Nevada businesses are paying their bills faster but some Reno-area business owners say that's only because they've tightened credit and payment policies to battle overly slow payments and big charge-offs.
Cortera, a commercial credit information company based in Boca Raton, Fla., reported this month that the number of past-due business accounts at Nevada companies during February declined 2.3 percent from December, falling to 17.2 percent from 19.55 percent.
In the Truckee Meadows, Kim Lamberty, vice president of operations for Credit Management Association, which manages collections and other services for about 30 companies in Reno, noticed a decline in 61- to 90-day payments from December to January.
And Western Nevada Supply Credit Manager Jim Dickey says his company has seen a 10 percent decrease in the amount of time it took for customers to pay invoices from February of 2010 compared to the same month in 2009.
But Dickey notes, the number of charge-offs in 2009 as compared to 2008 increased significantly. Western Nevada Supply typically operates on a 30-day net invoicing. It primarily sells to contractors, many of which struggled to stay afloat during the past year.
"Contractors definitely are having a more significantly. Western Nevada Supply typically operates on a 30-day net invoicing. It primarily sells to contractors, many of which struggled to stay afloat during the past year.
"Contractors definitely are having a more difficult time," Dickey says. "There is less business to go around, the margins they are making are less, and that is putting a big squeeze on what they are able to make and in turn pay their suppliers.
"It is a real challenge to make sure we are paid in a timely or even semi-timely basis."
To lessen charge-offs, which have had a direct impact on the company's bottom line, Dickey says, Western Nevada Supply adopted stricter credit policies with some customers.
"We are trying to hold people accountable to the terms that we have set," he says.
It's a fine line, he adds. Businesses still have to work with their customers to keep them loyal and allow them to do business.
"If you become too strict with them, either you run off customers to competitors, or you may force them into insolvency but if you don't set some kind of guidelines, you may end up with significantly more in your accounts receivable than you can collect."
Credit Management Association's Lamberty says most of her company's clients are construction suppliers and food and beverage distributors. Both industries have enacted stricter guidelines for extending credit, she says.
"Policies have tightened. Most companies are really more cautious when opening credit lines. They are doing more investigating, and they may do lower credit lines to see how a customer pays."
Other companies have eliminated credit almost entirely as slow-paying customers wreaked havoc with working capital.
Brad Stout, who co-owns Nevada Auto Sound on South Virginia Street with partner Curtis Weethee, did away with 30-day lines of credit for the majority of smaller clients because they were taking 60 or 90 days to pay or going out of business and not paying at all. Smaller auto body shops and car lots now must pay up front for stereo equipment or installations.
"That has really helped us rather than putting them on a 30-day," Stout says. Larger car lots have always been more stable, he adds, and extending them credit hasn't been much of an issue.
Lengthy delays in payments can cripple a company, says Dan Kahl, president of Kahl Office Interiors. Kahl says that due to the poor economy of the past few years, his clients are much more sensitive about making payments on time. Kahl Office Interiors doesn't provide 30 days to receive payment, he says, but rather asks for payment due upon receipt of invoice.
"We do have companies that take 30 days, but we also have a good group of clients that are very sensitive and are paying us within a week or two," Kahl says. "They know the economy is very tight and that we are tight with our cash flow, and that we need payment so we can pay our factories and place other orders for our clients."
If cash flow becomes tight due to non-payment issues or delays, businesses can't turn around orders for new customers, Kahl says.
"Cash flow in a distributorship business is huge we can't place orders for other clients if we can't pay for a previous order; they will put us on hold. We don't want to be in that situation, and that is the potential if you get a bunch of people that are late pays."
