Where Is Your Company On The Food Chain?

Learn your company's position in one of three selling channels

Dorman Wood, CEW, CCE President DORMAN WOOD associates, Inc. www.Witness4U.com Witness4U@msn.com 719-641-0169

This may seem like an off-the-wall question for credit professionals to contemplate. However, given today's economy, it be relevant to many.

Your company, regardless of industry, products produced or distributed, annual revenues, market share or profitability, has a place in the "food chain." Or, stated in other terms - your company is positioned in one of three selling channels: first or top-tier, second or middle-tier and third or bottom-tier. The position your company holds within this framework directly affects or perhaps even dictates the manner in which you carry out your daily responsibilities.

In speaking with a number of senior-level credit professionals on this subject, all had a slightly different definition of the sales channels. All did agree, however, that it was important that credit professional know the exact position of their respective companies.

DEFINITIONS:

First or Top-Tier: A company selling within the first or top-tier sales channel is typically a manufacturer, OEM or large distributor. Such companies sell to a customer base which usually includes large corporate end-users, OEM's, federal government agencies or large national or international distributors.

Second or Middle-Tier: A company selling within the second or middle-tier sales channel usually has a customer base consisting of systems integrators (sometimes referred to as VARS - value-add resellers), medium-sized corporate end-users, state government agencies and regional resellers.

Third or Bottom-Tier: Companies surviving in this sales channel sell to a customer base generally made up of small corporate end-users, partnerships, sole proprietorships, small systems integrators and local government agencies.

THE CHALLENGE... Your company's position "in the food chain" may likely determine many aspects of your work day; staffing, technological tools - hardware and software, policies and procedures to name just a few. The following scenarios describe how a credit professional's work may vary depending on their company's position "in the food chain."

First or Top-Tier Company: A First or Top-Tier Company will typically have annual revenues of 500 million or more. It will be a manufacturer, OEM, large reseller or distributor. Its customer base will be global and normally consist of fairly large, well-financed firms that pay their debts within terms. Payment deduction management may be a major issue rather than collection problems. However, The credit professional who is currently employed by one of these firms will probably find him or herself faced with the challenge of "doing more with less". No doubt their firms have experienced staff reductions as have many others. While it may seem like a cruel statement, staff reduction is not always a bad thing. Often, it is as an opportunity to shed employees whose work quality and quantity has fallen below required standards. Standards, which have also required revision in the face of our changing economic conditions. Staff reduction is also an opportunity to seek out methods of working "smarter" instead of "harder." While budget constraints may exist for staffing, money is often available for software. Software platform solutions for credit functions have become more plentiful over the past year. Software for credit decision making (credit scoring), collections, billing settlement, cash application, accounts receivable portfolio management and data imaging/document management. Vendors of such software solutions include firms such as C/Lect Consulting, Credit & Management Systems, Inc., e-Credit, GetPaid Corp. and Dun & Bradstreet (RAM). Outsourcing of various everyday credit functions such as credit application processing, deduction management, letter of credit processing or collections may also play a large role in this credit professional's effectiveness. The credit policy and procedures of the First or Top-Tier company may be more lenient than those of other level firms. As an example, credit lines may be automatically assigned to new customer accounts up to an arbitrary level without any credit investigation being completed. Companies that fall into this category may have fewer competitors. Therefore, their terms of sale may be more stringent. Credit professionals employed within this environment will usually have the opportunity to attend frequent educational programs and/or conferences.

Second or Middle-Tier: The annual revenues of a Second or Mid-Tier firm are expected to be between 100 and 500 million. A company in this category can be a manufacturer, OEM, reseller or distributor. This company's customer base, will be predominantly domestic, although it will include some global buyers, who will probably be less well financed as that of the First or Top-Tier firms. Such customers will tend to pay their bills on average 10 to 20 days beyond terms of sale, forcing their suppliers to finance their purchases, rather than using any available bank credit line. The credit professionals working in this environment may well face challenges unknown to those employed by First or Top-Tier firms. Budget constraints may be tighter for personnel and technology, challenging the credit professional's creative ability to "do more with less." These firms however, may be prime candidates for outsourcing of credit functions such as collections (which could be as simple as a vendor generating a collection letter series) or deduction management. Competition in this business category is considered to be keen. Credit policy and procedures developed and followed by these firms must be flexible to meet the demands of competition and the decision making process must be quick. Terms of sale will typically be more lenient and "special" terms for competitive reasons are common place. Credit professionals employed in this environment may have less opportunity to participate in educational programs and/or seminars, workshops or conferences.

Third or Bottom-Tier: Annual revenues of firms in this category typically are below 100 million. Third or Bottom-Tier companies may be small manufacturers, OEMs, VARs, resellers or distributors. Their customer base would be predominantly domestic consist of end-users (consumers), smaller resellers or distributors (usually regional or state-wide). Many credit professionals working for firms in this category consider themselves to be engaged in "trench warfare." Competition is fierce and business seems to be conducted with a "no holds-barred" attitude. The customer base of a "Third or Bottom-Tier" firm will be under-financed, generally pay debts 20 - 30 days beyond terms (openly expect vendors to act as banks) and demand best pricing for goods and services. Credit policy and procedures are the exception rather than the norm among these firms. Procedures tend to be verbal and often