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Still Feeling the Effects of the Financial Crisis

Still Feeling the Effects of the Financial Crisis

August 10, 2010

The two-year anniversary of the collapse of Lehman Brothers, widely considered the beginning of the financial market collapse in the U.S., is quickly approaching. In September 2008, the financial services firm filed for Chapter 11 bankruptcy after failing to convince the government to provide a bailout.

p> Now, two years later, the banks and financial institutions that many blame for the steepness of the recession that began in December 2008 are still struggling to return to normal operations.

They're not the only ones still feeling the effects. A ripple effect of credit problems have impacted nearly every aspect of the business world. Businesses, particularly small and independent businesses, have had credit lines canceled or reduced. They've been unable to secure the financing necessary to expand business or respond to the changing marketplace.

And that is having an impact on trade credit.

In its analysis of the July Credit Managers' Index, which indicated a larger number of companies were rejecting credit applications than a year ago, the National Association of Credit Managers wrote: "... Companies are not getting the access they once had to credit lines and loans in general, meaning they are far more reticent to offer credit."

Anecdotal evidence from some distributors, as illustrated in this article in the recent issue of MDM, shows that more customers are relying on trade credit because of difficulty in obtaining bank financing.

But does that higher demand have to translate to higher risk? Not necessarily, according to Abe WalkingBear Sanchez, founder and president of A/R Management Group, a consulting firm focused on cash flow management and credit sales.

"There are a thousand ways to say yes and still remain confident of payment," Sanchez says. Options include down payments and joint payment agreements. The key is to be creative with the terms to find a way to make the sale.

Read more about how to balance risk with opportunity in trade credit in the latest issue of Modern Distribution Management.

Related from MDM: How CFOs and Controllers Can Help Non-Financial Managers Improve Cash Flow in a Tough Economy

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