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Wednesday, February 13, 2008

How to Play your options During Periods of Tight Credit - Part 2

This is Part 2 of a series initiated with the article 'How Distributors can Navigate Tightening Credit - Part 1' .  Credit is rapidly tightening for many distributors and wholesalers.  There are certain characteristics of companies that successfully navigate these periods and ways to navigate them to come out on top of your competition.

If you are relying on vendor financing, then you will need to provide transparent audited financial reports for review and justification of your future orders. 

Short of that you can fall back on your own lines of credit possibly through your own banker.  The benefit of this over vendor financing is that you get to keep your financial information private out of your vendor or factors hands.  Plus, you get the benefit of the credit when you go to all that trouble of providing audited financial reports.  When you get vendor financing through your vendors factor, you are essentially meeting all the obligations to get a loan and then giving the loan to your vendor so that they can DO you the favor of giving you financing.

If you do not have the credit, then you better have the cash.  This is your last option to make a deal especially if your competitors are in a better position.  Cash talks and even carries a premium when credit is tight.  If you do not have the cash, but can turn the business, you may want to get creative but be careful.

I know a very successful company, whose owner makes a couple inventory purchases each year on an Amex card.  He pays the card off within a week of the deal, but racks up a ridiculous amount of frequent flyer points which pays for his travels for the next 52 weeks around the world.

In Part 3 we will talk about advantages that you can benefit from if you are in the right place at the right time.