The financial supply chain bubble is bursting… You’ve been more focused on the lack of physical inventory but probably haven’t realized that you’re teetering on a precarious cliff of losing the buying power you once had and won’t have the credit to continue buying from your existing vendor base. This problem caused a large furniture retailer to lose $59 million in purchasing power overnight.
HFA’s CEO, Mark Schumacher, addressed this impact to furniture retailers with Michael Baron, President of Baron & Associates (specialist in credit forecasts & accounts receivable protection), Michael Hudgins, Managing Director of CIT Commercial Services (a top 50 U.S. bank), and Larry Furiani, Vice President of Dealer Relations eCommerce at Coaster. 5 big takeaways for retailers were:
1. Are you at risk of losing credit?
Your ability to utilize credit to complete purchase orders may be seriously at risk.
“Many retailers that obviously had the ability to pay on a timely basis, but knew from an operational standpoint, it made sense to conserve cash.”
For most of this year, retailers were not paying anything that wasn’t essential. Insurers noticed the failure to make payments and acted accordingly. Retailers may not have realized they were hurting their, their credit standing, or any of, that they were thinking survival.
2. Communication is key
“The seller, you know, whoever you’re buying from, your credit is important to them.”
You need to proactively contact your suppliers, develop relationships, create open communication. Retailers that have been transparent with their suppliers were able to keep a strong relationship and not hurt their credit potential.
3. Make sure you’re insured
Manufacturers have ways to protect their biggest asset receivables, by self-insuring, or outsourcing that.
“A manufacturer or distributor can use an insurance policy (trade credit insurance) to protect receivables and its open term sales to 100 retailers, but it is possible that none of those retailers would know that they were being insured. If those limits were reduced or canceled, it wouldn’t materially affect their ability to buy on open terms from the manufacturer.”
Ask your supplier if you are being insured and share your situation proactively.
4. Your credit is being reviewed
Suppliers must evaluate or outsource the risk and then manage the collections. “The best thing to do is to assume that someone is looking at your credit and making a determination to extend credit or not.”
“Adopt a strategy for the maintenance, and hopefully the enhancement of your creditworthiness.”
5. Liquidity is king
The less you have in the business, the more credit you need. “If you build liquidity, then your credit needs are less, and that certainly puts you in a better position.”
Over most of 2020, the companies that adequate liquidity, we’re able to weather the storm much better and retain their buying power.
View the full conversation on how to navigate your credit risk and protect your buying power here.