One of the most proactive things that you can do as a trade credit manager right now is to monitor your customers' banking relationships. This week's tip is courtesy of Mike Rodgers, now the senior vice president at FINACITY, which is in the business of buying, securitizing, and servicing A/R portfolios. In addition to his current role, Mike had over 20 years of experience in credit, including vice president at Georgia Pacific.

Rodgers was not talking about the traditional method of contacting your banker and having him go get a bank report.

Instead, he believes that it is essential now for trade credit execs to really understand the bank agreements, to actually read them and understand the triggers, and then manage the covenants and triggers just like the bankers do.

But there is still a wild card.

These days, you don't always know what bankers are going to do.

Rodgers tells us that with their banking relationships, they sit down with the people who are in charge of the asset-backed lending at the various banks, and talk about what is going on. You may not have the resources - except with your very largest customers - to go that far. But it demonstrates the importance of this.

Because of the conservatism on the part of bankers in today's environment, bank customers are now preemptively drawing down their lines. They may not need the cash now, but they are drawing down on banks simply because banks have the cash, and they're worried about banks cutting their lines.

So banks, in reaction to that, are putting new requirements in place going forward so companies can't do that. They will actually be penalized if they draw down on cash. Banks are are going to be looking at how customers use the cash because they have to. They are being tapped out.

This is different than anthing we've seen historically, and Rodgers believes that it is going to be a risky, risky time for the next 24 to 36 months, before things settle down.

So the message here is: with customers of any consequence - you need to intimately understand and monitor their banking relationships.

Related Articles

·  Survey Reveals Opportunities to Optimize the Value of Bank References ·  Credit Today Office Debate: The Pros And Cons of Bank References ·  Checking Bank Credit ·  Bank Has Lien on A/R - Can It Grab A/R Proceeds Paid to Suppliers? ·  Tips For Getting Financial Data From a Reluctant Customer: What to Ask; How to Ask ·  Average Time to Approve a New Order - By Business Type