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Published Articles by David Balovich

Title: Opinions, Beliefs and Changes
Published in: Creditworthy News
Date: 8/9/10

We did not realize until a few days ago, when someone reminded us, that this is the 13th year that weíve been writing for the Creditworthy News. What began in late 1997 as a 300 word education column has evolved over the years to its current placement and length. Aside from that, the purpose to provide information to the reader to enhance their knowledge and performance has never changed. Another thing that hasn't changed, although we think we've mellowed over the years, is the opinions of the writer. We would be less than truthful if we did not acknowledge that, although unintentional, we have upset several readers with our opinions. We offer no apologies, after all, this column began as and is still primarily an opinion piece and we all have opinions. Some we agree with and others we don't but for those of us who reside in a democracy, well, that is what our ancestors fought and died for, the freedom and right to express our ideas.

We have always held the opinion, and continue to do so, that far too often the men and women in our profession have a tendency to be less forthcoming than their peers in other positions within the organization. We donít always communicate to those in authority, within our organization, when a policy, procedure or decision, written or unwritten, has a less then desirable effect on our duties or undermines our ultimate performance. We also have a tendency not to communicate our accomplishments to management and others in our organization as they occur, a topic we have addressed in several columns. If we have been responsible for providing that voice to those who have remained silent then once again we have accomplished what we have set out to do.

We are all aware, or should be by now, that even though our governments have declared the recession to be over and they inform us we are entering into a period of recovery the majority of us have yet to see any indicators of any return to where we were prior to 2000. There are many who doubt that we will witness any significant recovery for some time regardless of what we hear and read. For example, General Motors and itsí chairman are telling us, through the media, that GM has paid off its' government debt in full including interest five years before itsí maturity date. What they fail to tell us is that GM paid off the $8.1 billion loan with a portion of the proceeds from another government loan totaling $54 billion that remains outstanding.

The publicly held company bankruptcy filings that began in 2009 are continuing in 2010 and bank failures are increasing to the point that the Federal Deposit Insurance Corporation has almost exhausted its' reserves. We have also witnessed many small business owners who have shuttered their doors and walked away from their businesses due to their inability to obtain financing to continue their operations. This is happening at the same time that our political leaders are boasting that business loans are readily available for the asking. And we continue to see job losses as businesses, primarily in manufacturing and distribution, increase the use of automation and offshore contractors in lieu of rehiring unemployed workers.

Unfortunately, as corporations continue to look for ways to reduce costs and increase shareholder value they are and will continue to reduce positions that were not included in the first round of personnel reductions. These positions will now include human resources, purchasing, outside sales and credit and collections. Additionally, those employees remaining in these positions are and will be asked to work additional hours then they previously worked to make up for the productivity lost due to the termination of their supervisors, peers, and subordinates. In many instances these remaining employees will receive no additional compensation and some may earn even less then they do now in compensation and benefits due to the increase in hours at no additional compensation.

Unlike recovery from previous recessions this one will be different. This is because there will be no one country to look to as the "anchor". Whereas in previous recessions there was always one country the world could look to for stability, in this recovery that one country does not exist. This recession is global and every country has been affected. The irony is that stories continue to abound about the emerging recovery right next to stories about the potential failure of European governments and American cities and states.

This recovery will not only take time but many of us will experience changes not only in our employment status but also in our positions. Already we see the changes that will affect the credit card industry and their customer, the credit card holder. No longer will a credit card holder be able to make a purchase and defer their payments. Interest rates on unpaid balances is on the increase while at the same time credit availability is declining, and the promotional incentives for acquiring new credit cards are beginning to disappear just as trading stamps and dishes and glassware did during the late seventies for gasoline purchases.

As the world trade market shrunk during the seventies, eighties and nineties, the world credit markets grew, and as we have come to learn, with little or no oversight by industry or government. As countries begin to recover they will implement tighter controls over their financial systems. In the United States the central bank, the Federal Reserve System, along with our Securities and Exchange Commission are under scrutiny for their failure and lack of attention to those institutions they were empowered to oversee and this oversight will continue for some time.

For the credit professional who manages to survive, he/she will have to re-think their role in the organization and how they will accomplish their objectives. It is our belief that the credit profession will come full circle and return to itsí core principles.

This will occur in part because it will become more difficult for businesses, especially the small to mid-size organizations, to recover and survive and they will be forced to focus more on the function of selling rather than financing the purchase of their products and services.

First and foremost the role of credit will be to support sales; promote new products; open new markets; and expand existing territory. Credit will not, however, continue as the medium of exchange that it has evolved into during the last 50 years. We believe more emphasis will be placed on the THREE CíS of CREDIT; Character, Capacity and Capital with more focus on the risk of granting large amounts of credit to less than creditworthy applicants.

Credit will continue to be available but only for those who qualify relying on the principles of the Three Cís. For those who do not qualify they will be required to either pay in advance or at time of delivery or provide some type of securitization in order to justify open credit terms.

Businesses will place emphasis on the 80/20 rule in their credit granting policies and we believe there will be a resurgence of factoring and floor planning that all but disappeared during the 1980's.

When making credit decisions:

The credit professional will rely more on character and management experience in the industry along with product knowledge rather then the ability to direct large groups of people who have no knowledge of either their customer or product and are employed based solely on their academic achievements.

The credit professional will also rely more on information obtained from peers in competitive businesses and their will be less reliance on computer systems created and programmed to achieve maximum sales results on less than creditworthy accounts.

Sales will play a more active role in providing both positive and negative information about the customerís business, its principals and its customers. And we believe sales will become more involved in the collection of delinquent customer accounts.

In the area of collections:

We believe credit professionals will spend more time collecting on invoices where the money is actually owed.

Customer disputes will be handled and settled by either sales or management where the issues can be resolved timely and the non-receivable can be removed from the account receivable providing the organization a more reliable picture of its cash flow.

Unauthorized customer deductions will finally be recognized for what they really are, a warning sign of a firmís internal inadequacies or perhaps a method to circumvent anti-trust laws in order to obtain a lower price. These arbitrary deductions will no longer be tolerated unless justified and promptly reported by the customer within the seller's terms.

As we write this we know that many readers will question our opinions. Yet we know of many businesses today that are either making these changes or exploring how they can be made without it being too disruptive to their organization and customer. We also know of many credit professionals who no longer have a company desk where they can sit and read this news letter and the chances of having one in the near future is not promising.

Change is a constant. As we move forward during a time that is filled with uncertainties the only thing that is certain is that we have to change. Change the way we have been operating our businesses, practicing our profession, and living our lives. If we choose to ignore the lessons from our previous behavior then we are doomed to repeat history.   

I wish you well

The information provided above is for educational purposes only and not provided as legal advice. Legal advice should be obtained from a licensed attorney in good standing with the Bar Association and preferably Board Certified in either Creditor Rights or Bankruptcy.  

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