Customer Credit Ratings Key For Purchasers

By Edward Worden - NEW YORK, Dec. 27

In troubled or uncertain economic times, metal purchasers keep a close eye on inventories, and pay even more attention to credit worthiness of customers.

Case in point: Global Commercial Credit, a United Capital Co., based in Bingham Farms, Mich., has two distinct units. One provides credit insurance, covering companies' accounts receivable, to guarantee they get paid for the product they sell; the second unit gathers timely information on companies within the metals industry.

"We have probably 150 metals clients," Craig Bonnell, vice president of Global Commercial Credit, said. The client list for Global Commercial Credit ranges from scrap companies to metals producers to service centers.

"The problem was, though, that around Feb. 1, the risk became so great that underwriting basically shut down," Bonnell continued. "We were told they didn't want any more metals business. So we were able to keep the clients we have, and that's all."

Bonnell said he and colleagues attended a number of metals industry meetings and conferences, "and we were overwhelmed by those interested because of credit risk. Unfortunately it was too late for us to do anything."

The second unit within Global Commercial Credit remained viable and expanding, because it dealt not with credit insurance, but company-specific information on the industry.

"We've converted some of the largest players, some with their own full-time credit managers, to use ProfitGuard as a real-time source to effectively deal with credit risk," he said. "When Metals USA filed for bankruptcy protection from creditors (AMM, Nov. 16), our first reaction was to get our hands on a copy of the filing, a list of the creditors. We went to our clients who were selling to those creditors to alert them."

For example, he said anyone selling to National Steel received an alert, "because they (National) took a fairly large hit on Metals USA. If they (National) didn't have it in reserve, it could hurt them more. LTV Corp., already fighting for its life, had about $5 million in availability under their bank line before taking the hit from Metals USA. About a week later, LTV also said they had to throw up their hands too," he said.

Bonnell said while metals was one of the earliest strong segments of the U.S. economy, it remained unusual in that there weren't credit reporting agencies especially tailored to affected companies. "Look at lumber, seafood, food wholesalers," he said. "They have their own credit agencies. There is Dun & Bradstreet too, which tries to cover every business, but D&B gives company information only.

"Metals companies often operate with only a comptroller to make credit decisions, he or she might not have the time to search out the information that's important," he said. "Sometimes they don't know how to evaluate the information that they have. That is what we (ProfitGuard) are able to do."

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