“LBM Talks” hosts top professionals from different sectors of the lumber and building material industry to share their expertise, with a heavy emphasis on practical, tactical strategies to help you serve your markets and grow your business.
Join LBM Talks host, Thea Dudley, as she brings her razor-sharp expertise to dissect trends, regulatory changes, and offers real-world advice for credit professionals.
Because Thea receives multiple questions every month, many are not featured in the magazine. LBM Talks is now the place where these additional questions get answered. Enjoy another episode of The Column Comes Alive. See more of Thea’s monthly column here, and send questions to thea@creditoverlord.com.
Prefer to read about it instead? Take a peek at the transcript below.
(Editor’s note: Transcript is AI-generated and may include some errors.)
Thea
Hey there. I’m Thea Dudley, also known as the Credit Overlord. And welcome to LBM Talks Credit. We are the only podcast that talks trade credit in the lumber and building material space. Never miss an episode, stay tuned, and we’re glad you’re here.
You’ve got questions, we’ve got answers. Welcome to LBM Talks Credit, I’m Thea Dudley, your host, also known as the Credit Overlord, and today we are diving into more Column Comes Alive questions. We’ve done this twice before, and the response was amazing. Those particular episodes were really popular. People liked having those questions, you know, just quick, on and off. And I get a lot of questions that don’t make it into the magazine because there’s only so much space in there, or they’re too short. And I, even I, as much as I talk, can’t turn them into a column.
So we really want to make sure that we’re sharing all of these great questions I do answer everybody that sends me something individually, whether it’s a salesperson, a branch manager, a credit manager, an accounting person, I want to get everybody the answers that they’re looking for, or at least get them thinking. And some questions may seem obvious to people when you hear them. And some of them are, you know, you just want someone else to weigh in on them. You just want someone to tell you, Hey, get out of your own head. Or, here’s a different perspective. Or, you know, here’s something I’ve done.
So we’re going to jump in and talk about all of those today. We’ve got quite the list. So get your coffee and let’s roll. Do you ever recommend starting a relationship with a customer on a cod basis, then working them into a credit relationship? Sure? Why not? You’re a for profit corporation. Your job is to find a way to say yes as safely as you can. And there’s lots of reasons that I might start somebody out COD. They’re either a brand new company, no credit history. It’s like, look, let’s, let’s start this relationship off with you buying COD. Let’s see how it goes. Make sure that you know your funds are clearing, and then we can look at, you know, getting you a credit line, you know, small one, and build up from there. It may be a customer that used to buy from you and for, you know, various reasons, maybe the relationship didn’t go very well. Maybe they had some issues. And you you close them down, and now they’re coming back saying, Hey, I’d like us to try this again. Let’s start a little bit. COD, you know, maybe they had new ownership, or they had a bad accounting person that you know, wasn’t paying the bills on time, or maybe they got their cash flow situation worked out. There’s a lot of different reasons that you could start somebody’s COD it doesn’t take a lot of effort from you it, you know, it’s just a little bit of monitoring, a little bit of conversation and see what you can grow. Why not? They’re going to buy from somebody. Let’s, let’s take their money and let them buy from you.
Next. How often do you recommend doing a review of your customers credit lines? You know, I like to look at them yearly, if possible. I want to review the account, you know, pull updated reports just, you know, just make sure everything’s going well. I’d like to have that touch of them. The other time I would recommend doing a review. Is, if you see somebody that’s constantly bouncing up against their credit line, they’re, you know, constantly going over. Do they need a larger line? Do I need to update this? So let me go ahead and pull that. Let’s set the credit line appropriately, and then I don’t have to look at it again for another year. So I like a year as a benchmark. It really depends on what resources you have on you know, how much automation you have, how many you know, how many reviews you have to do, what’s your time budget? So although I like a yearly I understand where it doesn’t happen. What can you do to improve that process?
Next is, how often do you ask for personal guarantees? Every time I open an account? I like that personal guarantee to be on the document that credit application that they can sign, not baked into the terms and conditions, but just below it, I’m not going to convince somebody not to sign a personal guarantee. I’m going to present it and let them decide if they’re going to sign it or not. Now they may say, Yeah, I’m not signing this. That’s fine. Let’s do our due diligence. Let’s do our investigation. And you know, hey, if they, if they pass muster and they don’t need the personal guarantee. That’s fine. I’m not going to ask for it. I’m not going to push for it. But if they’re a brand new company, if they are a little bit shaky, even if it’s hey, give me a personal guarantee for six months. Let’s see how the account goes. If all goes well and you’re you’re paying well, and we’re in a good. Spot, you know, six months or a year, whatever you want to pick, and we’ll go from there. I’ve had to have the conversations with customers before that. It’s, look you’re brand new, or this line is really you’re asking for a much larger line. I can’t have all the skin in the game because all the risk is on my side. By the time I know you’re saying, Well, yeah, but I’m going to owe it to you. Yeah, that’s not the same. If I’m going to back your company, and basically I’m investing a short term loan in your company. I don’t know you. You don’t have a lot of you know, maybe credit history back there. I’m going to ask for something. I want you to come back and have skin in this game too.
So your personal guarantee, let’s see what that are you even willing to do it? Yeah, that’s, I think it’s often as you needed. What red flags do you look out for when you have a newly opened credit account for a customer? Well, did they pay me late straight out of the gate? Because that’s a non starter. If we’re going to start our relationship, don’t be paying me late first time you you get your statement. That’s not a good way. So that’s my first red flag. Second red flag is, if they everything’s wrong. Your delivery was awful, your your delivery or your driver was he was mean, he was grouchy. Your salesman is a liar. Your billing is wrong when they start with challenges right out of the gate, when they start complaining or, you know, throwing those I’m not happy, you know, within the first month or two, those are all red flags for me. I’m going to watch that account really tight, and I’m going to start training you to pay me correctly and like you should right out of the gate. Hey, I don’t know if you noticed, but you paid me. These are our terms. I want to make sure you’re clear on them. Is there a problem? Are you not getting the invoices on time? What does this look like to you? Why is your you know, first payment late? I don’t think there’s any harm in asking you can do it in a nice way where, hey, did you have trouble getting the invoices? I just wanted to, you know, I’m not sure if you were clear on what the terms were, but 60 days you do not have. You have 30.
So let’s back that up. What credit reporting companies do you like the best? Oh, my God, this is the worst question, because it could change with the weather. You know, one day I might like this one because they’re doing great things and their data is great, and the next day I might like, not like somebody else, because even though their data is great, their customer service is the worst. It’s like, I don’t know whether you just think, because you have big market share that you can just treat people poorly or not return calls or just do stupid stuff. So I hesitate, because there are so many variables. What I will tell you is test some of them out. How somebody treats you when they’re courting you to get your business is a big deal. See what they say to your asks. Hey, give me five free credit reports. I’m going to give you a cross section of you know, two, two sketchy ones, two sketchy customers, one moderate customer, maybe a good one or two. And let me see what’s on your report. How quickly they get them back to you, how they respond. I don’t know if I can give you those. It’s like, okay, how long have you been with your company? Do you know what you can and can’t do? These are things that I’m going to ask for questions for you know, take me through, what does your dashboard look like? Do you even know how to work it? Don’t just show me your bells and whistles. I want to know how do the alerts work? How do I set them? Do I have to do everything myself? Are you the person that I’m going to call for help, or are you going to go? Well, I’m I’m just the guy that you usually reach out to, but all my other you know, I’m going to have to reach out to six other departments to get permission or file a ticket or whatever you need to do. I’m not a patient person when it comes to information that I need to help my company stay in business. And if I’m paying for credit reports, your stuff better work, and you better be giving me some good service, because otherwise I don’t know why I’m paying you. So when you ask who I like the best I like the one who’s giving me the best service, and answers that aren’t blame do you use a customer’s decision to sign a PG or not as a determination on whether you are willing to give them a higher credit limit or not.
Maybe it depends on why I’m asking for the personal guarantee. Is it, like we talked about in in the previous personal guarantee question? Is it, hey, you’re asking for a line of credit, and you really don’t have any any business life back there to share with me on how you pay your bills. Is it your way over your credit line, or you need a much bigger credit line, and your your company financials or your credit report does not substantiate that? You know, it’s like, I can’t get. From 5,000 to 100,000 based on what’s on here. So there’s different reasons I’m going to ask for it, and there’s different reasons I’m going to turn it down. If they say, Well, I’m absolutely not going to sign a personal guarantee. I incorporated for a reason. I get that, but I can’t have more skin in this game than you do. You know it’s it’s probably my number one answer to customers, when they come up with something like that, where it’s, you know, I’ve incorporated for a reason. I get it, but we’re for profit too, and I can’t have more invested than you do. So let’s look at how we, you know, true, it up with something, and I’m asking for your personal guarantee. Now, it’s fine if you don’t want to give it, but here’s what I can do for you. You know this, this may be the line. I can only go this high, or I can only do this for you. So it’s really depending on why I’m asking them for it, what things are a definite no to a line of credit from you.
There’s a couple of things that raise those red flags for me, lack of any type of, you know, history of how they pay their bills. I don’t want to be bleeding edge with you. I don’t want to be the first person to open you without having some more information. So I’m not saying that because you’re brand new. I’m not going to open you. But give me something, you know, give me some sort of security, a personal guarantee, you know, a chat with your banker, something that is going to give me some, some sort of, some sort of sense of who you are. Because basically, credit managers are, we’re underwriters for the company. A lot of times I don’t see or know the customer until later in the relationship. So right now, all I have to go on is what’s on this credit application and what I pull telling me about your company. So if I’m, if you’re, if that’s what I’m drawing from, if that’s where I’m getting all of my information, then stuff that’s going to be those red flags are not paying child support. You’ve got some items in collection. You’ve got a credit report with very few trade lines, or you’re paying or you have trade lines, but you’re paying all of those trade lines poorly, but you’re banking relationships. You’re paying on time because you figured out. You’re smart enough to know that you’re able to not pay interest to me sometimes, because you can negotiate it, but you have to pay interest to your bank or your credit card company or your leasing company, or any of those, you know, the surety, any of those that you’re you’re having to deal with that are going to hold you a lot more accountable than maybe a trade creditor would.
So, you know, those are some red flags for me, and they’re going to have, you know, a conversation about them. And if you’re paying trade people late constantly, that’s going to be a, you know, hey, we’re going to talk about this. That’s that’s leaning towards a no, but absolute nos are you’re not paying your child support, you’ve got lots of stuff in collection. You’ve got liens on all of your projects. You’ve got tax liens or, you know, workers comp, stuff that you haven’t paid. Any of those big buckets if you’re not taking care of those, I don’t have an expectation you’re going to care if I’m paid. How important do you think it is to know your customers purchasing patterns and other competitors they have worked with when setting credit lines, it can really be something that helps you navigate what that line is going to look like. I want to know how my customers purchase, but a lot of it depends on what their business is. Some businesses are very cyclical, and they might have big purchases through the summer, but then die off in the winter because of the part of the country they’re in, or they might do a couple of projects a year, and so they might buy big for a couple months and then nothing, and then big for a couple months and then nothing, or they’re steady all the time. So I need to know a little bit about what their business is and how they go to market, because that’s going to tell me, are they buying from somebody else for these other projects? Are they just with me? Am I their fill in person? What does this look like?
So I like knowing their purchasing patterns when I possibly can. I like knowing about their business. That’s going to tell me a lot. And then, you know, it is nice to know who they’re they’re buying from. It doesn’t hurt you. I don’t know that it’s going to make a difference in setting the credit lines. You know, if you’re asking, well, they’re, they’re buying from XYZ company. And you know, she’s kind of a badass over there. So if she’s giving them five grand, then easy. I’ll give them five grand. That’s really not your best model. I do like to know who my who my competitors are, and who they’re selling to. I like to know where my customers are going if they’re if they’re not buying from me, it doesn’t impact what kind of credit line I set with them. Now, if they’re filing liens on a project or they’re suing them, it absolutely has an impact. Impact on how I set a credit line. I don’t want your trash either, so don’t send them over here. I don’t I don’t want to see that coming here.
Do you ask your customers what their DSO is? Not normally, if we’re sitting down, chilling out at a conference somewhere, and we’re having a conversation about business and back offices, and you know, I can work it into the conversation, sure, but as a whole, as hey, you know, just calling you up to see how your accounts do, and by the way, what’s your DSO this month? Probably not. I think if you can make it an organic part of the conversation, it’s it’s nice information, it’s cool, it’s a great conversation. But typically, no, I don’t ask them,
How much weight do you put on trade references that are given to you by a customer? Depends on the references. If they’re like a Lowe’s or a Home Depot or a big box, I none because they don’t rate, you’ll have to go and get pull a credit report for those, I like to see if they’re buying from competitors. It depends on the trade reference, it depends on who they listed. You know, if it’s a business that I know is is similar, or it’s another supply house, then, yeah, I think they’re legit, and I enjoy seeing them, but, you know, like the gas and sip or, you know, sometimes people will list their customers, like, I don’t want to know your customers. I need to know how people are paying you, what that relationship looks like. So it depends on the trade reference and what I what I can get from it. You know, do they rate?
How important is it to have a relationship with your competitors’ credit people, and do you think it’s a good idea to share information about customers? Okay, I love this question. I love this two parter. Some of my best credit buddies were competitors at one point, then we ended up being on the same team together, and then, you know, they went on to other things, or I went on to other things. And we still maintain those relationships. I love having those relationships. It gives me somebody to reach out to. If I’ve got a credit application that I’m trying to get through, I can call up or, Hey, I’m trying to do a quick file review and I’ve got to get stuff out the door, I can call that credit manager and go, Hey, how are they, how are they paying you? And get the real scoop. I don’t, I don’t think you should just blindly trust somebody you know. You got to get to know them a little bit. Maybe reach out a couple times see how they respond. You’re going to get a lot from their tone and how they respond to you. And I always try to leave that door open with, Hey, if you never need anything, call me, not every day, not with every customer, but at least, you know, give me a chance to reciprocate. I think there’s a lot of things that we can do as credit managers to support one another. We probably wouldn’t lose near the money that we did if we were a little more forthcoming and we connected better, and just in general, make it a much better environment for ourselves.
Okay, the second part, do you think it’s a good idea to share information about customers? Yeah, that’s why I’m always advocating for, you know, turn your AR into the credit bureau, whichever flavor credit bureau you like. Just turn it in, you know, report that you’re you’re good customers, you’re good paying customers deserve the credit for that. They deserve to have that as part of their history. Banks, leasing companies, surety companies, all pull that credit information. All pull credit bureau data, and that’s how they get the different interest rates, they’ll get a much better one with a better credit rating. Well, shame on me if I’m not helping my customer build their credit. By the other token, okay, you know, if you don’t pay your bill on time, I didn’t create that narrative. You did. That’s a you thing, Mr. Customer, if you don’t like it, then, you know, pay me. I’m just reporting what you did here. I’m not crafting this for you. I’m not putting narratives in there. It is what it is, but I think you strengthen the entire credit community when you share that information, and it just makes our jobs a little bit easier, because we can clearly see what’s happening, instead of gazing into a mud puddle, knowing that most of our customers buy from several of us, and we’re sitting on the information like Daffy Duck on a pearl. So you I just think you strengthen it so much more. I don’t have a problem sharing the information. What I do have a problem with is a credit manager that calls me and asks for some intel, and I give it to them, and then they burn me with it, because they’ll tell the salesman, or they’ll tell the customer, and then the customer, or my salesman, calls and they’re just raging fit mad, going, well, thanks a lot. You know, so and so’s credit manager just said that. You know, you think this guy’s the worst. Guy on the planet and he doesn’t pay his bill and like, that’s not what I said. I said he’s past due and he’s on hold. I didn’t say he was the worst person on the planet. I don’t know him that well. Those are the people that I don’t like sharing with are the people that burn me. So I do have to kind of qualify it. I just don’t want to assume everybody’s going to do it. I get to know them a little bit before I get to be super candid where it’s like, Hey, I keep him on a tight leash, or, you know, he’s past due. He’s in the one to 30. This is typical of him. He goes on hold. We take him off. He pays we take him back off, and that’s how it works. But I don’t think that sharing information is a bad thing, and that brings us to the end of this round of questions.
To all those of you that sent these in. Thank you so much. I hope this helps you. I hope it gets some conversation going. Thanks for joining me today. If there are topics you’d like to see us tackle in the future or questions that you have, keep sending them in. You can reach me at Thea@creditoverlord.com or you can pop them in to LBM Journal, and they’ll get them over to me, share with your friends, your colleagues, anybody who might be interested. Thank you so much for joining us.
