Proactive vs. Reactive Credit Management

Why Timing Isn’t Just Important — It’s Everything

By David Johnston, Vice President and General Manager, FMCA

In credit management, how and when you act determines whether you protect your business — or absorb costly losses. The most successful credit teams don’t just respond to problems — they stay ahead of them.

In today’s volatile business climate, relying solely on reactive strategies puts your cash flow, profit margins, and customer relationships at risk. That’s why credit professionals in the home furnishings and accessories supply industry are increasingly adopting a layered, proactive approach — combining multiple sources of insight for smarter decisions.

Proactive credit management isn’t optional — it’s essential.
And when you add FMCA to your existing credit tools, you gain a deeper layer of visibility — without overextending your budget.

💼 Rethink Your Reporting Strategy

Most credit professionals already use multiple sources to evaluate customer risk — and that’s good practice. But not every account requires a full-profile report every time.

Adopt an “FMCA-for-updates” strategy. Use FMCA to monitor accounts between full pulls or when a cost-effective check-in is all that’s needed.

FMCA reports show actual historical trade data reported by your peers in the home furnishings and accessories supply industry, including:

• Last sale date
• Whether the account was sold on CBD (cash before delivery)
• High balance and current balance
• Amount past due
• Average days beyond terms to pay
• Quarterly trend data (when 4+ members report), showing average days slow, amount owed, past due %, and more

You may even be able to restructure your reporting contracts, using FMCA for updates and reserving higher-cost pulls for more complex needs.

📈 FMCA Dealer Pay History Trend Report

🔍 Strengthen Account Setup & Sales Strategy

Whether you’re qualifying a new customer or evaluating an existing one, the more you know, the better your decisions. Use FMCA alongside your other sources when setting up accounts or reviewing opportunities. You’re not replacing tools — you’re adding a vital industry-specific layer.

🚨 Reactive Credit Management: Always Behind the Curve

• Reports pulled only when payments are late
• Limits reviewed after they’ve been exceeded
• Collections dominate your team’s time
• Decisions driven by sales pressure or guesswork
• Reviews happen on a calendar — not based on behavior

✅ Proactive Credit Management: Leading With Insight

• Schedule FMCA reports every 3–12 months
• Monitor current accounts, not just prospects
• Use quarterly trend data to catch issues early
• Align limits with actual payment behavior

🆕 New-to-You Accounts: Monitor Early and Often

📊 A Tale of Two Credit Managers (Furniture Supplier Examples)

1. Slowing Payments

Reactive Manager: Megan notices a key account is over 60 days past due. She finally pulls a report — but it’s too late. Exposure is high, and collections are in motion.

Proactive Manager: David uses FMCA to run quarterly checks. He spots rising average days slow and a climbing past due %. He tightens internal controls, flags the account, and avoids a larger loss.

2. Surging Orders

Reactive Manager: Karen approves a large order without a recent credit check. A month later, the account starts missing payments — and the red flags were visible in FMCA, had she pulled.

Proactive Manager: Tom notices a volume spike. He checks FMCA and sees others are tightening terms. He works with sales to reduce exposure. A potential $12K loss is avoided.

3. Request for Extended Terms

Reactive Manager: Amy agrees to extended dating to support the sale — without pulling updated data. The account eventually defaults.

Proactive Manager: Brian pulls an FMCA report and sees the account is on CBD elsewhere and 25% past due across peers. He offers a structured solution that keeps the sale — and reduces risk.

🔁 Credit Line Increases Require Closer Monitoring

When you raise a credit limit, your exposure rises — and so should your oversight.

Tip: If a limit increases by 25% or more, schedule FMCA reports quarterly for the next 12 months. Reduce frequency only after sustained positive performance.

💵 The Cost of Inaction vs. the Cost of Insight

Furniture suppliers typically write off 2.3% of receivables per year. If your business does $4.5 million in credit sales:

🏎️ Sales Gets You in the Race — Credit Keeps You From Overheating

In the home furnishings and accessories supply industry, suppliers often spend 5–6% of revenue on sales and marketing — $250K–$300K for every $5M in revenue.

Sales gets the engine running — but without credit oversight, that engine can overheat. FMCA is the radiator: a small, smart investment that keeps your operation from burning out.

Sales gets you in the race. Credit keeps you from spinning out.

🛡️ FMCA Helps You Lead From Strength

• Monitor dealer behavior with real trade data
• Stay updated between full-profile pulls
• Identify red flags before losses occur
• Support smarter sales and credit alignment

🧭 Final Word: Who’s Driving?

Are you managing risk — or is risk managing you?

With FMCA, proactive credit teams lead with clarity. They protect profit, support growth, and stay ahead of risk.

Automate. Monitor. Stay ahead.
Use FMCA — alongside your other tools — to make smarter credit decisions, protect your margins, and pursue the right customers with confidence.

This article was created with AI support and human oversight. © 2025 FMCA. All rights reserved.