Until recently, American Tool (Lincoln, Nebraska) was doing a substantial amount of business with a major customer. "This company was discounting every bill every month," reports Credit Manager Mark H. Wittman, CCE. "They didn't seem to be in any trouble."

Then at a credit group meeting, Wittman heard some suppliers expressing concern about the way this customer was paying them. He immediately investigated and discussed his findings with management, which elected to cut its exposure with the customer in half.

"That customer is currently in a workout situation," he says. "Had it not been for the credit group, it would have been too late for us to do anything to protect ourselves."

Joining the Group
Wittman joined American Tool from a completely different industry--a challenge compounded by the fact that he became responsible for receivables roughly 10 times greater than those of his previous company. "I came into this job lacking some confidence and somewhat in awe of the responsibilities I was taking on," he admits.

One of the first steps he took was to join the National Tools & Accessories Credit Group (affiliated with the National Association of Credit Management). (Editor's Note: To help find a group that might be a good fit your firm, see our Directory of Credit Groups in our Online Resource Directory.) He was looking for several things initially:

• a better understanding of his new industry,
• an opportunity to network with other, more experienced credit professionals in his industry, and
• some confidence that the way he was running his department would meet the needs of his company.

A lot of credit people join credit groups and remain members in name only -- Mark H. Wittman, CCE

He quickly found all of this, plus a lot more.

Activity
"A lot of credit people join credit groups and remain members in name only," Wittman notes. "They receive copies of the group's reports, but they never attend any of the meetings. Such an approach may look good on a resume, but it has little tangible value.

"The only way to really get the full value of credit groups is to attend the meetings, participate actively, and make the effort to get to know the other members professionally and personally. In fact, if you participate actively, you can't help but benefit."

Wittman learned this early, and volunteered for positions on the board and committees of the credit group. (He is now past chairman of the National Tools & Accessories Credit Group, and he also participates actively in other related credit groups.)

Ethics
While active participation is an indispensable key to success, maintaining the ethics of the group is equally as important. When it comes to talking about common customers, credit groups have one purpose and one purpose only: to discuss historical activity of the customers. "We talk only about past experiences," Wittman emphasizes.

Members do not talk, and are not allowed to talk, about what they plan to do with their customers and/or what they think other members should do with them. "Even if this kind of discussion were legal - which it's not, because of antitrust laws - discussing future plans, activities, or recommendations is not the purpose of the credit group," he continues.

Members of the group realize the topic of discussion is a "sacred trust" and that using any information shared in the group unethically or to the detriment of any other group member would quickly spell the downfall of the group, according to Wittman.

Since the group is administered by the NACM, an administrative representative from the association reads the antitrust statement prior to the members' discussing customers. "The representative also makes sure that members don't tread on shaky ground when engaged in their discussions," he adds.

Maintaining this level of integrity is also important in convincing many members of company management to allow their credit managers to join credit groups in the first place. "Some company managements who aren't familiar with how credit trade groups operate express concern about their credit managers being in the same room with managers from competing companies and discussing mutual customers," notes Wittman. Explaining how the meetings operate can allay these concerns.

Customer Information
While the initial benefits of joining a credit group revolve around gaining general information and confidence about the industry and getting to know peers (which allows later networking), the most substantial benefits come from learning about mutual customer activity.

Wittman discusses the process he uses:

1. Since American Tool is a primary supplier to many of its customers, and other members of the credit group are often secondary suppliers, these secondary suppliers are often the first to become aware of a customer getting into trouble (since the customer, if it's getting into trouble, is likely to start paying its secondary suppliers slower than its primary suppliers). "The customer may seem to be paying us fine, because we're a primary supplier," observes Wittman.

2. If Wittman hears from some secondary suppliers (or any other suppliers, for that matter) at the credit group meeting that a certain customer has been paying slow, he will pull that customer's file upon his return to the office. If he does not have a recent D&B report and customer financials, he will order the former and seek to obtain the latter. He will also closely examine the customer's payment trend to see if he can spot an adverse trend that he hadn't noticed before. Often, he can.

3. If the payment trend, D&B report, and/or customer financial statement seem to indicate a problem, Wittman will meet with members of his company's management to discuss the situation. Together, they will make a management decision on what course of action to pursue with the customer. It may be

• keeping an eye on the customer and the trend,
• calling or visiting the customer,
• reducing credit line exposure, and/or
• cutting the customer's credit off completely.

4. If Wittman believes the situation warrants a call or visit to the customer, he does not reveal the initial source of his concern (the discussion at the credit group meeting). Rather, he points to

• the newly discovered slow payment trend with his company,
• the new D&B report, and/or
• the customer's most recent financial statement as his cause(es) for concern. (Again, in most cases, one or more of these will reveal a sufficient cause for concern.)

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006.