State of the Union

This blog has run since August of 2008. Its intent was to promote something I was calling “Strategic Credit Management Solutions” which was intended to be my consulting business. It was and is my belief that companies do not invest in their credit departments, leaving the credit staff largely untrained and performing at less than at maximum productivity and efficiency. I thought there would be a market for the services of an expert, such as myself, who would visit companies, examine their collection / credit procedures and personnel, make recommendations and institute whatever procedures would help.

Having both a blog and a website promoting this concept is like having a bill board parked on the dark side of the moon. Having them is one thing and getting them seen by a prospective market is very much a challenge. Only my business card paid a dividend. I won a free lunch when I put in a restaurant bowl.

So, after all this time, my fantasy job, cavorting around the country giving out helpful hints to the credit needy, is not proving to be very lucrative. As I waited for business I also sent out resumes and in all this time a handful had me come back for a second interview and only one offered me a job. I have accepted it, largely because the situation in the existing credit department is pictured as being in total disarray.

I won’t stop blogging. I enjoy the writing even if I’m only writing to myself. I believe this new job will be a new adventure and it will prove to be a rich source of material that some may find perversely entertaining.

Credit Management As An Art Form

The owner of a large distribution company told me he believes that credit is more of an art than it is a science. You need to know the principals, he says, but credit is still more about people than numbers. Smart man. He is having a problem however. The sales department and the credit department are not getting along. Seems the sales department cannot get orders to their customers released fast enough and the credit department is reluctant to release orders that exceed the credit limit or to delinquent customers. This is a dilemma that’s been driving the company nuts for the last couple of years. I tell him, it’s an easy fix.

I had already met with the sales manager and later a couple from the credit department. The credit group has not had a manager of any ability in quite sometime and they are not being really managed by senior executives either. This leaves the credit group to wing it the best they can.

Oddly, no one is complaining about the collection levels, the delinquency levels, the bad debt, reserves or the DSO. They must be okay. I asked the credit group, why; if the revenue is flowing just fine thank you, why not just open the flood gates? They are not being blamed for anything other than holding up orders. So don’t hold up orders.

It is not that simple of course. Somewhere in what little training they’ve had, they were taught not to allow orders to delinquent customers and not to allow orders when the orders exceed the credit limit. Those are the rules. You can’t change the basic rules of credit. It’s the salesmen who are trying to bend or break the rules that are the problem.

As I’ve said before, credit is the conscience of the company and they just cannot allow run away sales. The sales reps are all on straight commission, regardless of payment by the customer, so naturally, the sale is more important than the payment. Too make matters worse, the sales reps are responsible for the initial collections. If a customer is past due, says the owner, the sales rep is not doing his job. Well, while sales reps sell refrigerators to Eskimos, it is a rare one that can collect.

As to those pesky credit limits, they are no guidelines. No one is doing a credit check, no one has any idea what the limits should be. They are set low so that the orders will come up on hold allowing for a review of the situation and causing an instant delay in the delivery.

This is where Strategic Credit Management Solutions can help turn things around. It’ll be a snap, but it’ll look like I’m performing magic. I’ll keep you posted.

Unclaimed credit dilemma

Thinking about Decembers past, I remember a CFO who made it his priority to reconcile and use up all “unapplied” credits. December is not a good collection month. There are fewer collection days in it and with the holidays and all nobody wants to pay anyway. So, why would anyone want to do something that would essentially increase the receivables? Getting rid of a credit can mean one of two things: either it gets applied to an outstanding balance, which nets to zero, or it is refunded back to the customer which only increases the total receivable amount on the books. While I’m not opposed to refunding something that is rightfully owed, making it a priority during the worst collection period of the month doesn’t make sense.

The term “unapplied credit” means credits that are not derived from actual credit memos. There can be credit memos that are not matched to the original invoice and sit on the customer’s account just like an invoice. Usually, the customer will do the math and include the credit memos along with the invoices when payment is made. However, mistakes happen and to get rid of the unapplied usually requires a fair amount of research.

Sometimes, for example, a customer will pay the credit memos, treating them just like invoices, ignoring the little dash signifying that it’s a credit memo. The result is after the payment application, the original credit memo and an equal unapplied credit appears on the account. Sometimes a customer will send a check paying another vendor’s bills. Before the error is caught, the check is cashed and the applicator can only enter the entire amounts as “unapplied.” It also happens that customers will pay invoices twice resulting in “unapplied” credit balances. In fact there are a numerous payment errors that will result in “unapplied” credits on customer’s accounts. In order to correct the errors, the collector must explain the error to the customer and then, work out a correction. The simplest solution is for the customer to make the adjustment and take the credits on the next payment. It is very likely that unapplied credits come and go during the natural cycle of account activity. For this reason, devoting an entire month to clearing them out seemed pointless, given there are more pressing issues to occupy the collector’s time.

I believe, the CFO thought unapplied credits could be dealt with in some kind of sweeping magic wand. It is possible he did not understand the process. Why should he? CFOs are accountants and financial managers, they know very little about the inner workings of credit departments. If they did, they wouldn’t act like the pointy haired character in Dilbert, and make ridiculous demands on the department. This is where Strategic Credit Management Solutions can help. We can advise CFOs when perhaps the credit manager cannot. We can help set realistic goals and targets that will actually increase your revenue and lower your delinquency. See our website at http://powerscredit.com/. Your comments are welcome. E-mail us at patrickpowers@sbcglobal.net.

Collectors "Super Sell"

I have written before that good collectors use similar tools and behaviors as sales reps and in fact, collectors must be better than sales reps in the art of “selling.” This is based on the fact that sales reps as a rule abhor the collection function. They don’t like collecting and they’re not going to do a good job doing something they do not like doing. It is also widely believed that the collection function will impair their relationship with the customer and thus interfere with their ability to sell.

It as occurred to me that there is another reason collectors must be better sales reps than sales reps. When you come right down to it, sales people are merely fulfilling a need. Customers want to buy. The role of the sales rep is to persuade the customer to buy what they want, what the need, from them. Collectors on the other hand must persuade customers to do something they do not want to do, pay. The level of difficulty is greater.

When the need is satisfied and the endorphin level has returned to normal, the customer is often left with the realization that the purchase was beyond their ability to pay. In fact if there is a “need” that must be satisfied it is the need to not pay. I have heard from customers who are upside down complain that it is not their fault; rather the blame should be on those who let them buy more than they could afford.

It now becomes the role of the collector to artfully persuade the customer, (now known as the debtor) to do something they do not want to do. They must be persuaded to give something up, crimp their life style, be uncomfortable, delay buying something else or put off paying another vendor. Rather than satisfying a need, the collector must instill a harsh sense of guilt and create an overwhelming sense of obligation. The “need” that must be satisfied now is the removal of guilt and obligation. Not as easy a task as going up to a good buddy and telling them what a great deal they have that will make them feel ecstatic. A collector must create a burden and then show the customer how to unload that burden.

This is why, so often, collectors become counselors for the debtor. The collector advises and guides the customer towards the correct path to monetary salvation. This is no role for a sales rep who more often plays the role of a seducer.

So, why is it companies have entry level personal, ill equipped for such delicate duties, do their collecting and why is it companies are so unwilling to pay for good collectors? The trick to increasing revenue in these hard times is to elevate the collection task and bring in more money. Strategic Credit Management Solutions can help you do that. We’ve been collecting for over thirty years and we are dedicated to making your collection staff super collectors. See our website at http://powerscredit.com/. Please email your comments to patrickpowers@sbcglobal.net.

Guerrilla Collections

I was trying to find out why a local developer had not paid for a special lumber order. I had left a number of messages without a call back. One day I decided to dedicate my life to getting a call back. I started calling about every hour. He was “in a meeting”. Later he was “out to lunch.” By early afternoon he was back in the meeting. I started calling every thirty minutes. By late in the day, I was calling every fifteen minutes. At about four, he called me back, finally. He was exasperated. He told me he had not paid because he discovered he could have bought the product more cheaply elsewhere. Now I had something to work with, a price dispute.

Another time, I was trying to reach the owner of a general contracting firm. Again, I had left a whole lot of messages with the receptionist without the courtesy of a reply. I thought it was very rude of him. So, the next time I called and the receptionist, who sounded sweet polite and had the demeanor of a restaurant hostess, I informed her that since she was the only employee answering the telephone, she alone represented the company and she therefore was solely responsible for getting me paid. She protested, but I was relentless. I told her I wanted an answer and since her boss was not talking to me, she would find out for me, or she could write me out a check. When she tried to remind me she was merely a receptionist, I reminded her that as far as I was concerned she was the only employee and that made her not only the receptionist, but the accounts payable clerk and the Chief Financial Officer as well. I made it clear that I was not expecting anyone else to call me back. The next time I called her, she was to tell me when I could pick up a check. By the end of the call, I think she was whimpering. Not a half hour went by before the owner was calling me. He wanted to complain about my intimidating manner and I wanted him to tell me about payment. He complained for awhile and then he gave me a payment commitment.

I was getting no where with a lumber company until I rang late one afternoon and a warehouse manager picked up the phone. I asked him straight out if his payroll checks were clearing. Then I told him how an involuntary bankruptcy worked and he’d be out of a job. Less than a hour later the owner of the company, calling from his mother’s house in Lake Arrowhead, was screaming at me. The nerve of me telling a low level clerk the things I’d said. And to prove me wrong, he was sending over a personal guarantee. When the corporation filed bankruptcy, I was the only creditor with a personal guarantee.

A friend of mine worked for a hospital in charge of medical supplies. He had failed to pay a supplier because he did not recognize the vendor. After an exchange of calls and letters, he finally received a notice that the vendor was sending over a representative to discuss the bill. Enclosed was a picture of the representative, so that he would be cleared at the front desk. The man in the picture looked so intimidating that my friend fired off a check.

Whenever Verizon wants money from me, I get a text message. Perhaps on all credit applications there should be a space for the guarantor’s cell phone number. That way they can be reached twenty four seven.

The point of all this is, as collectors, sometimes you have to go beyond the normal collection routine. Sometimes you have to take extraordinary means. Strategic Credit Management Solutions can help train your collectors to be more creative and more productive. See our website http://powerscredit.com/. You can e-mail us at patrickpowers@sbcglobal.net. Your comments are welcome.

Go to the Top

A sales rep told me that as a rule, collectors call the wrong people when asking for money. A routine collection call is usually made to the accounts payable clerk employed by the debtor company. This is okay, as far as it goes. An accounts payable clerk processes the billing. Therefore, if you want to know if your invoices are being processed, the payable clerk should be able to tell you. Much of the time learning that your invoices are in process is a good indication that they will be paid sometime in the future. If the company has a regular payment schedule for payment, a processed invoice will be paid according to the debtor’s processing schedule. So much collection activity is spent verifying a known and familiar process. This is not collections. It is only information gathering and unless the collectors are doing some major revenue forecasting, it is useless information except collectors are often asked by someone, when payment is expected from the customer.

A typical collection call is triggered when invoices are past due. Then the collector confirms that payment is in process and is told when the invoices will be paid. Or the collector is told that some or all of the invoices are not in process, for whatever reason, they are lost in the mail, sent to the wrong address, sent without postage or simply on the wrong payable desk. Upon learning of this dilemma, the collector dutifully resends the invoices and waits a sufficient time for them to get into the payable process.

Of course, there is also the possibility that the accounts payable clerk waits for the collector to call before finalizing the payment process.

In all of these situations, the collector is at the mercy of the accounts payable clerk. That is a lot of power given to a clerk; particularly when the clerk has no other authority but to process the invoices. All a payable clerk is supposed to do is receive the invoices, ascertain there is the required back up; signed delivery receipts, purchase orders and whatever additional documentation the debtor company requires from its vendors as a condition of payment.

Arguably, contacting the payables clerk as the first step in the collection process allows the debtor to delay payment. The debtor is always in control of the process and is setting the payment terms. At some point in time, when payment is not received, the collector calls the same clerk repeatedly, only to be told it is out of the payables hands and in the hands of someone authorized to issue payment. That’s when the collector moves up the next level.

So why not just start with that level?

Perhaps, every collection call should be directed to that person who signed the credit application and the corresponding personal guarantee. That person is on the hook. That is the person who agreed to the terms and conditions, promising to pay on time and make collection calls unnecessary. Call that person directly, he or she had the authority to sign the application and has the authority to sign checks. Everyone else is a gatekeeper, preventing you from getting a commitment. Let this person find out for you how the process is going and when payment will be made. It’ll save you a lot of steps, put you in control and since this person does not want to be put on the spot, may even begin to make payments on time.

Next time, I’ll discuss how to get the person on top to take your calls.

This is where Strategic Credit Management Solutions can help. We know the process and we can train your collectors to bring in the cash. See our website http://powerscredit.com/. Your comments are welcome. Send us an e-mail at patrickpowers@sbcglobal.net.

Do You Want Wally Cox or Phil Silvers Collecting Your Money?

Employers seeking credit managers frequently insist on two qualifications I don’t see too often on other job descriptions. One is “flexibility” and the other is “hands on.” These are in the job description now, because the last credit manager was neither hands on or flexible. I think I know why. The previous credit manager was an accountant. So many senior managers make the mistake that since credit is a function of accounting; you can make credit managers out of accountants. Wrong. Think about it, just how flexible do you want your accountants to be? It goes back to the old joke, when somebody asked the accountant how much is two plus two? The “flexible” accountant answered, “What do you want it to be?” This kind of flexible accountant became “Enron accounting”. As a rule, accountants are not flexible. Two plus two equals four, period. There is no gray area. People who take up accounting as a profession embrace the certainty of numbers. They are secure in the order and harmony of numbers adding up to what they are supposed to. Balancing is more than an objective, it is nirvana.

Therefore, when an accountant takes the reigns of credit manager, their first act is to establish the rules. Rules govern accounting, thus, rules will govern credit. They are very specific do and don’t lists and usually, they are written in stone. No gray areas allowed; accountants loathe gray. The second act of an accountant credit manager is to go about enforcing the rules. Thus starts the conflict between credit and everyone else in the company, sales, operations and ultimately senior management, who wishes the credit manager could be just a little more flexible.

The second “qualification” being hands on you would think would be no problem for an accountant. They seem to be very “hands on” when it comes to creating spread sheets, pro formas and financial statements. Why are they not “hands on” credit managers? Simply put, “hands on” means different things to different people. Like I said, an accountant considers being hands on doing spread sheets themselves and not having someone else do it. In fact, accountants, in order to satisfy their controlling needs, are very “hands on”. They usually make poor delegators. But, accountants tend to be very “hands off” when it comes to dealing with other people, particularly disagreeable customers and sales reps. For example, if the rules say a customer will be put on credit hold at sixty days, the account will be put on hold. The rule did not call for someone to call the customer and tell them. Accountants prefer to have someone else make that call and they usually tag the sales rep. Accountants are not people persons. They like and find comfort in numbers and charts and spread sheets. They are uncomfortable with people, particularly confrontational people.

That is why when I see the requirements, flexibility and hands on, I am convinced the problem is not with who has been hired, but who is doing the hiring. Accountants hire accountants. The problem is systemic. The company will always have the issue of stubborn “inflexible” credit managers, seemingly unable to get their hands around the problems of the customers and the sales reps as long as they have controllers managing credit managers.

This is where Strategic Credit Management Solutions can help. We know credit managers. We know what it means to be hands on and flexible. We can teach it or we can find you qualified individuals who are both. See our website, http://powerscredit.com/. You can reach us at patrickpowers@sbcglobal.net. Your comments are welcome.