Distributors Examine Credit Line Processes In Weakened Economy

"We put credit teams in place around the country, closer to customers to understand their businesses better. The result is we are more comfortable giving higher credit lines to some customers. We couldn't do it unless we had better utilization of credit," said Mike Grainger, Ingram Micro president and COO.

This year, Ingram Micro centralized its credit organization in its Buffalo, N.Y., campus and hired Boston Consulting Group to conduct an audit of its credit resources. The review found many solution providers were not using their credit lines, said Grainger.

The distributor cut or eliminated the net terms accounts of many solution providers, but would not provide figures.

Ingram Micro still needs to improve some internal processes, Grainger said. "We are so big and have so many accounts, it took a long time for customers to get answers," he said. "What we're doing is automating the processes in Buffalo. . . Over a period of time, once everything is in place, you will see a more effective use of credit. The absolute [total might be less, but we will do a better job of understanding the credit needs of a particular customer, what we can do to increase it,it's not just arbitrarily going to stay pat."

Credit increases won't happen across the board, but Ingram Micro will examine all requests, Grainger said.

"I'll give you a fictitious example. If a solution provider uses us a lot but has a limit on his credit line, we will sit down to think of ways to give him more credit without costing us more money. That's good news to that customer," he said.

Pat Walsh, owner of Computer Station of Orlando, Longwood, Fla., said he is peeved by the cutbacks, and believes solution providers will move to other distributors.

"I've done over $100,000 this year with Ingram and pay within the 30-day terms. Dun and Bradstreet recently upped my credit rating, but for some reason Ingram cut my line from $30,000 to $5,000. That just makes no sense to me at all," said Walsh. "Over the past two years they spent money recruiting companies like ours focusing on the small- and medium-business community and evidently have decided they don't want the business. So while I have credit with Tech Data, Hewlett-Packard and others, I'll need to fill in with someone like Synnex [Information Technologies that I haven't been working with."

Meanwhile, other distributors said they have not changed their credit terms, but executives said customers' credit lines are not simple to manage.

"Credit is an art, not a science," said Mike Zava, vice president of U.S. credit services at Tech Data. "There's no specific formula. We look at a series of things: customers' history to other trade suppliers, we pull a [Dun and Bradstreet report or other credit information request. If they're an existing customer, how do they pay you, communicate with you. All of those things are taken into consideration."

For larger customers, Tech Data examines financial statements and reviews the account every 90 days, Zava said.

Synnex has a similar routine, said Tom Harbin, associate vice president of credit and collections at Synnex. "We look at what a customer is asking for. We try as best we can to accommodate their needs."

About 72 percent of sales are financed through net terms at Synnex, up from 56 percent a year ago, Harbin said. At the same time, purchases through third-party flooring plans decreased to 22 percent from 39 percent last year.

"I'm not sure if it's a cause-and-effect situation. Some of the vendors provide subsidies through the flooring companies. That's beneficial for the reseller. Some of those subsidies have gone away. That may have impacted some of this. A lot of resellers feel it's beneficial to go to a net terms account."