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Friday, February 15, 2008

How to get a Better Deal with Your Good Credit or Cash - Part 3

We have been covering a multi part series to help our distributors and wholesalers and other businesses navigate an economy where credit is starting to rapidly constrict for businesses.  The reality is that a number of the large banks that have been burned by mortgages also operate in credit markets for businesses running factoring and insurance companies that lend to businesses and secure receivables.  As those companies have taken major losses in mortgages, they have instituted tougher controls in all areas of lending and that mans distribution credit is tightening.

See the first parts in these articles first on How Distributors can Navigate Tightening Credit - Part 1 and then How to Play your options During Periods of Tight Credit - Part 2

So when you are positioned well with your own cash or credit or ship shape financial records, its time to do some business and get ahead of your competitors that are in a tougher position.

The reality is that your vendor pays their factor a fee for financing your debt. Now this fee is not typically going to be very large, maybe a 1-3% tops.  That's not a big percentage but if you are buying a large amount of goods, it could open the door for you to split the difference with the vendor and prepay in cash.  You will not get anything if you do not ask, but be careful not to demand. 

Some vendors do not have flexible programs that enable them to discount a sale to remove the cost of credit.  Appeal to their greed by offering them 40% of the factoring fee that would have been paid and you get the other 60% in a reduced price.  If their pricing is locked down, ask them for a credit on your account to be used against additional future purchases.  Sometimes their systems (especially warranty and returns) can not accommodate a 1 off price change, but they might easily be able to give you a manual credit, especially when its linked to additional future business.

If you can not get a discount, look for some of those other little things that you probably have needed for quite some time.  Replacement units, FRU, promotional materials, maybe some firesale options, or maybe even the first shipment of arriving product if products are on back order.  If you are working from the position of providing updated financial statements, ask for a higher credit limit from both your vendor and from the factor. 

Also consider talking to the factor about establishing a line of credit directly with them if you do not already have a line of credit.  See if you can translate your history and information with the factor into a real asset that you can trumpet for your business.