As business becomes increasingly global, many small companies are navigating the perilous waters of importing goods. For a small business that buys products from foreign suppliers, especially those in Asia, making payments can be tricky. Asian manufacturers typically require either payment in advance or a letter of credit from a bank. Neither option is great for cash flow. To obtain a letter of credit, importers put up cash as collateral or take out a line of credit so that their bank will guarantee payment. Bank fees for letters of credit usually run from several hundred to several thousand dollars, and the interest on credit lines can run even higher.
Then there's Fred Crosetto's way. When Crosetto's company, Ammex Corp., started importing latex gloves from manufacturers in Malaysia, in 1988, Crosetto pitched potential suppliers to let him pay on open-account terms within 60 to 90 days of his order. A few said yes. Crosetto has done business on an open-account basis ever since and is now working with seven manufacturers in four countries. He estimates that bypassing letters of credit saves him about $40,000 to $50,000 a year in fees -- and keeps his credit line available for other needs.
How does he manage it? For his first deal with a particular manufacturer, Crosetto typically offers to pay half up front. But communication is the most important ingredient. He visits suppliers two or three times a year to keep them up to date on his business projections. "We share metrics," says Crosetto. "'This is what we did last year. This is what we think we'll do this year." It's not rocket science. But, he says, "a lot of people on this side don't want to let manufacturers know what they're doing."
Crosetto's relationship-building methods win him leeway that most distributors never get. "We sell on an open-account basis to less than 5% of our distributors, and Ammex is one of the few," says Beng L. Ooi, CEO of Malaysian glove maker Shield Gloves Manufacturer. What sold Ooi on Ammex? "Fred was very forthcoming with both financial and sales data," says Ooi. "We learned that Fred was very aggressive in managing the company for growth, but he was not reckless."
"It doesn't work with everyone," says Crosetto of his method. "We've had greater success with family-owned businesses that are run by people who can make decisions."