1. Archer Daniels Midland Company Orange County| Los Angeles| New York
DEALING WITH THE HIGH MAINTENANCE CUSTOMER: CREDIT, FINANCIAL AND LEGAL ISSUES FOR THE CREDIT TEAM
Mark H. Speiser, CCE
Director of Credit, N.A.
Archer Daniels Midland Company
Scott Blakeley, Esq.
Orange County| Los Angeles| New York

2. What Makes an HMC (Experience from Credit Peers)
Invoicing and Account Maintenance
Unauthorized discounts
Unearned deductions
Withholding full payment on disputed invoice.
Out-of-date IT requirements
Cumbersome claim procedures to discourage resolution
Overly stringent supply chain requirements that appear to be profit centers
Always asking for copies of invoices and POD’s
EDI invoice receipt issues or a lack of compatibility
Manual entry of invoices into vendor A/P portal
Insists on order changes outside of normal operating processes
Failure to comply leads to deductions

3. What Makes An HMC Credit Terms and Payments
Consistently slow pay, requiring countless phone calls and s
Indispensable customer creates obstacles to payment, resulting in holding orders, impacting inventory, DSO and cash flow
Terms pushback: unilaterally changing terms
Demands continued shipment/service with no payment
Short pay invoices
“Lost” payments with checks
Regularly bounce checks
Repeatedly makes false payment commitments with multiple excuses

4. Incremental Sales Required
Cost of Write-offs
Profit 5%
10%
15%
20%
25%
30%
Loss
Incremental Sales Required
500
10,000
5,000
3,333
2,500
2,000
1,667
1,000
20,000
6,667
4,000
100,000
50,000
33,333
25,000
16,667
200,000
66,667
40,000
500,000
250,000
166,667
125,000
83,333
1,000,000
333,333
75,000
1,500,000
750,000
375,000
300,000
2,000,000
6666,667
400,000
Due

5. Is Customer an HMC? Credit policy: Tolerance limit
Percentage of the invoice that is acceptable to stay current
Minimum amount to avoid credit hold
Dispute resolution practice
Key supplier metrics
DSO
Collection Effectiveness Index
Days Inventory Outstanding
Cash Conversion Cycle
Cash flow and working capital management

6. Credit Team Objectives
Payment predictability/collectability
Solvency/insolvency
Training and guiding team members
Identify traits of preferred customers
Create a database for flexible reporting
Automate to save time of credit team members

7. The Credit Team: Gatekeeper or Relationship Preserver
Who has the leverage in the relationship?
Punitive or accommodate response: reconciling the account under traditional and modern credit approaches
Leadership objectives and the voice of the sale's team
Net Income (after operating costs)?
Policy and procedures for reconciling to account, managing A/R and collection strategy
Robinson Patman antitrust considerations

8. Traditional Information Sources
Traditional/Criticism
Static and backward looking (customer financials)
Inconsistent especially with small and mid-sized
Lack of transparency

9. Traditional Information Sources

10. Social Media Sites for The Credit Team
Modern
Better transparency
Data analytics
Better able to capture risk flags in real time of small and mid-sized customers

11. Industry Information Regarding HMC's
Warning signs of delinquencies
A/R aging
Financial review
High credit risk score
Timing for what is considered delinquent
Collections
Judgments
Liens
Bankruptcy
Likelihood of small business to become severely delinquent
Monitoring accounts
Tighter lending practices
Vendors as lenders
Monitoring of bank lending, term dates and covenants

12. Revisiting A/R Portfolio and Credit Policies
Examine traditional signs of customer defaults and adjust policy accordingly
Point person for change in terms, credit hold or credit enhancement
Is credit policy too restrictive or too liberal?
Too loose or too restrictive must be formulated within the context of company goals and profit margins
Adjusting policy to signs of customer defaults
Using past insolvencies for predictive data points - data points are then run against current profile to further refine portfolio risk

13. Protocol for Risk Flags
Validating the credit risk flags
Consider aggregating multiple data sources to confirm original source before taking action
Responding to credit risk flags
Holding orders and meeting with customers
Attempt an in person meeting
Converting credit sales to cash
Demand written assurance of payment
Refuse delivery and demand cash under Article 2 of UCC
Stopping goods in transit
Reclaiming goods
Written demand for the return of the goods
Customer divorce and filing suit
If customer remains silent and account is not profitable
Credit team should consider collectability of and judgment against customer or guarantors before filing suit

14. Preserving the HMC Through Contract and Credit Enhancements

15. Dealing with Past Due Invoices yet Maintaining Sales
Ways to determine type of HMC (Is the relationship salvageable?)
Request for financial information and confidentiality agreement
Third party comment
Salesperson and credit pro customer visit
Contact customer’s bank
Talk to industry group members and other suppliers
Landlord
Repayment agreements: fixing indebtedness and waiving claims
Credit enhancements
Dealing with insolvency

16. Complaining About A Customer’s Non Responsiveness: Disparagement
Continuous silence from customer
Credit team may exert some industry peer pressure to receive response
Avoid:
Complaining via suggesting customer is untrustworthy or fraudulent and suggestion others should hold orders
Customer will end silence by claiming that the supplier has made a false statement and claim that they have been defamed

17. Delinquent Account Decision Tree
Credit Hold
Report to Industry Group
Late Penalty Payment
Termination of Contract
UCC Protections
Setoff/ Recoupment
Customer Divorce

18. HMC Divorce Divorce or preserve the trade relationship?
Indispensable customer?
Collaboration with leadership, sales and credit
Dropping the HMC may raise revenue and reduce expense
Economic conditions may force some credit teams to preserve HMC
Timing for assigning account to third party for collection
Document preservation with delinquent account

19. Insolvency and Preference Risk with HMC
Is customer an HMC because it can or because it must
Red flags that HMC may be insolvent
A/R risk
Preference risk
communications