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Make very good credit decisions at the beginning of relationships with customers, and then stay very close to them. That's the gist of the credit philosophy at D&H Distributing, and the credit department is perfectly structured to carry it out. The 40-member staff includes risk analysis specialists, researchers, and cash application personnel, but nearly half of the department--some 18 people--are dedicated to maintaining close, and often personal, relationships with individual customers.

"Every customer has an individual rep, the individual collector who is our first line of defense," explains Director of Credit Services Tony Warfield. "We don't call them collectors. We call them analysts, even though they're not really making credit decisions outside of individual orders. And we don't call them relationship managers because that would sound like a sales rep, but their relationship with customers is no less valuable. But they make the calls to collect the items. They approve the orders, resolve return issues, and they match up credits on returns."

As reps become experienced, they get out to meet customers and further develop personal relationships. There are trade shows they can attend throughout the year. "We try to get all of our folks out to meet their customers face to face," he says.

The responsibilities of the individual reps vary widely, since the D&H customer list runs all the way from the biggest big-box retailers to small mom-and-pop operations. Six of the reps concentrate on the smaller accounts, which are the majority of the accounts but a small proportion of the receivables. Reps dealing with the larger accounts are supported by the eight researchers who track issues like price protection, advertising and deductions.

An Evolving Computer System
All are supported by a legacy computer system which, acquired five years ago as an off-the-shelf system, has since been constantly modified. "It's in a state of evolution," he says. "There's nothing off-the-shelf now, and we've forged a path that is completely independent of the original vendor. We've augmented our core systems with leading-edge credit scoring and sophisticated document management systems."

Every customer has a credit score, from 1 to 10, and the scores are updated continuously by the computer from information flowing in from credit bureaus, trade groups and other sources without anyone in the department touching it. Account review triggers include dropping credit scores and rising average days to pay. If a customer is giving other creditors problems, the information flashes in from trade groups. And all relevant information is combined and given a priority within the system.

So, a computer scoring alert can be sourced from any number of points. It can be that one of the bureau scores had fallen below a certain threshold. The system is programmed to take the information in, run it through the scoring model, go collect new information and then create a task for the analyst that's assigned to the account to review it to see if any action should be taken.

Judgments are made not so much from raw scores as from the direction and the amount of change. A 2.5 may be a low score for one business (a small business where they don't have a lot of information, and the lack of information can, therefore, cause the score to be low). But if that score were to drop significantly, that would cause some concern and trigger a review.

A Typical Review
"We had a customer whose days-to-pay was trending upwards," says Warfield, describing a recent alert triggered by the computer. "That kicked in a review, and we discovered that the rest of the world was much worse off than we were with this customer. They were still taking pretty good care of us, but we realized we had to take immediate action. We worked with the customer and were forthright with them. We said, 'Here's where we need to be,' and we were able to back the exposure down to about 30 percent of where it was when we started the whole process."

Now what? "So far so good," he says. "Our exposure is much less. We're all comfortable where we are right now. We're sort of in a holding pattern to see if the business will recover. We're optimistic that it will, and the manner in which we worked with the business will pay dividends in any scenario."

And why was this customer paying D&H and holding up on other creditors? Warfield professes not to know the answer to that question, but he has some ideas. "I believe it comes down to the value of the relationship," he says. "Perhaps the products that we supply them are closer to the core business that they need to do.

"But in many cases, in the business were in, you can buy many of our products from several suppliers. We try to differentiate ourselves by the support and value that we add. It's not just delivering the box of stuff to them but giving service, like flexible terms, personal relationships in sales and credit, and long-term partnerships. We get close to them. They know that D&H is going to be around, has been around for over 90 years. Few companies can make that claim."

He insists that D&H isn't afraid to grant credit. "We just choose our spots very carefully," he says, "and we certainly grant lines that are significant." Indeed, D&H has also made it a policy to seize opportunities to bolster sales with sound credit enticements. For the past 10 years, under its Good-Pay Program, the company has identified customers financially capable of increased buying and proactively offered to double their credit lines.

Coping With the Recession
What is the outlook in today economic turmoil? "We're looking at each customer with significant receivables every single day more closely than we ever have," he says. "We're looking at the big-box retailers. We're looking at the expiration dates of lines of credit. We're watching leveraged companies, guys who had poorly timed leveraged buyouts just before the economy deteriorated, to see if they can still make the payments on their debt. We're going to see customers just as frequently as we always have, but we're staying close to these guys so we know that the issues are."

D&H has navigated the turbulent economic times thus far. They've also managed to control dispute, discount and deduction problems. "We haven't really seen an uptick in that," he says. "We've been so aggressive for so long in pursuing those items that we're well prepared to defend it if someone is going to try something. We have such a strong infrastructure and such experienced people in place that we've 'been there, done that' if they start trying to do anything different. We're just not going to put up with it and will defend vigorously with all the tools in our arsenal."

But being increasingly alert doesn't mean there's been any fundamental change in credit policy. "We don't really need to change because we've always taken a good, close look at customers, always maintained a conservative credit policy," he says. "We've always taken extra steps to validate the business to defend against fraud. We've always taken good, long looks at financials. We've asked for financial information at lower levels than maybe some of our competitors have.

"We take the view of credit as if the economy is always like this. We're not afraid to jump in when there's opportunity, but we've never been or will be doling out credit with abandon. We've always taken a close look at everybody who come through here, and I think it's going to help us weather this economy."

At a Glance: D&H Distributing Company

Corporate Headquarters: Harrisburg, PA