Most steel distributors can identify their problem accounts. The ones always a few days late. The ones who push credit terms, haggle over pricing, or disappear when a shipment lands. But what few fully grasp is the cumulative cost of keeping those accounts on the books. It’s not just about potential write-offs—it’s about capital drag, operational inefficiency, and strategic distraction.
Risky accounts don’t just impact AR aging reports; they throttle cash flow. A customer who routinely pays 45 days late on $500,000 worth of steel ties up capital that could be used to restock fast-moving coils or fund early-bird mill orders. Multiply that across five or ten accounts, and you’re talking millions in frozen liquidity.
Then there’s the opportunity cost. While your finance team is chasing payments and fielding disputes from a shaky fabricator or mid-tier contractor, your competitors are doubling down on solvent buyers and expanding wallet share. Risky accounts create internal churn. They absorb time from AR teams, credit managers, sales reps, and sometimes even executives—energy that should be invested in growth accounts.
The problem compounds in volatile steel markets. When HRC or rebar prices spike, margins tighten and buyers stretch terms to protect their own liquidity. If your books are filled with marginal accounts during these periods, you may find yourself eating demurrage costs, facing mill cancellation penalties, or worse, writing off entire shipments.
Quantifying the cost requires more than just tracking bad debt. Smart finance teams model the full impact: delayed collections, inventory misalignment, customer service drag, and missed sales windows. A $50,000 receivable that goes unpaid for 90 days may only be a partial write-off on paper—but in practice, it could cost double that in lost sales and overtime costs.
Another danger? Reputation risk. If your company becomes known for lax credit standards, it invites further exposure. Buyers who were denied by more cautious competitors may land on your desk—often with good reason. Before long, your credit book starts to reflect high volume but poor quality, and your AR team turns into a crisis management unit.
Proactive pruning is essential. That doesn’t mean cutting every account with a late payment. But it does mean segmenting your customer base, applying tighter limits to at-risk segments, and having firm review cadences. A customer with declining order frequency, reduced responsiveness, and slower payments isn’t just underperforming—they’re a flight risk.
Many credit teams shy away from these conversations, worried about straining relationships or losing sales. But the best-run steel businesses treat credit as strategic. They’d rather grow slower with the right partners than chase volume at the cost of capital efficiency. In this business, the slow payers often become the no payers—and the warning signs are rarely subtle.
Clean books aren’t just easier to manage. They unlock working capital, improve financial ratios, and provide firepower to support growth. Steel markets may be cyclical, but your credit posture shouldn’t be. Carrying risky accounts during downturns is a recipe for pain. Carrying them during upswings is an act of complacency.
The math is simple. The discipline is harder. But for credit teams in the steel industry, there are few levers more impactful than keeping your books clean, your exposure controlled, and your partners aligned.
