to eut credit'"loes@"

r1r HIS is no time to let a customer I overextend his credit or give credit to a customer in shakv financial condition.

customer delays for that long, the chances of getting anything are practically nil. When you allow a customer to delay payment, you are setting up your company for a loss."

Credit managers need to set a cutoff limit for credit for eachcustomer. The point above which credit will not be granted must be vigilantly maintained to avoid risk for the company.

Although credit managers follow various guidelines to determine the credit limit for each customer, trade references, purchasing needs and financial conditions seem to beconstants in the building material industry.

"Credit lines are reviewed on a daily basis," notes the general credit manager at a large chain. "l get reports every day. We put a red flagon anyaccount that is within l00lr of the credit limit."

count as well as obtaining a credit report.

One large lumber company typically extends credit in amounts between l0-15% of the company's net worth on an unsecured basis with no lien rights or stop notice rights. The exact dollar amount set depends on the company's financial capacity.

H"l get thls information from audited finarrcial satoments. Dun & Bradstreet ratings and fiade references frmr the credit association as well aq the number of years they have been im b+siness." the v.p. and credit manryeFsay$. "lf they haven't been in business very bng or fun't have any audited financial statements, I am hesitant to give credit without some kind of guarantee."

He uses credit insurance to justify anunsecured credit line or when the amount of credit required is more than the company's net worth warrants.

One building materials retailer, who servessmall contractors and remodelers without sophisticated accounting systems, reviews bank statements and unaudited financial statements, the company's working capital and trade references to make his credit decisions.

Story at a Glance

Credit managers offer tips on howto draw credit line Points to consider before granting cre' dil waysto limitfinancial risks for your company.

"Credit professionals often allow customers to delay paying on their accounts, but when we wait too long, we may find that account has gone into bankruptcy," comments the credit manager for a large retail lumber company. "We're all guilty of allowing a customer to delay for up to 90 days. In my experience, when a

Another credit manager requires all those seeking credit to complete a comprehensive credit application. This company requires at least four trade references with two from within the building materials industry. "Current trade information is essential, but we also look at how long the company hasbeen in business," he explains. "lf there's no trade information, we work with the customer on a C.O.D. basis."

His company also submits the credit references to a building industry credit association for verification. This enables him to discover if anyone has had a problem with the ac-

Calling himself conservative with credit limits. he notes that "if they're asking for credit up to $2,000, we extend it with less of a profile. Amounts between $2,000 and$5,000 depend on their financial condition and history. Anything over $5,000 is granted on a job basis."

He summarizes the credit inspection as "looking at the three C's of credit: Capital (the company's financial condition), Character (how they pay other suppliers) and Capacity (business potential and potential for bringing other business to his store) "

Regardless of the methods used, credit managers recommend being cautious and keeping risks at a minimum.