formal, but in
today’s world of electronics you should
put everything up on the computer. You
can easily do it on either Word or Excel.
If you have a somewhat sophisticated system, you’ll have modules that will keep
some historical data (e.g., AR turnover,
etc.) and build on it.
“Most brokers who sell these policies are
the eyes and ears, at least initially, for the
carriers. When you fill out an application, assuming it’s filled out honestly,
those are the type of questions that get
asked and that brokers need to filter
through before they submit.”
Contact Information
Tom Corbett: phone: 973-394-0523;
Email: [email protected]
Frank A. Musto: Phone 609-386-2500
Ext 6275; Email: Fmusto2gmail.com 
14 CREDIT TODAY May 2010
Leadership Profile Today
Credit Today’s Resource Directory and their
online e-mail forum (ListServ) provide information on almost any credit-related topic you
can think of. It is a great way to exchange
information with other credit professionals.
As the saying goes, “You don’t know what
you don’t know.”
Scott Goen
Credit Manager,
Big Lots Stores, Inc., Wholesale Division, Columbus, OH
Credit Philosophy
Be Proactive, Network and Follow up. My mentor taught me early on in my credit career that you
generate better results by being proactive. He also taught that strong leaders build networks and utilize
the networks to strengthen their skills and knowledge (i.e., NACM, Industry Groups, Credit Today’s
email forum, etc). Dealing with a global customer base, it is critical to establish credit risk classes for
each customer and then ensure that timely follow-up reviews are completed and risk classes updated.
Understanding the risk level of your AR at all times allows you to determine when to accept or reduce
risk and still provide proactive support in achieving your department and company’s goals. Being proactive doesn’t stop with Credit. Make sure you become an active partner with sales and management.
Be proactive in your communications and take steps to prevent reactionary situations.
Personal
• Resides in Columbus, Ohio
• Married 35 years and have known my wife 51 of my 56 years.
• 2 Children, 3 Grandchildren
Career Highlights
• Credit Manager, Big Lots Stores, Inc/ Wholesale Division, 2001-present
• AR, Collections, Credit and Process Flow Consultant, GSG Consulting, 2000-present
• Started up a health and wellness business partnership, Wellness Tech International, 1999-present
• Director of Credit and Collections, CoreComm, 1997-1999
• Vice President of Operations, American Collection Systems, 1995-1997
Interests & Hobbies
• Health and wellness
• Travel
• Investing
• Working with people to help improve their quality of life
• Speaker
Professional
• Member of the NACM Great Lakes Region Central Ohio Planning Committee
• NACM-Ohio Credit Executive of the Year
• Chair of the Central Ohio NACMOhio Planning Committee
• Board of Directors for NACM-Ohio, including Chair of Budget Committee and Chair
of Compensation Review Committee
May 2010 CREDIT TODAY 15
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