Draft Credit and Finance Best Practices Released for Industry Review
Understanding the relationship between credit management and store operations sometimes has been problematic in the Christian Retail Channel, particularly as the channel increasingly is affected by broader economic and consumer issues.
The Christian Retail Solutions Committee discovered that in developing recommended core-inventory best practices. The initiative revealed credit policies and lack of communication and coordination between retailers and credit managers affected how retailers were able to buy and sell products -- especially during peak selling seasons.
Core Inventory Connection
Core inventory has been said to be the single most important strategy to restore financial health to the industry. But retailers have always had to balance volume buying for discounts and stocking core products using rapid replenishment that often sacrificed margin. Sometimes the balance is off. Retailers have too much money tied up in dead stock and the inability to order and ship faster moving products.
A series of meetings and discussions with the Christian Credit Managers group, a division of the National Credit Managers Assoc, helped clarify issues and led to the development of the recommended best practices.
The best practices help retailers understand processes and dynamics of obtaining credit, recommended solutions when facing cash problems, and general credit principles for closing or selling a store. Understanding the best practices establishes the groundwork for more collaborative vendor relationships and open communications when it comes to credit issues and policies -- especially during difficult retail sales cycles or economic trials.
The Trust Factor
As in most relationships, trust emerged as a concern for both retailers and suppliers. This affects what collaboration might look like.
For retailers and vendors, concerns in collaboration included issues such as:
- Retailers may divert cash from sold product to assets, payroll, or another supplier
- Retailers may not have financial expertise to understand and manage cash flow
- Vendors’ initial purchase terms and promotions don’t match market demand and contribute to over-buying and late payments
- Denial, guilt, and shame are emotional barriers to relationship and accountability
- A sense of spiritual failure and self-condemnation drive immobilization -- or the inability to identify and resolve financial issues
Generally, retailers and credit managers agreed that establishing an accountability plan would be beneficial in attempting to avoid credit holds or enable credit-term renegotiation. The recommended credit best practices aims to be a foundation on which accountability plans could be developed.
During times of financial crisis, such plans can help overcome trust issues because trading partners develop points of agreement in what is called a “work-out arrangement.”
These arrangements identify a mutually beneficial plan of action for both parties and are based on open communication. While retailers must be able to determine operational causes of their financial difficulties, being able to share that in constructive ways may lead to effective negotiations to keep key products in stock to generate cash flow and pay down debt.
The general discussions included such sensitive areas as getting quick credit for returned merchandise, vendor review of promotional policies to help make volume or package buying more realistic and related to customer demand (not over-sell into stores that don’t have the sales volume to sell product through), sales-rep compensation for sell-though not what’s sold into a store, and reviewing product release schedules to match key consumer buying seasons (not just the fourth quarter).
Another component of the overall initiative is developing specialized CBA training to help retailers avoid financial crisis or react when they are in financial crisis.
Industry Review
The recommended best practices are open for industry review and will be officially reviewed and accepted by the Christian Retail Solutions Committee this summer. Please send comments to info@cbaonline.org.