Case Study – Decision Support Scenario

Client: Computer Products Wholesaler
Topic: Decision Support Scenario

Situation

Middle market company selling into a changing industry – specifically, how they do business. Historically, sales were conducted on C.O.D. basis, or very short terms; however, accounts have begun to demand open credit terms and our prospect has little experience managing credit risk. Also, the number of new accounts seeking credit had been growing to unmanageable levels.

Operating Facts

Annual Sales: $14 million, Average Accounts Receivable: $2 million, Gross Margin: 25%, Account Turns Per Year: 7, Credit Function Handled By The Management Team.

Objective

Outsource credit analysis function to provide expert advice, allowing our prospect the ability to safely grow their business.

Solution

Implemented a credit insurance program that provided credit risk assessment on their medium and large accounts. The policy assumes the responsibility of continuous monitoring on all covered accounts – no credit “due diligence” required by our client. The policy was customized to provide immediate credit decisions for new medium sized accounts. Also, marketing prospect lists were developed with names of accounts pre-approved under the policy.

Results

The program produced immediate results. Sales were made to new and existing accounts on open credit terms that our client would have never entertained prior to the adoption of the credit insurance program. Our client successfully grew their business by 200% during the initial policy period and is projecting to generate approximately $35 million in revenue over the next year.

Decision Support/Profit Payout

Full Time Credit Expert: $35,000
Credit Insurance Premium: $21,000
Overhead Savings: $14,000

Additionally

One Time Sale: $800,000 Opportunity
Potential Gross Profit: $120,000 (bid-lower margin)
Knowledge of Potential Account: NONE
Cost To Insure This One Transaction : $8,000

Annual Return On Investment 1,200%

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