Sales without collections are worthless. And so are growth strategies, if they aren't supported by the kind of steady, predictable cash flow that can come only from an effective accounts-receivable strategy. Such strategies become essential in recessionary times. Customers are wont to drag out payments as long as possible, leaving fast-growing companies dangerously vulnerable to cash-flow crises. But whatever the economic climate, it's simply good business to address the issue, since healthy accounts receivable provide the locomotion to drive everything from sales operations to long-term growth plans.

To prime the collection engine, every chief executive should create an accounts-receivable system that brings in the cash necessary to run and grow the business. That's how Alan Burkhard, president of The Placers Inc., a Wilmington, Del., temporary personnel and permanent job-search firm, performed a major tune-up of his own deeply troubled billing-and-collection operations. Although it's far from being the only system that works, Burkhard's plan offers a successful, straight-forward blueprint for anyone who is concerned about this all-important financial issue.

Like most entrepreneurs, Burkhard didn't start off in business with anything resembling an interest in accounts receivable -- even his own. "I always told myself that accounts receivable didn't create sales, so they weren't worth paying attention to," he admits. Then, about a year ago, Burkhard realized he had a big problem. "Placers had been growing by about 100% a year for seven years straight. Then I woke up one morning and realized that I was having difficulty making any kind of business decisions."

After much soul-searching, Burkhard concluded that he was the root of the problem. Although he had a budget, he'd never developed a good cash-flow analysis for The Placers. Yet it had grown to more than $10 million in annual sales. "My forte is everything except finance," he says. "I had been so totally focused on sales that I was trying to run the company with all the wrong numbers."

Once he started paying attention to the company's cash flow, Burkhard discovered that his accounts-receivable department was out of control. "None of our customers paid us in any kind of timely fashion," he remembers. "And 60% to 70% of our delinquent accounts were actually owed by our regular customers." Only a very inefficient effort had ever been made to check the creditworthiness of the 600 or so companies who hired The Placers' temps each year. Even less was done to follow up on bills once they left the company's offices.

Burkhard didn't have to be an accounting whiz to realize just how financially vulnerable this left his business. "Every single week we had to pay salaries and payroll taxes for every temp we placed in a job. But it was taking us 60 or 90 days or longer to collect our bills from the companies that were hiring those temps," he says. "We were basically giving our customers an interest-free loan to cover their payroll costs. Because our industry is so competitive and profit margins are already very low, I could see that we were in precarious shape."

Burkhard's predicament was far from unique. For any service company, whose expenses are heavily front-loaded into labor costs, profits visibly shrink with every additional unnecessary week it takes to get those costs reimbursed. For manufacturers, the problem is every bit as -- if not more -- acute, since they often face a longer lag time between spending large amounts of money for raw materials, production, and inventory buildup and actually getting paid.

It's easy for CEOs to ignore the deadly effect that slow collections can have on profit margins unless they regularly review both their cash-flow statements and accounts-receivable updates, which go into detail about the so-called aging or delinquency of every single account. Once accounts receivable captured Burkhard's attention, he devoted the same kind of intensity to them that he had always directed to the rest of his business. That meant analyzing every single aspect of his billing-and-collection system, from the paperwork straight down to the working conditions of his accounting clerks.

What Burkhard found amazed him. "I'd never noticed that my accounting staff was working with six people crammed into 300 square feet of office space, while I gave my salespeople 300 square feet apiece!" The responsibility for handling some 200 invoices a week fell to the company's overloaded payroll supervisor. "That might have made sense when we were small, but now she had about 15 minutes every day to spend on collections," Burkhard confesses.

Making matters worse, Burkhard had always projected mixed messages about collections to his staff. "We were afraid of collections because even though we wanted our money, we didn't want to risk losing our customers. If getting our money quickly meant losing our customers, I didn't want to do it."

It's all too easy for sales- and growth-oriented company owners to fall into this kind of mental trap: get the sales now; work on improving profit margins tomorrow. But in fact, sales that are uncollectible -- or collectible only over an extended period -- are often far worse for a company than meager sales. Burkhard, for example, concluded that given his industry's low margins, he'd turn a profit only on payments brought in under 45 days; at 60 to 90 days, his previous average, he was losing money on every job he filled.

After identifying the extent of his problems, Burkhard reorganized The Placers' accounts receivable in five key ways:

* * *

Manpower and training. To begin with, he hired two people to handle billing and collections, "which was a big improvement over our previous staff of none," he says. "Then I aimed to give them the same kind of direction, attention, resources, and commitment that I'd always given to the sales and marketing ends of the business."

That meant, among other things, that Burkhard launched an intensive training effort, comparable in many ways to the training that had backed up his highly successful sales staff. "We developed scripts for everyone so there would be a general uniformity to our approach," he says. The scripts, which were modeled after those used by Burkhard's salespeople, spelled out how to approach clients in a "customer-friendly" way. Direct the conversation toward a clear objective, in this case the collection of overdue funds, and respond to customer comments or problems. "Then, just as we do with our salespeople, we prepared our new collection clerks for real-life conversations by doing role-playing," which included tape-recording their simulated conversations with delinquent payers. These were followed up with a group analysis of what had worked and what hadn't worked during the conversation.

Always conscious of the intensely competitive environment in which The Placers operated, Burkhard made certain that collection staffers projected a customer-service orientation. "All we started doing was the same damn things we'd always done in the rest of the business," he says. "I'd just never seen the point of using those techniques in our accounts-receivable department before."

Customer communications. "Once I analyzed our existing system, I realized that we had always handled the up-front end of our billing process very poorly," acknowledges Burkhard. Among other things, the company never bothered to explain its payment terms to new customers.

Here's the new process Burkhard instituted: within 15 to 30 minutes after every new sale (which at The Placers generally amounts to a call from a business that needs temporary personnel that day), a customer-service representative calls the customer back, says Burkhard, "to go over the order, in a very service-oriented way and explain our payment terms." Among other issues, the rep clarifies which person within which department should receive the bill and asks new clients for credit references.

* * *

Reference checks. In the old days, The Placers checked customer references so infrequently that they provided virtually no line of defense against deadbeats. "Maybe we'd get around to checking a company after three or four weeks," admits Burkhard, "but by then, if there were problems, we were already in the hole by thousands of dollars, because we'd be laying out money every week for our temps' salaries."

Now, new client's references are checked, and checked quickly. Customer-service reps ask for both bank and vendor references during that initial telephone call. The Placers' accounting clerks immediately make follow-up calls to all references, checking out the company's financial health as well as payment history. The Placers does its reference checks by phone, not mail, since Burkhard wants to identify problem payers quickly enough to be able to pull his temps off the work site at a minimum loss to the firm.

* * *

Invoicing and follow-up. The only part of The Placers' accounts-receivable system that Burkhard didn't bother to change was the actual bills. "Ours are pretty clear," he says. "They describe the job we filled, the number of hours worked, the billing rate, and total amount due."

Here, Burkhard concentrated his own efforts on revamping The Placers' follow-up procedures, which had been poor to nonexistent in the past. "We'd wait two or three months or even longer before bothering to investigate why a payment was late," recalls Burkhard. "And sometimes after all that waiting, it would turn out that the problem was something we could have fixed quite simply on our end. Maybe the company had a question about one temp's time card or performance but was holding up all our payments until that particular problem could get resolved." These kinds of payment delays were unnecessary, since it was simple for The Placers' customer-service reps to isolate any charge in question and issue another invoice with payment due immediately.

Now, the company doesn't bother to wait for payment slowdowns before making follow-up calls: Burkhard's employees check in with customers less than 10 days after invoices are mailed. "That's a straight customer-service call," he explains. "They make sure the customer was satisfied with our temp's performance and look for any red flags that might indicate payment slowdowns."

During the course of the conversation, employees ask when The Placers can expect payment. "Getting the client to commit to a date is useful, because it tells us exactly when to schedule our next follow-up call, if we don't receive the payment when we expect to." Cynics might expect an endless stream of "the check is in the mail" conversations, but that hasn't been The Placers' experience at all. "The combination of our new customer education up-front and our follow-up calls after billing has convinced most companies that we're serious. Since most of these companies are our regular customers, they realize it's in their own best interests to pay in a timely fashion." Thanks to effective follow-up, The Placers has also experienced fewer customer-service problems -- probably another reason clients are willing to pay on time.

* * *

Companywide cooperation. Burkhard's biggest change was to make accounts receivable a major priority for his entire organization. Employees now understand that sales without collections are worthless, and they act accordingly.

"Our accounting department coordinates its activities with sales, customer service, and other key departments," reports Burkhard. "That's done, first and foremost, through the flow of information about how much money collections brought into the company, which customers are slow payers, whether any new accounts are credit risks, and so forth." Every week, for example, Burkhard and his department heads receive aging schedules, which categorize all outstanding invoices according to whether they are under 30 days, 30, 60, or 90 days overdue.

* * *

It took a couple of months for Burkhard to clean up the residue of all those years of neglecting his accounts receivable. But he experienced one pleasant surprise: The Placers was able to push delinquent bills down to about 5% of sales, compared with about 15% previously. And although the system doesn't have a long-term track record, many customers have started paying within 30 to 45 days instead of 60 to 90.

Burkhard is more than pleased with the results: "Our cash flow has improved and, best of all, become much more predictable. Now, when I look at my weekly accounts-receivable reports, I can actually predict how much cash is coming into the company -- and when I can count on it."

He smiles. "If a recession makes our customers slow down their payments, I feel as if we're ready for them. And in the meantime, I feel comfortable again about making business decisions."

-- Research assistance was provided by Anne Murphy.


Five surefire ways to get what's owed you

Short of overhauling a company's entire accounts-receivable system, the way Alan Burkhard did at The Placers Inc., there are plenty of ways to speed up billing and minimize the risk of bad debt.

* Get active. Passive approaches cripple most companies' accounts-receivable systems, according to Ron Schneider, controller of Motif Designs Inc., a $10-million wallpaper and fabric manufacturer in New Rochelle, N.Y. "Most companies let their clients determine their cash flow, instead of proactively managing their accounts receivable."

At Motif Designs, Schneider sets weekly collection goals for his staff based on his assessment of the company's cash-flow needs. Even more unusual, he leaves it up to his employees to decide which accounts are most profitable for them to focus their attention on. Schneider reinforces his system with a biweekly bonus that rewards each individual according to his or her own performance, based on mutually agreed-on goals. Results have been impressive. Due in large part to the increased cash flow from accounts receivable, Motif has been able to reduce its bank borrowings by 20%.

The best way to actively manage accounts receivable is to start early -- ideally, long before sales invoices ever get written and mailed. Judson Blaine, president of The Judson Lumber Co., which does more than $10 million worth of business in Columbus, Ohio, actually performs credit checks on companies before deciding whether to send his salespeople after their business. That's one major reason the company's bad-debt ratio is only 0.3%, less than half the industry average. Before approving a potential client, Judson's staffers consult an elaborate network of contacts, including local credit bureaus and other building-contractor suppliers. "If a guy is going to stiff us," figures Blaine, "he's probably already stiffed carpenters or plumbers in the past."

* Involve your sales force in collections. Jeff Kamien, controller of $2.5-million New Methods Research Inc., a software developer for medical research, in East Syracuse, N.Y., ties his salespeople's commissions to the collection instead of the order stage of his business. "This makes our sales force think about the type of customer they're bringing in the door," he says. "If their commissions are hanging in the balance, they're not going to waste their own time bringing in a dog order."

Motivated salespeople can also be helpful when invoice follow-up becomes necessary. "Salespeople usually have an easier time than accounting people do getting customers to take their calls."

* Streamline your billings. BSW Architects, a $17-million business in Tulsa, sped up its collections by, quite simply, speeding up its billing process. "We started sending our invoices by overnight mail every two weeks instead of just mailing them every month," says Bob Sober, one of the firm's three general principals. "Then we appointed a business manager for every project, whose responsibilities included following up by telephone the next day, to make certain the client received our bill and didn't see any problems with it." If a check doesn't arrive within a week, the business manager calls to find out when the payment is coming.

Similarly, Mel Chaskin, president of Vanguard Research Inc., a $6.5-million Fairfax, Va., company, includes a prepaid Express Mail envelope with each invoice. "That costs me about $8 per envelope," he says, "but if the check is for $200,000 and it gets to my bank in one day rather than a week, I figure I've saved about $500 in financing costs."

* Keep relations cordial. "I never approach late payers with: 'Listen, deadbeat, I want my money,' " emphasizes Loretta Johnson, controller of $18-million Industrial Machinery & Equipment Co., in Warren, Mich. "Instead, I'll call customers and tell them, 'Our bankers won't lend us any more money if I can't clear up your overdue account.' Or, if customers have placed new orders, I'll tell them that we want to ship them our product, but our bankers won't let us until we get some money from them that can be applied to their oldest invoice." Johnson's approach works. Her bad debts are below 1% of sales.

* Be flexible. "My people try to collect every single dollar that's owed to us on time, but after a bill is 60 days overdue, we start looking for other ways to bring in cash," says Chuck Smith, vice-president and general manager of Trail Ford Tractor Co., a $3.7-million dealership in Lake Worth, Fla. "If someone tells us he can't pay the entire $500 he owes us all in one sum, then we'll ask, 'Can you pay us $400?' Or, 'Can you pay us $100 every two weeks?' We'll just keep breaking the bill down into smaller and smalller increments until it finally seems manageable to the customer." Most customers are so grateful for Smith's flexibility that they live up to the revised payment terms. "In the end," says Smith, "all we care about is bringing the money back into our business."

Well said. After all, getting paid is what accounts-receivable systems are all about.


Collections work best when they're part of a plan

Puzzling, isn't it? When companies slow down their own payments to suppliers and other vendors, they're complimented for shrewd cash management and for maximizing their all-important cash flow. But when they're on the receiving end of slow payments, they're cursed with a cash-flow crunch.

What's a CEO to do?

In an ideal, altruistic universe, CEOs would pay their own bills just as swiftly as they hoped to receive payments, probably within a week or so. And indeed, if the whole business community reciprocated, company owners would flourish, thanks to all those funds pouring in that could finance growth activities. Odds are, plenty of bankers and lawyers would find themselves out of work.

Welcome to reality. So long as it remains better for companies to receive than to give, accounts receivable and accounts payable will always represent financial danger zones for entrepreneurs. Savvy CEOs need to aggressively manage both ends of their cash-flow cycles, to be certain that funds leave and enter the company's coffer at an optimal pace for both current operational needs and long-term growth plans. Here are some essential steps to take to protect your cash flow:

* Plan your own company's payment schedule. If a supplier offers an attractive financial incentive for early payment, take him up on it. Without such incentives, it makes sense to pay bills 30 to 45 days after receipt. That gives you the best of both worlds: time to earn some short-term interest on cash funds, but no risk of negative repercussions for your business (such as a blot on your credit rating, late-payment charges, or, worst of all, your suppliers insisting on cash on delivery).

* Figure out your break-even point for collections. For every company, there's a point at which sales become more costly than they're worth -- that should be absolutely the latest collection date targeted by your billing-and-collection system. To figure out your company's break-even point and plan accordingly, sit down with your chief financial officer and calculate the effect of collection and financing costs and the like on your company's profit margin.

* Pay attention to the human component of your cash-flow process. More so than with any other accounting system, successful billing and collection depend upon motivated, well-trained employees with plenty of support from the rest of your staff. Likewise, account-payable clerks can perform their jobs best when given strong directives from CEOs and CFOs about optimal ways to schedule the company's payments.

* Look for trends in accounts-receivable problems. Some customers experience their own seasonal cash-flow crunches or have difficulty paying bills larger than a certain amount. If you can identify those problems, you can take steps to safeguard your own finances against them -- perhaps by timing deliveries differently or occasionally imposing a finance charge on customers. The best way to track patterns: ask your accounts-receivable department to report on three to five years' worth of order and payment records for each month's late payers.

* Survey your customers and chief suppliers for ways to improve both ends of the cycle. If you're suffering from accounts-receivable problems, question your customers (especially late payers) about ways to revise your invoices that can give them the information they need, in a format they can understand. If you're looking for ways to reduce your own costs, check with your major suppliers to see if you can negotiate some early-payment discounts for stepped-up payments within 30 or even 15 days.

* Personally follow up on any problems. Things that seem at first glance to be collection problems on your customer's end may actually be the result of glitches in your own customer-service or record-keeping departments. Follow-up is also the best approach when it comes to resolving your own problems with services or products your company has bought: instead of simply withholding payment -- which can sock you with a credit penalty you don't deserve -- notify the company in writing and then stay in touch by telephone on a weekly or monthly basis, as appropriate.

* Safeguard your cash flow against fraud and error. Richard Rampell, a CPA in West Palm Beach, Fla., warns that many companies have only the loosest of procedures to handle bad-debt write-offs, which leaves them exposed to collusion between the members of their accounting staffs and delinquent customers. "Companies should set up formal mechanisms to control the points at which debts are either turned over to attorneys or collection agencies or written off -- none of which should be able to happen without the signed approval of the company's CEO or CFO," Rampell advises. He also recommends setting up an accounts-receivable control total to make sure that all changes have been credited properly and that they match. The total deposits on sales should agree with the total payments of the individual customers as they have been recorded on each of their accounts-receivable balances. These should be compared with the accounts-receivable control total monthly. It's a way to make sure that there have been neither careless mistakes nor thefts.


If you use these techniques, forget about getting paid anytime soon

Talk to any chief executive who's fought the good fight over accounts receivable, and he or she will probably have some great war stories about strategies that backfired or just plain bombed. That's no surprise. After all, billing and collection is fraught with risks, not the least of which is losing clients who might have proven quite valuable, if only they'd been handled correctly. Then there's the risk of holding onto clients but losing any profits their orders might once have represented, thanks to excruciatingly slow or costly collections.

Here are some tactics from the accounts-receivable battleground you'll want to avoid:

* Levying late-payment charges. Bruce Neurohr, CEO of $12-million TEA, a land-acquisition, project-management, and engineering-services firm, tried to tack on a 1.5% fee for every 30 days of late payment. "But that wasn't a solution," says Neurohr. "Our clients just ignore the late charge and pay us whenever they feel like it." He's thought about trying to enforce the charge by adding it to later bills, but fears that his Fortune 500 customers would just continue to ignore it -- or switch to one of his competitors.

* Eroding profits with early-payment discounts. "We used to offer our customers a 2% discount if they paid us within 10 days, and you know what happened?" asks William Borne, president of Analytical Medical Enterprises, in Baton Rouge, La. His $14-million brokerage agency provides temporary health professionals to hospitals and surgical centers. "Our customers would take the 2% discount and then pay us in 60 days. We eliminated the discount."

* Running too quickly to a collection agency. "Customers get upset when you turn their bills over to a collection agency, and then they won't do business with you again," says Krishna Murthi, chief financial officer of $11-million Attronica Computers Inc., in Washington, D.C.

Adds Murthi, "The collection agency takes as much as 35% of any funds it brings in. It's less costly and less risky to have one of our employees make the follow-up calls to late payers, no matter how many calls it takes."

* Taking small-time deadbeats to court. "Sometimes you've got to cut your losses, upsetting as that might be to contemplate," says Gordon Presher, president of $5-million Ormec Systems Corp., in Rochester, N.Y. Presher lived through the ultimate accounts-receivable nightmare. "We went to court over a $8,000 bill and were countersued in a totally frivolous case. They tried to get us to disclose all kinds of unrelated, confidential information -- some of which we wound up having to release." Just before the case came to court, Presher negotiated a settlement that netted him only about $3,000 after he paid his lawyer. "It wasn't worth it. We'll never do it again." He's had better luck making his own collection calls, directly to the CEO's office.

* Blindly following credit reports. Good credit reports from Dun & Bradstreet and others can seduce you into doing business with companies that are bad credit risks, and negative credit reports can sometimes turn you away from potentially good customers. See page 6 for how to really read a credit report.


Help for credit-conscious CEOs

* National Association of Credit Management (NACM), a network of 75 affiliated associations that offer several key benefits for their 40,000-plus members, including educational seminars and credit-reporting, collection, and adjustment bankruptcy services. For information on membership, write to NACM, 8815 Centre Park Dr., Columbia MD 21045, or call (301) 740-5560.

* Credit Research Foundation, an educational group affiliated with the NACM, offers a wide array of day-and weeklong seminars on such topics as collection strategies, credit management, financial analysis, and the legal aspects of billing and collection. Fees range from about $200 to several thousand dollars, depending on the length of the course; discounts are available for NACM members. For a list of seminars, write: Credit Research Foundation, 8815 Centre Park Dr., Columbia MD 21045, or call (301) 740-5499.

* The biweekly "Credit Manager's Letter" offers eight pages of nuts-and-bolts tips on collection strategies, bad-debt solutions, time management, cost-cutting measures, and so forth. Articles are blissfully short and, above all, practical, making this a worthwhile expenditure for any credit manager, despite its $119.40 annual price tag. To order, write Prentice Hall Professional Newsletters, 200 Old Tappan Rd., Old Tappan NJ 07675, or call 201-767-5059.

* The SBT Accounts Receivable package, produced by SBT Corp., wins high marks from corporate users. The software program can display or print such vital information as accounts-receivable aging schedules and order/payment patterns, individualized by customer over a 24-month period. Available for $595, SBT's software works on most major computer systems, including IBM-PCs and compatibles, Macintosh, and Unix. To order, write SBT Corp., One Harbor Dr., Sausalito CA 94965, or call (800) 227-7193.

* Collection Management: The Art of Getting Paid, by A. Michael Coleman, is a pricey but effective 320-page manual on how to get down and dirty with problem payers. Coleman, who runs a collection agency in Port Jefferson Station, Long Island, N.Y., passes along more than 200 trade secrets for "turning credit sales into bank statements" -- all geared to teaching companies how to solve their collection problems without the help of costly outside services. The price is $69.50; to order, write The Bureau of Business Practice, Prentice Hall, 24 Rope Ferry Rd., Waterford CT 06386, or call (800) 243-0876.


What does Big Brother really know?

[A Dun & Bradstreet credit report] is Big Brother's dossier on your company or your customer's. Familiar, feared, it's the currency of credit. The maker and breaker of credit lines and reputations. D&B issues 12.5 million of these reports a year on any of 9.5 million businesses in its database. Legions of field reporters across the country collect payment information. Honest Abe Lincoln and three other U.S. Presidents served as D&B reporters in its early days. But times have changed.

The Dun & Bradstreet Corp. is now a $4.3-billion information giant approaching its 150th birthday. Largely unregulated, it owns the lion's share of the credit-report market. And it can dictate the reputations of growing businesses.

Few credit decisions are made without the word according to D&B, a service that can cost thousands of dollars a year. Says Hank Milliken, credit manager of Viking Engineering Inc., a maker of spray equipment in Tarpon Springs, Fla.: "It's highly overrated. I question whether I can't find the same information in three phone calls that would cost me 75¢."

Although it's hard to know who's whispering in D&B's ear about a company's payment habits, we do know who's providing the financial data: the owners themselves. "They print whatever the principals tell them," says William Garnett, president of Garnett & Co., in Pasadena, Calif. Often, that isn't much. D&B has financial information on fewer than one in 10 companies; only a fraction of those financials are audited.

"The information it deals with is quite old," says Garnett. "It might be as recent as three months or as dated as two years." Witness our featured report: on March 20, 1990, D&B reprinted a company's financial statement dated September 30, 1988. Sure, the CEO had supplied "projected" information on November 30, 1989, but whither the bottom line now?

That's why, for large transactions, Garnett requests audited financial statements and tax returns. He uses them to analyze three- to five-year patterns in debt-to-equity ratios, working capital, net worth, inventory turnover, and accounts receivable. Others rely on credit reports from the National Association of Credit Management.

"It's window dressing," says Garnett of the principal's personal history. Maybe the bio is true, maybe it's not.

But a company's legal structure may permit a more scrupulous look at the principals. If the company is a proprietorship or a partnership, it's legal to check out the principals' personal credit history.


[Big Borther bases] the venerable D&B rating in part on a private company's own (usually unaudited) estimate of its net worth. Payment history is also factored into the equation that D&B uses to assign its powerful grade.

This particular rating [DC2] suggests the privately held XXX company's estimated financial strength is between $50,000 and $74,999. Of course, that was 18 long months before this report was printed. With painstaking precision, D&B describes the company's "composite credit appraisal" as "condition good."

"A D&B rating can give a false sense of security," Milliken says. "Nothing says D&B can't tell you a company is A-OK and then the customer won't turn around and rip you off."

Payments Reported
"I've gotten negative reports from Dun & Bradstreet about customers who turned out to be my best payers," says Bob Taylor, president of Wesson, Taylor, Wells & Associates Inc., a Charlotte, N.C., software consulting firm.

So maybe the information isn't always reliable. But don't blame D&B. It's right there in the fine print: "Dun & Bradstreet Inc. . . . does not guarantee the accuracy, completeness or timeliness of the information provided."

Just where does D&B get these facts? From creditors, or those who claim to be. And because D&B rarely verifies the information it collects, there's little to stop competitors from sabotaging your credit history. Still, it's more likely a report will omit key facts than spread lies. "We don't provide any info -- period," confesses Garnett. "Why expose yourself to a lawsuit?"

With bad news often hushed, how do you get the lowdown on a customer? Milliken calls any references that have been supplied. Judson Blaine, president of The Judson Lumber Co., in Columbus, Ohio, says local credit bureaus provide accurate, up-to-date reports.

Theoretically, since D&B tries to contact its customers once a year, some inside information can be gleaned about a private company's operations. Milliken is not impressed. "This tells me they've got a concrete building, but I want to know if it's a good operation or not. The sales rep who spent three days there last week is the one who can tell me that."

-- Anne Murphy