How's Your Credit?

An Interview with John Rocktoff

Quickly and simply, here is why the credit department is important to Elf Atochem North America:

Our largest customer orders up to $19 million worth of Forane refrigerants during its short busy season. The customer receives these shipments and charges them to its credit line with our company. From the time the last shipment is sent to the time we are paid, we have a risk exposure of up to $19 million. The credit department is responsible for approving and minimizing Elf Atochem's risk if the customer can't pay.

"Dun and Bradstreet recently reported that business failures for the first half of 1996 are up 17 percent compared to 1995," said John Rocktoff, director of credit for Elf Atochem North America.

"That figure concerns us and helps to illustrate the importance of what we do. We have more than 10,000 active accounts spread among 15 business units. With such a high national business failure rate, we want to be very sure that the companies we're extending credit to are secure."

Our corporate credit department strives to provide assurance that credit is only offered to companies with the ability to repay. They serve as a preventative measure. They address problems before they occur.

"Our job is to protect the company's assets," said Rocktoff. "From the time of the sale, we are basically making a loan to the customer and saying, 'Here is our money, you can have it for 30 days.' Our success depends upon our ability to assess the value of the sale versus the risk."

The concept makes perfect sense so far, but how can the credit department be sure that a customer will pay its bills?

"For our typical accounts, those with $50,000 to $100,000 lines of credit, we first get three trade references and a bank reference. This gives us a sense of their credit history," said Rocktoff. "If the account is larger than $100,000, we ask for their audited financial statement."

The credit department uses Dun and Bradstreet and other credit reports to determine risk. Elf Atochem is also a member of the National Chemical Credit Association (NCCA).

'We have been very active with the corporate quailty team to reduce working capital," said Rocktoff. "One of the ways we contribute is to reduce the time it takes for customers to pay their bills."

Days Sales Outstanding (DSO) is the amount of time it takes for a company to receive payment after an invoice is generated. A primary goal for the credit department is to reduce DSO.

"By reducing our DSO, we can reduce our average credit exposure," said Rocktoff. "This means that we have more cash in our hands and less in the accounts receivable column of our balance sheet. We can make a significant contribution to reducing our working capital."

Why should you care? Because by reducing working capital, Elf Atochem North America reduces the amount of money needed to run the business and can allot the savings toward interest-bearing investments. This improves our returns on investments.

"Our approach toward credit is a great deal different than what many people here are used to. We're using advanced software packages, paperless record keeping and a new corporate credit policy that has been approved by the Executive Committee," said Rocktoff. "We want to confidently assure each business unit that when we apprve a credit line, it has been thoroughly researched and, if necessary, secured."

For more information about the Elf Atochem credit department or for a copy of their credit policy, contact John Rocktoff at (215) 587-7381.

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