credit

Our friend from the government is here to help us-now we’re in trouble!

May 21, 2010 by admin Leave a Comment

Our friend from the government is here to help us-now we’re in trouble! Washington weighs in on consumer protection-but missed the real boat

Yep, it’s an overly long title, and an extremely serious topic. The president and congress are now taking steps to protect us (God help us) from the “Big Banks.” Well it was about damn time! Let me clue you in, the mortgage –housing problem is only half the problem, the proverbial other shoe is unsecured credit card debt, let me cite you a few statistics: (thanks to www.creditcards.com).

• Average credit card debt per household with credit card debt: $15,788*
• Total credit cards in circulation in U.S: 576.4 million, as of yearend 2009 (Source: Nilson Report, February 2010)
• Total debit cards in circulation in U.S: 507 million, as of yearend 2009 (Source: Nilson Report, February 2010)
• Average number of credit cards held by cardholders: 3.5, as of yearend 2008 (Source: “The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston, January 2010)
• Average APR on new credit card offer: 14.10 percent (Source: CreditCards.com Weekly Rate Report, May 2010.)
• Average APR on credit card with a balance on it: 14.67 percent, as of February, 2010 (Source: Federal Reserve’s G.19 report on consumer credit, May 2010)
• Total U.S. revolving debt (98 percent of which is made up of credit card debt): $852.6 billion, as of March 2010 (Source: Federal Reserve’s G.19 report on consumer credit, March 2010)
• Total U.S. consumer debt: $2.45 trillion, as of March 2010 (Source: Federal Reserve’s G.19 report on consumer credit, May 2010)
• U.S. credit card 60-day delinquency rate: 4.27 percent. (Source: Fitch Ratings, April 2010)
• U.S. credit card default rate: 13.01 percent. (Source: Fitch Ratings, April 2010)
Total bankruptcy filings in 2009 reached 1.4 million in 2009, up from 1.09 million in 2008. The vast majority were personal bankruptcies — Chapter 7 and Chapter 13. Business bankruptcies made up 6 percent of all filings. (Source: AACER, the American Bankruptcy Institute, January 2010)
Clearly the American Consumer is in trouble, but why?
Americans at least the vast majority of Americans are decent hard working extremely giving people, just take a look at charitable giving, the world has never seen, nor will it ever see again, a people so enormously generous. According to the National Philantropic Institute 89% of American households give. (Thanks to http://www.nptrust.org/). This is part of the American psyche hardworking and giving, so it is extremely unlikely if you buy off on my presupposition of the American psyche, that Americans would be ducking their obligations. The reason is that Americans are not able to pay.
This brings me back to primary theme of this blog, small to medium business, entrepreneurship, and jobs. What America and Americans needs are jobs and they are not going to be provided by big business or labor unions. What is needed is a leg up for the small to medium businesses of America not another regulatory commission for greedy bankers. The main idea is that Americans should not need credit cards in the first place and if there were enough decent paying jobs, the need for credit cards and it’s new regulatory commission would be moot.

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How to improve your businesses commercial credit appeal

March 10, 2010 by admin Leave a Comment

How to improve your businesses commercial credit appeal

So how can your business increase its credit appeal to other business from which you want trade credit terms? The best way is simply to make it easy for the Credit Manager or Credit Analyst to say yes. As was mentioned before paying your invoices on time is an important step, but there are other factors as well. Part of these relate to how important a particular supplier is to your business. Let me give an example:

Suppose you set up a small manufacturing business selling (you hope) the world famous “Whoitz.” In order to make the “Whoitz” you must have parts for it which mainly consist of the “Whatitz”, the “Wigget”, and the “Watchyamacallit.” Suppose a freight company who you contacted to ship your “Whoitz” wants to do investigate your credit. If all you list on your trade references are such businesses as office supply, quick printers, and the like-these are called weak references. They are not major or vital business partners and could be fairly easily changed if there was a problem. The person analyzing your credit wants to know how you pay your major suppliers-this is called the payment hierarchy and for your business, the suppliers of “Whatitz”, ” “Wigget,” and “Watchyamacallit” will stand first in the payment line because their products are vital. A company supplying paper and pencils will be at the end of the line and seasoned credit people know this. A perspective supplier will try to predict where his company will stand in the payment line, so when its time to pay bills, make sure your major suppliers, and other vital services like power and light, stand first in line. This makes financial sense.

You may also have a sheet of credit references prepared: printed, faxable, and E-mailable. As was mentioned in another article, you have already started building a business relationship with your major trade credit people and your business banker. Everything from a credit standpoint is in order and easily found, and in a professionally provided format. This makes your business appealing to a credit person, and makes it more likely that they will grant your credit terms request.

Dealing With Dun & Bradstreet – Part Two

March 9, 2010 by admin Leave a Comment

As was mentioned in part one, a new business owner will eventually encounter the good people from Dun and Bradstreet who can be quite aggressive in trying to get information on your business. Some small business owners consider this “none of your business,” but viewing D & B in this way is to immediately start heading down the wrong road. Instead, a better view point is to view your Dun & Bradstreet report as a marketing tool for your business, produced at D & B’s expense!

What this does not mean is giving Dun and Bradstreet everything that they want (or falsifying information which is actually a crime). It does mean giving D & B the information you want them to have! For example, if you have opened an auto repair service, have worked many years in the field before at a major garage, and sponsor a racing team, this shows a commitment to automotive industry both for work and leisure, that’s excellent press! This is a part of what D & B calls the ownership antecedents (your work history).

Continuing with the auto garage theme, if your company pays an auto aftermarket supplier like Jasper or Target like clockwork, list them as trade references (although large companies like this probably report via electronic trade). Know who the credit manager or credit analyst is and have their phone, fax, and e-mail ready. In fact, have a credit sheet prepared that you can give the D & B reporter, or fax or email in to D & B. Also have a bank reference with a business banker who is willing to talk to either D & B or your potential supplier’s credit department. This makes your new business look professional. Know what these people are going to say before you hand this information out by building a good relationship with them as was mentioned in part one. (When I was a senior credit analyst for a Fortune 50 company, I had a medium size business owner who called me every month to make sure that his accounts payable was paying within terms, and that I could in good conscience speak well of his company).

If your company has financials that are solid (ask your accountant how your companies balance sheet and income statement would look to a potential supplier), submit them to D & B who will then run some ratio analysis, and then tell the world how financially solid your small company looks. If your financials do not look that strong at the time, politely defer them for a later time.

Taking these steps can help your small company grow and add to its financial prestige, and the best part of it, Dun and Bradstreet helps you pay for it!

Dealing with Dun & Bradstreet, Part One

March 7, 2010 by admin Leave a Comment

As a new small business owner, one generally starts out with a great idea for a product or service, a lot of drive, and hard work. Sooner or later, however, your business, a supplier, or a customer is going to “run a Dun & Bradstreet report” to find out your company’s financial standing. This inquiry is generally generated by your customers purchasing department to make sure that the partnership will financially be able to smoothly continue, or a supplier’s credit department to ascertain if it should extend credit terms.

Its is becoming routine for your potential customer to request (from their own in house credit department) a Dun and Bradstreet report (or D & B) because they want insure that your company will be able to deliver goods and services in an ongoing business relationship in a timely manner. It is very important for many customers, who rely on “just in time” deliveries to know that their supplier is not going to be placed on credit hold and thus collapse their supply chain, perhaps shutting down their production lines. This can cause late deliveries to their own customer and an unhappy work force (who might have been sent home early do to lack of parts or production materials).

If your company is applying for trade credit from a supplier, looking up a D & B report is routine. In a medium to large company, this is usually done by a Credit Manager or Senior Credit Analyst. In a small company, it might be done by an accounts receivable clerk. In any case, the first item looked at will be the composite credit rating. The rating has two components: the Financial Rating Classification and the Composite Credit Rating.

The Financial Rating Classification is the financial size of a given company based on its Net Worth reported on its balance sheet. These ratings start at HH for a very small company to 5A for a huge company like Microsoft. This rating helps the analyst to determine a company’s ability to pay its obligations. There are other ratings but these are most routine.

The Composite Credit Rating is a measure of a company’s willingness to pay its bills. This is information is gathered from your company’s suppliers who report to Dun & Bradstreet (and very many companies do). This is a rating from 1 to 4, one being the best and four being very limited.

As a small business owner, you want to cast your company in the best possible financial light. The simplest way to start is to pay your invoices on time and when you can’t, you need to make an ally of your supplier’s credit person. These people can grant your more time to pay and might even consider the invoice paid on time if approached in the right way. The best way to do this is to be pleasant and communicate with them in a timely manner, and not wait for them to call and “collect” on the invoice.

Continued In Part Two.

Small Business Credit Crunch Deserves Attention

December 10, 2008 by Etha Walters Leave a Comment

Frustrations grow as the nation’s big three auto makers line up for another $17b. As the federal government focuses on damage control at the macro-economic level, it has ignored the micro-level small businesses. Meanwhile small businesses with stellar 800 credit ratings out of 850 cannot get a loan or their credit line has been reduced. Some economically respectable small businesses have had their credit lines cut in as much as half. Despite the fact as large companies are downsizing and outsourcing, small businesses have become the principal job generators in this country, accounting for almost all the net job gains in the United States.

A credit crunch on this job-generating sector of our economy should be a key part of any economic recovery plan and small business advocates have approached Washington on this very issue. Their quest was to meet with the Federal Reserve to ask for a relative pittance, $13 billion in bailout money, to go to the Small Business Administration to guarantee loans and provide small businesses with technical assistance. The SBA has had its budget slashed drastically over the past 30 years and by nearly 30 percent during the current president’s terms alone. Their quest is a hopeful one as their hard work may leverage as much as $620 million for small businesses if a bill authored by Sen. John Kerry to provide SBA loan guarantees is passed and signed into law.

Entrepreneurs, along with the rest of the country, await the inauguration of a new President with an ambitious agenda. Obama’s inheritance of a badly wounded economy has become first priority and has already with his experienced team set down to put plans to work. Two important elements will undoubtedly be job and economic growth. President-elect Barack Obama and the new Congress are likely to view an economic stimulus package as a critical tool for restoring confidence in the economy.

The stimulus package expected pass, likely to hit $300 billion, and it is possible that a piece of it is passed before President George W. Bush leaves office. It is expected to see aid to states and cities facing budget shortfalls, extended unemployment benefits and food stamps, and big infrastructure spending. Overcoming pessimism that currently overshadows the markets and economic decision-making will require some symbolic moves. It is encouraging that so far, the President-elect seems to be surrounding himself with experienced advisers, many are from the Clinton Administration, who are seasoned pros who have been there and who understand the importance of business.

While help with the economy slowly trickles down to small businesses, cutting costs and pinching pennies can be stressful, and could use some support along the way there is no doubt that the resilience of small businesses is the steadfast heartbeat of America at it will survive.