C Walters Intercoastal Corp., or CWIC, is a producer of scuba-quality snorkel and swim gear with $30 million in annual revenue and 45 employees. It’s also a bank.
A bank? “Absolutely,” says founder Cindi Walters. “When I sell my merchandise to retailers, I’m giving them 30 days or 60 days to pay me. That means I’m extending credit to them.”
And just as a bank does, Walters has to pay close attention to each customer’s credit history, because like most other retailers these days, CWIC can’t afford to be left holding the bag.
That’s why Walters has joined several credit associations and invested in a risk-management solution from Dun & Bradstreet. Together these give her an in-depth view of her customers’ financial bearings and help her predict whether she’ll get paid.
“I need to use the same sorts of tools that banks use to understand the financial stability of my customers,” Walters explains. “I read the reports and listen to industry chatter from credit groups to understand who’s having problems and who isn’t.”
She puts the information she gathers into action by securing more orders from customers that are on the right track and cutting back on credit terms for customers that seem to be heading in the wrong direction.
Linda Keith, a business lending consultant and trainer for banks and credit unions throughout the country, says Walters is taking the proper steps to protect her business. “In today’s environment you need to do your due diligence to make sure your customers are a good credit risk.” She adds that paying a few extra dollars for a credit service is a smart investment if it can help you avoid deadbeat customers.
These days, Walters checks the credit of all of her customers at least twice a year — and not just the mom-and-pop retailers that carry her swimming and snorkeling gear but the large national chains too.
The necessity of such vigilance was reinforced during the heart of the recession, in 2009, when a well-known CWIC customer went bankrupt. The retailer, Ritz Camera and its BoatersWorld subsidiary, owed CWIC more than $5,000. “It wasn’t a huge amount of money but we could have avoided the loss if we had just checked regularly on the company.”
Walters is just as careful when choosing CWIC suppliers. Why? Because she wants suppliers who will extend the most favorable financing terms. In fact, for the first four or five years her company was in business, CWIC didn’t take out a loan. Instead, it relied on vendor financing.
CWIC asked its manufacturers in China to extend 180 days of credit. This allowed the company to ship its scuba products to customers and receive payment in full before it had to turn around and pay its vendors.
How was CWIC able to do this? “It’s amazing what you can get if you just ask,” says Walters. It helped that Walters has a good reputation in her industry from her time at a previous company and that her product lines are carried by large retailers like Costco, Wal-Mart, and Sports Authority.
“Manufacturing is very competitive in China, so they’ll go the extra mile to get your business,” says Walters. “Of course, I explained that this was an opportunity for them to grow with my business and build a long-term relationship.” A single factory order from CWIC could be worth as much as $500,000, she explains.
For CWIC, vendor financing has brought in several bottom-line benefits. “It allows us to be more aggressive on our pricing and give our customers better terms, which in this economic climate is huge,” says Walters.
The company has also been able to negotiate better financing terms with its U.S. suppliers, especially the vendors it uses for packaging materials and paper products. “I never insist on net 90 terms but I try to suggest creative solutions that allow us to get there,” Walters explains. For instance, she recently broke up a $10,000 order into three installments, paying the supplier at 30, 60, and 90 days.
Keith applauds Walters for leveraging her vendors as a financing source. But she warns that businesses can’t rely on a single financing solution. Instead, they should have several options at their disposal, including a line of credit or access to a bank loan. “Vendors who are strong are more inclined to offer better terms,” she says. “But vendors can change those terms — and their ability to extend financing — very quickly. That’s why you need other sources of credit to back you up. It’s dangerous to be over-reliant on a single source of funding.”
As CWIC grew, it was also able to secure a $2.5 million line of credit from the bank. To get it, Walters says she shopped bankers, not banks. That means she looked for someone who believed in her business as much as she did. She also spent more than a month preparing a package of information about her business in an effort to win over the right banker.
The package included financial statements as well as cash flow projections backed up by solid data. Walters also went beyond the numbers. She talked about her experience in the industry, the people on her team, the brands CWIC was building, and its strategic vision. She even included press clippings about herself and her company.
Keith encourages these tactics. “She did not approach the lender with hat in hand but rather as an equal partner, which helps establish the power balance going forward.”
“Bankers are people too,” concludes Walters. “They don’t only look at the numbers. They want to see that you understand every part of your business and that you have a real plan for growth. That’s how they determine you’re creditworthy.”