Industry feeling effect of economic slowdown
Industry feeling effect of economic slowdown
Twice as many produce companies have gone out of business owing money so far this year than in a comparable period last year, according to the records kept by The Produce Reporter Co. on firms listed in its Blue Book industry directory and rating service.
"[The years] 2006 and 2007 were average for the number of listed companies being reported to have ceased operating with obligations not fully liquidated," Ken Schultz, vice president of rating services for the Carol Stream, IL-based firm, told The Produce News.
He called the increase this year "unusually large," even when compared to other particularly bad years. Mr. Schultz said that California had the most firms ceasing operations, but in relation to the number of firms in California, the percentage was not higher than in other locations.
"The impact of the financial conditions of the industry is being felt throughout the U.S. and Canada," he added.
A quick survey of companies around the country found anecdotal evidence that the industry is feeling the economic slowdown and is expecting even more problems if the economy does not turn around quickly.
"Several of our customers have sent us letters advising us that they have had to slow down their payments," said Terri Madrid, credit director for Fresh Kist Produce LLC in Salinas, CA. "And I am closely watching three or four others that look like they are in trouble."
She said that in the produce industry, there tends to be a "snowball effect" in that when one company goes out of business owing a lot of money, it tends to drag down some others with it. Ms. Madrid said that this has happened in the past few months, as some firm closings have left some other firms in a vulnerable position. And she has more Perishable Agricultural Commodities Act claim filings than usual. "And I know the PACA is backed up," she said.
Brendan Comito, chief operating officer of Capitol City Fruit Co. Inc. in Des Moines, IA, said, "We're definitely a little slower than we were last year, and I'm sure the economy is playing a part. But we also are still trying to rebound from the Salmonella tomato scare that happened earlier this year. It is difficult to know if it is the tomato problem or the economy."
But Mr. Comito said that he knows restaurants in Des Moines are not doing well. "We sell to foodservice, but we sell it through institutional wholesalers that service that market, so I don't have direct knowledge that sales are down [for that segment]. But I do know that when I go into restaurants and I ask how business is, most of the restaurants say they are down about 30 percent."
Mr. Comito referred to the current economic situation as a "recession," and said that he is hopeful that it won't last too long. If it stretches past six or eight months, he expects many of his customers to feel the pain more acutely.
Matthew D'Arrigo, vice president of D'Arrigo Bros. Co. of New York Inc., located on the Hunts Point Terminal Market in the Bronx, NY, said, "I have not noticed a negative trend with our own [accounts receivables] aging report, but that's probably because we are very aggressive in pursuing collections and making sure we don't have a problem. We are constantly looking over our shoulders, and we are very methodical and efficient with our credit decisions."
Overall, Mr. D'Arrigo said that he is receiving payment on invoices about 25 days after billing. "It has been in that same range for the last several years. We haven't noticed a change"
He said that he is especially mindful of credit going out to the small restaurant accounts throughout New York. "You have to watch them very closely. The mom-and-pops are the ones that can go out of business very quickly."
Virtually everyone agrees that keeping very close tabs on accounts is the key. Ms. Madrid of Fresh Kist said that doing the work up front is very important. She said that each account has to be preapproved before the sales people can start selling that company. And if the account does not meet her firm's regular credit standards, it is either not sold or some other arrangement is worked out, such as prepayment for a period of time.
And then once credit is extended, "You have to be on top of it," she said. "You basically have to babysit any account that could be a problem. I talk to our customers all the time. If there is any hint of a problem, I will call once a week."
She said that those conversations typically start with the company's credit manager, but if she is not hearing the answers she wants, Ms. Madrid goes up the line quickly - to the company's president if necessary.
The Fresh Kist credit director said that it is during times like this that it is very beneficial for a company to have a person devoted to analyzing the credit worthiness. At Fresh Kist, she plays the dual role of being credit director and payment collector. As such, she has developed a very close relationship with the firm's customers.
Matthew McInerney, executive vice president of Western Growers Association in Irvine, CA, said that in the past decade, more and more companies have given their credit departments a professional upgrade with dedicated employees and clear procedures. He said that following those procedures and practicing due diligence on every account on an ongoing basis are critical and pay huge dividends in times like these.
Mr. Schultz of The Blue Book said that there are a number of things a firm can do to guard against bad debt and remain solvent. He said that the smart credit manager should be looking at aging accounts and noting how quickly a firm is paying its invoices. When market conditions create a tight market with limited availability, he said, it is important to make sure "sales are directed to accounts that pay in a timely manner ... to garner the returns needed to sustain cash-flow projections."
When extending credit, Mr. Schultz said that it is very important to know why a company wants a particular line of credit. Is it due to increased sales growth or a depletion of credit from other vendors? Obviously the former is a good reason, the latter raises a red flag.
Ms. Madrid said that it is often difficult to get an accurate picture of a customer's situation, but it is very important when making sales and credit decisions. She said that a customer of Fresh Kist that has 100 of its own customers is typically a better credit risk than one which has only 10 customers. There also can be legitimate reasons that a firm has cash-flow problems, she said, but it is very important to know those reasons before extending credit.
"It is essential that companies monitor their accounts via Blue Book reports," said Mr. Schultz. "Trade feedback is received every day on many companies, and knowing what the latest information is helps companies quickly identify trends. Too often, companies pull credit reports after they have trouble collecting, only to find that others have already reported slow pay.
"[The years] 2006 and 2007 were average for the number of listed companies being reported to have ceased operating with obligations not fully liquidated," Ken Schultz, vice president of rating services for the Carol Stream, IL-based firm, told The Produce News.
He called the increase this year "unusually large," even when compared to other particularly bad years. Mr. Schultz said that California had the most firms ceasing operations, but in relation to the number of firms in California, the percentage was not higher than in other locations.
"The impact of the financial conditions of the industry is being felt throughout the U.S. and Canada," he added.
A quick survey of companies around the country found anecdotal evidence that the industry is feeling the economic slowdown and is expecting even more problems if the economy does not turn around quickly.
"Several of our customers have sent us letters advising us that they have had to slow down their payments," said Terri Madrid, credit director for Fresh Kist Produce LLC in Salinas, CA. "And I am closely watching three or four others that look like they are in trouble."
She said that in the produce industry, there tends to be a "snowball effect" in that when one company goes out of business owing a lot of money, it tends to drag down some others with it. Ms. Madrid said that this has happened in the past few months, as some firm closings have left some other firms in a vulnerable position. And she has more Perishable Agricultural Commodities Act claim filings than usual. "And I know the PACA is backed up," she said.
Brendan Comito, chief operating officer of Capitol City Fruit Co. Inc. in Des Moines, IA, said, "We're definitely a little slower than we were last year, and I'm sure the economy is playing a part. But we also are still trying to rebound from the Salmonella tomato scare that happened earlier this year. It is difficult to know if it is the tomato problem or the economy."
But Mr. Comito said that he knows restaurants in Des Moines are not doing well. "We sell to foodservice, but we sell it through institutional wholesalers that service that market, so I don't have direct knowledge that sales are down [for that segment]. But I do know that when I go into restaurants and I ask how business is, most of the restaurants say they are down about 30 percent."
Mr. Comito referred to the current economic situation as a "recession," and said that he is hopeful that it won't last too long. If it stretches past six or eight months, he expects many of his customers to feel the pain more acutely.
Matthew D'Arrigo, vice president of D'Arrigo Bros. Co. of New York Inc., located on the Hunts Point Terminal Market in the Bronx, NY, said, "I have not noticed a negative trend with our own [accounts receivables] aging report, but that's probably because we are very aggressive in pursuing collections and making sure we don't have a problem. We are constantly looking over our shoulders, and we are very methodical and efficient with our credit decisions."
Overall, Mr. D'Arrigo said that he is receiving payment on invoices about 25 days after billing. "It has been in that same range for the last several years. We haven't noticed a change"
He said that he is especially mindful of credit going out to the small restaurant accounts throughout New York. "You have to watch them very closely. The mom-and-pops are the ones that can go out of business very quickly."
Virtually everyone agrees that keeping very close tabs on accounts is the key. Ms. Madrid of Fresh Kist said that doing the work up front is very important. She said that each account has to be preapproved before the sales people can start selling that company. And if the account does not meet her firm's regular credit standards, it is either not sold or some other arrangement is worked out, such as prepayment for a period of time.
And then once credit is extended, "You have to be on top of it," she said. "You basically have to babysit any account that could be a problem. I talk to our customers all the time. If there is any hint of a problem, I will call once a week."
She said that those conversations typically start with the company's credit manager, but if she is not hearing the answers she wants, Ms. Madrid goes up the line quickly - to the company's president if necessary.
The Fresh Kist credit director said that it is during times like this that it is very beneficial for a company to have a person devoted to analyzing the credit worthiness. At Fresh Kist, she plays the dual role of being credit director and payment collector. As such, she has developed a very close relationship with the firm's customers.
Matthew McInerney, executive vice president of Western Growers Association in Irvine, CA, said that in the past decade, more and more companies have given their credit departments a professional upgrade with dedicated employees and clear procedures. He said that following those procedures and practicing due diligence on every account on an ongoing basis are critical and pay huge dividends in times like these.
Mr. Schultz of The Blue Book said that there are a number of things a firm can do to guard against bad debt and remain solvent. He said that the smart credit manager should be looking at aging accounts and noting how quickly a firm is paying its invoices. When market conditions create a tight market with limited availability, he said, it is important to make sure "sales are directed to accounts that pay in a timely manner ... to garner the returns needed to sustain cash-flow projections."
When extending credit, Mr. Schultz said that it is very important to know why a company wants a particular line of credit. Is it due to increased sales growth or a depletion of credit from other vendors? Obviously the former is a good reason, the latter raises a red flag.
Ms. Madrid said that it is often difficult to get an accurate picture of a customer's situation, but it is very important when making sales and credit decisions. She said that a customer of Fresh Kist that has 100 of its own customers is typically a better credit risk than one which has only 10 customers. There also can be legitimate reasons that a firm has cash-flow problems, she said, but it is very important to know those reasons before extending credit.
"It is essential that companies monitor their accounts via Blue Book reports," said Mr. Schultz. "Trade feedback is received every day on many companies, and knowing what the latest information is helps companies quickly identify trends. Too often, companies pull credit reports after they have trouble collecting, only to find that others have already reported slow pay.
