Ship and Hope syndrome
January 5th, 2011How important is it to have a strong credit department in today’s economy? I just received a large order from a local company – should I take it?
This is what I call the “ship and hope” syndrome. In other words, fulfill an order; ship the product and “HOPE” to get paid. I would estimate that over 90% of our clients failed to have the proper credit review procedures in place before funding with us. In today’s economy, not knowing the credit (payment history) of your clients is a recipe for disaster.
As a factor, we are constantly monitoring the credit strength of what we call the debtor (the entity making payments on the invoices). Due to the large volume of invoice payments received, we use a number of credit reporting agencies as well as credit insurance companies to help us in making funding decisions. By virtue of being a Millennium client, our clients have access to highly sophisticated credit reports, information that would most likely, be unattainable on their own. Whenever a client is in receipt of an order from a “new” customer, they simply fax over a copy of the purchase order (or like) to their account executive and within a short period of time, a complete credit history will be provided along with an approved funding limit (or declination) from Millennium. “It is better to have never shipped at all than to have shipped and never been paid”
Factoring is not only a solution for working capital and cash flow needs, but also a way to make solid credit decisions in the future.