Flimsy Excuses
"There was a dead cat in the mailbox, so I couldn't send my check." If there is ever a contest for the most outrageous excuse for non-payment, Laura Pepper, director of corporate credit for Valspar Corp., should win, hands down, for her "dead cat in the mailbox" entry. She laughs, recalling the incident, "Like that was the only mailbox in the area!"
Minneapolis-based Valspar is somewhat different from many large manufacturers, in that it has a very diverse customer base, from the standpoint of size: from two- to three-store retailers to huge industrial accounts. So credit management has to be more flexible than most, and must deal with customers whose financial problems are at the level of the "dead cat in the mailbox," as well as a market shift causing a temporary cash flow crunch for a multimillion-dollar enterprise.
Valspar manufactures a wide variety of consumer and industrial products: household paints, special coatings for the inside of food cans and the outside of golf balls, coatings for building products and appliances.
The company acquired Lilly Industries, Inc., and the combination moved Valspar up to $2 billion in sales and a rank of #6 in the paint-and-coatings field, up from #8.
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Analytical Approach
Credit-granting and collection is quite clearly a major factor in Valspar's success formula. Pepper takes an analytical approach to each new customer. "The salesperson has already been dealing with this potential customer and can give us information about the volume we may expect and the risks involved, but we need to go through the usual credit information channels, agencies, references, NACM, and then arrive at our own decisions. It is a matter of gaining all the background information we can."
Character is part of the credit-granting picture, especially if this is a start-up company. But Valspar wants to know what organizational expertise the founders have. Usually start-ups are formed by people with backgrounds as employees. Were they involved in upper level decisions in their previous employment? Or, has the role been more passive?
The decision about credit has to be carefully made, customized, and documented. "Cash flow is very important," Pepper stresses. "That's why terms are discussed and established at the time of the sale."
Terms are standard: net 30. "Discounts for prompt payment are an excellent incentive," she says.
What if the incentive doesn't work, and payment is past due? "A staff support person calls. The first call is just a reminder, very polite. 'What do you have scheduled for us (payment date)?'"
Successive calls are "stronger."
At 60 days, the discussion involves the possibility of holding up orders.
Valspar takes an understanding view of such developments as a temporary cash flow problem, whether from market situations or part of the "growing pains of a new business.
"We want to work with customers whose credit problems are transitory," Pepper emphasizes. "We'll help, recognizing that as they grow, so will we."
Consistent monitoring and communication weed out customers with flimsy excuses, such as the dead cat in the mailbox, and establish or re-establish relationships that are mutually beneficial.
Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.
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