It pays to visit the business of your potential borrower.

Many bankers have become devotees of the procedure called "managing by wandering around" (MBWA). They find that by walking through the bank, talking to everyone anxious to speak with them, answering their own phones, and generally being available, they boost morale and learn lot that they otherwise would not.

This, many CEOs hold, is almost a mandatory activity if they really want to know what is happening on board.

All too often we hear of banks in trouble, only to learn later that the difficulty started when the CEO decided to insulate himself from the staff or gave up the practice of having coffee in the officers' lounge each morning and switched to having his snack alone or with a few cronies.

Broader Application

But MBNA need not apply just to one's own bank.

Acute bankers say that when they follow the same approach with their major credit users, it is also extremely valuable.

Visiting your borrowers is a two-way street with regard to benefits. First, the customers are usually thrilled to have the banker visit their operations.

I have heard case after case of bank customers who were disappointed that their banker never cared enough to come and see them. The fact that the customer wants the banker to visit is a sign of a company with pride in its operations that is likely to be a solid borrower.

Telling Details

The conclusion: Visiting your customers is one of the strongest ways to cement a relationship.

But what you can learn once you are there!

In the same way that a good menu and attractive facilities indicate that a restaurant will have good food, the company. With strong externals is also likely to be a solid debtor.

It goes down to little items: One banker I heard about uses the clean rest room test before lending. If the rest rooms at the plant and offices of his potential borrowers are not clean, he concludes that the company will also neglect other details -- details on which the company's success could hinge. But it certainly goes further than rest rooms.

Deceptive Appearances

The president of a multibillion-dollar bank in the East told me of visiting a customer whose books made it look as if the operation was humming, sales were terrific, and the loan being requested would be a piece of cake to handle.

The president then went into the warehouses to look at the operation and approached a stack of boxes of inventory ready for sale. The top box on the shelf was covered with enough dust for him to conclude that the boxes had been sitting there for at least a year. So much for quick inventory turnover.

Another banker said he had had a similar case of stale inventory, only in his case the tags on the boxes had a date from the previous year -- a far cry from the quick turnover the status report showed on the loan request.

Market Lesson

On a much larger scale, consider how the Journal of Commerce, a newspaper specializing in commodities, broke the burlap market one year.

The trade had been setting prices based on published reports that a set amount of burlap was on the market, but the Journal of Commerce reporter felt that the actual availability was far higher.

So he went around to all the New York City warehouses where burlap was held for sale and counted the bales. His hunch was right. The supply vastly exceeded the published reports, and when he published this fact, the price of burlap plummeted.

We operate today in an environment in which the old approach of looking more at the eyeballs of the borrower than the statements he shows can no longer be counted on.

Bankruptcy Loses Stigma

First of all, character is not what it used to be. Borrowers who in the past never would have even considered bankruptcy now operate as if this is a normal business decision to be taken in times of adversity.

On top of this, the regulators are demanding far more documentation, thus giving the "character loan" a bad name when in the past it meant "top grade."

So bankers need something else to go by in addition to the documents that potential borrowers and those in debt show. And wandering around the borrower's plant can serve as this tangible corroboration or negation of the basic feel that face-to-face confrontation and discussion used to provide.

So in this MBWA -- probably called "monitoring by wandering around," when it comes to loans, bankers can get a second opinion as to whether their debtors are running well-oiled operations with predictable cash flows or whether in inventory management and accounting they have replaced FIFO (first in, first out) and LIFO (last in, first out) with the dreaded FIST (first in, still there)!

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