Back in the early 1990s, Inland Container Corporation (Indianapolis, IN) began acquiring a number of specialty packaging companies. The idea was to provide more value-added service to its customers via improved packaging technology, and one consequence was that additional requirements were placed on the credit function.

"As we acquire new companies, we must adjust to different accounting systems and computer systems, integrate personnel, develop ways to cross-reference customers, compare operations, and learn from each other," notes Corporate Credit Manager Stephen Rutledge, CCE.

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

Resisting any temptation to exercise an "iron hand" in managing subsidiary operations, Rutledge has instead found greater success with flexibility. "What works for us in our market may not necessarily work for other companies in their markets," he explains. "What has worked best for us is studying each subsidiary and joint venture arrangement individually and selecting the best approach for each. It really requires a team effort."

So when Inland Container purchases a new company or engages in a new joint venture, Rutledge focuses attention on a number of things, the four most important being the following:

1. The market. "The first thing we look at is the market the new company serves," he says. "While we may eventually make some changes over time as we gain a better understanding of that market, we try not to make any radical changes right away in how the subsidiary's customers are handled from the credit perspective."

2. The people. Next, he looks at the talents, skills, and abilities of the people in the subsidiary's credit department and makes sure they are well matched to the market they are serving and to the goals Inland Container is trying to achieve.

3. The accounting systems. It can be very challenging to adapt to the different accounting systems under which newly acquired subsidiaries operate. Some issues Rutledge investigates:
   • What is the company's philosophy of sales and credit? (How much risk is it willing to take?)
   • Does it have written credit policies, mission statements, and objectives?
   • What is the company's credit application like?
   • How does it apply cash?
   • How does it handle adjustments?
   • How does it handle chargeoffs?

   "We then compare our philosophies, policies, procedures, and systems with theirs and determine the best overall approach for the subsidiary," he continues.

   In some cases, Rutledge may leave the subsidiary's credit process virtually untouched, if it is already fully meeting the needs of its customers and the goals of Inland Container. In others, he may prefer a "blending" of the two departments to bring it more in line with overall goals and service needs.

4. The technical systems. At the same time Rutledge is investigating the link between the accounting systems, he also studies the subsidiary's technical systems. The options he considers are either replacing the department's entire system with the one Inland Container uses or establishing a data link between the two systems initially so that the two departments can communicate with each other on a day-to-day basis. "This might be as simple as a modem dial-up so that we can check their customer lists and identify any common customers," he says. "At some point, though, we must be able to exchange information quickly, so we must eventually get on a common system."

• How the subsidiary handles its market and customer base.
• How large a customer base the subsidiary has.
• How expensive a full conversion would be.

In some cases, link-ups are relatively easy, if the two companies have similar or compatible systems. In other cases, it can be difficult. "We have to determine whether there will be phone line problems, mainframe problems, and so on," he explains.

Fortunately, though, Rutledge can rely on his company's MIS department for assistance. "We discuss the kinds of technological links we need, then our MIS department works with the new subsidiary's MIS department."

Ongoing Coordination
Once the initial compatibilities and changes are determined, the subsidiary's department is usually allowed to run somewhat autonomously. (In most cases, a controller at the subsidiary company has responsibility for the operation of the credit department. This controller has solid-line reporting responsibility to the subsidiary's president and dotted-line reporting responsibility to Rutledge.)

Every Monday morning, the subsidiaries fax their weekly agings to Rutledge for review and analysis. "We graph the data each week, focusing our primary attention on the percentage of total receivables over 30 days past due," he says. "This is one way we assess their performance on an ongoing basis." In addition, Rutledge has been scheduling an annual meeting that all controllers attend. "During these meetings, we review our corporate credit manual and discuss any other issues of mutual importance."

"What works for us in our market may not necessarily work for other companies in their markets."

"At some point we must be able to exchange information quickly, so we must eventually get on a common system."

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.

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