It’s that time of year again. Time to resolve to better ourselves and the world around us. Here is my offering for the New Year.
Check for credit applications.
There is no worse surprise when you learn a customer is defaulting and you cannot find the original credit application. That means no personal guarantee, no signed acknowledgement of the terms and conditions, no signed attorney provisions. With the rise of company failures, now is the time to check all of our customer files and make certain you have this important document and if you do not, get one.
Up date your credit files.
Now is a good time to get a new credit report on all of your existing customers, particularly those with high balances or a recent trend toward slow pay. Pull a Dunn & Bradstreet, or Experian or Equifax report on your commercial accounts and look at the latest trends. The information may not have the most recent data, but they should contain information from at least three to six months ago. The failure rate for businesses is at an all time high and the reasons for failure are many. Rather than be surprised later, learn what is happening with your customers now.
Reassess credit limits.
As the economy crumbles, leaving companies weaker than they were a year ago now is a good time to take a look at the credit limits that were assigned back when times were good. You cannot afford to allow your customers to take on more than they can afford.
Resolve to take control of your collection calls.
It is not so bad in good times to accept almost any payment schedule the customer gives you. As long as they are paying, you can put up with a little delay. However, in times like these, every dollar counts. You should be managing the collections with the goal of shortening the time between sales and payment. Customers, who pay consistently late, may try to pay even slower. Your job is to get them to pay sooner, much sooner.
Resolve to shorten your terms of sale.
Your company probably needs cash. Now is a good time to make certain your receivables are not tied up with lengthy terms of sale that were beneficial last year but pose a real liability this year. It may be a good time to re-negotiate.
Resolve to communicate with other creditors.
Communication is power. If you do not currently belong to a trade credit exchange group, join one in your area. If you belong but have not been attending, make plans to make the next meeting. These groups can be an invaluable tool to learn the very latest on your customers.
Resolve to team up with Sales.
With sales dropping across the board, every sale and every potential sale is critical. Obviously you want to avoid those sales that are too risky but at the same time, you’ll be asked to take on more risk. The key is how well not only you, but the entire company strategically manages credit. Good teamwork goes a long way to making good sales.
Resolve to plot your progress.
Do not fall into the trap of having as your only report card your accounts receivable aged trial balance. All it shows senior management are accounts you have not successfully collected. Resolve to design your own progress reports that will show them your collection trends, delinquency percentages and the costs of litigation. While the DSO may be going up, you should be able to brag about something.
Resolve to fix disputes quickly.
Customers you do not agree with the bill, will not pay. Again, when every dollar counts, companies cannot afford to have any portion of the receivables bogged down by disputes. Too many credit managers wait for disputes to be resolved between sales and the customers. In these times, when sales should be out beating the bushes and turning over every rock looking for sales, they are not going to have much time researching disputes. Where you can, identify the problem and resolve to fix it. Your involvement may be the key to unlocking stubborn cash.
Resolve to be creative.
These are tough times. Success will come to the creative individuals that get us through them. It is important that credit people think creatively and not rely on the way things have been done in the past. Now is the time for good credit professionals to really show what they can do.
If you need any help with this resolutions, contact CREDITPOWERS. Check our our website: www.strategiccreditmanagementsolutions.com.
Your comments are welcome.
Happy New Year!
Monday, December 29, 2008
Monday, December 22, 2008
Christmas Time Humor
Here are a couple of stories that are intended to bring a smile to your face. It’s that time of year after all. Consider it just another service of CreditPowers.
I’m told this really happened, but I cannot claim certainty because it did not happen to me.
A credit manager I know was trying to collect a large balance from a contractor. The delinquent contractor begged for more time, promising to pay as soon as the insurance company paid the claim. Naturally, the credit manager assumed that the contractor was involved in repair work, possibly the result of a fire. He knew these things took time and he was confident the customer would pay and as soon as the claim was paid. Each month the credit manager checked in with his customer and each month the contractor complained about the sluggishness of the insurance company. Finally, exasperated, the credit manager insisted on more verification of the claim. Just as exasperated, explaining why the insurance company was not paying, the contractor blurted, “The bitch won’t die!”
This actually happened to me. It may not be a funny story, but it stumped me. A remodeling contractor owed about $500. Because of its size I was not very aggressive in my collection efforts. I sent out a series of routine collection letters and when no payment arrived after about sixty days, I called. The contractor’s wife handled the books and when I asked for payment she told me, without hesitation that: their daughter had been kidnapped and they were forced to mortgage the house to pay the ransom and there was no money left to pay the bills. I couldn’t take any chances that she might be telling the truth, so I wrote off the balance.
You may have heard this one yourself. A customer way over his credit line complains that he cannot pay and that it’s your fault for letting him charge so much.
This is humorous though sad but true. A company I know had its Sacramento office as the remittance address, but local branch personnel were required to make the initial collection calls. A particular customer was on credit hold for non-payment. To prove to the local City of Carson credit clerk that payment had been made, the customer faxed a copy of the check to the local clerk. The locals believed the Sacramento office was either very behind in posting payments, or they had lost the check. As a result, they stopped calling the customer for payment and continued to release orders. When the collection cycle came around again and the local clerk saw the same balance, another inquiry was made and once again the customer faxed over a copy of the check. You guessed it; the customer never actually mailed a real check to Sacramento. He was simply sending the local store a fax copy to keep the account open.
Under the category of pulling your hair out, we caught an obvious mistake early enough to notify the customer and let him know we were already working to fix the problem. A customer had purchased one fifteen hundred gallon water heater, but the billing clerk read the receiver wrong and billed the customer for fifteen hundred water heaters. We were pleased that we were able to contact the customer before he called us and we sent the billing back to accounting, where they billed the customer for fifteen hundred water heaters a second time.
Finally, under the category of true Christmas giving: a large plywood company sold to a Japanese company and the credit manager arranged for payment with a letter of credit. When the shipment was completed, the credit manager went directly to the bank to pick up the check as it was in excess of one million dollars. He announced who he was and the clerk at the bank promptly made out a cashiers check in the amount of one million dollars plus. However, rather than make the check payable to the plywood company, the bank clerk mistakenly made it payable to the credit manager. He says, he spent an hour in his car, reviewing all of his options and decided, it was not worth it and he returned the check and replaced it with a corrected one.
I’d love to hear your stories.
Merry Christmas!
I’m told this really happened, but I cannot claim certainty because it did not happen to me.
A credit manager I know was trying to collect a large balance from a contractor. The delinquent contractor begged for more time, promising to pay as soon as the insurance company paid the claim. Naturally, the credit manager assumed that the contractor was involved in repair work, possibly the result of a fire. He knew these things took time and he was confident the customer would pay and as soon as the claim was paid. Each month the credit manager checked in with his customer and each month the contractor complained about the sluggishness of the insurance company. Finally, exasperated, the credit manager insisted on more verification of the claim. Just as exasperated, explaining why the insurance company was not paying, the contractor blurted, “The bitch won’t die!”
This actually happened to me. It may not be a funny story, but it stumped me. A remodeling contractor owed about $500. Because of its size I was not very aggressive in my collection efforts. I sent out a series of routine collection letters and when no payment arrived after about sixty days, I called. The contractor’s wife handled the books and when I asked for payment she told me, without hesitation that: their daughter had been kidnapped and they were forced to mortgage the house to pay the ransom and there was no money left to pay the bills. I couldn’t take any chances that she might be telling the truth, so I wrote off the balance.
You may have heard this one yourself. A customer way over his credit line complains that he cannot pay and that it’s your fault for letting him charge so much.
This is humorous though sad but true. A company I know had its Sacramento office as the remittance address, but local branch personnel were required to make the initial collection calls. A particular customer was on credit hold for non-payment. To prove to the local City of Carson credit clerk that payment had been made, the customer faxed a copy of the check to the local clerk. The locals believed the Sacramento office was either very behind in posting payments, or they had lost the check. As a result, they stopped calling the customer for payment and continued to release orders. When the collection cycle came around again and the local clerk saw the same balance, another inquiry was made and once again the customer faxed over a copy of the check. You guessed it; the customer never actually mailed a real check to Sacramento. He was simply sending the local store a fax copy to keep the account open.
Under the category of pulling your hair out, we caught an obvious mistake early enough to notify the customer and let him know we were already working to fix the problem. A customer had purchased one fifteen hundred gallon water heater, but the billing clerk read the receiver wrong and billed the customer for fifteen hundred water heaters. We were pleased that we were able to contact the customer before he called us and we sent the billing back to accounting, where they billed the customer for fifteen hundred water heaters a second time.
Finally, under the category of true Christmas giving: a large plywood company sold to a Japanese company and the credit manager arranged for payment with a letter of credit. When the shipment was completed, the credit manager went directly to the bank to pick up the check as it was in excess of one million dollars. He announced who he was and the clerk at the bank promptly made out a cashiers check in the amount of one million dollars plus. However, rather than make the check payable to the plywood company, the bank clerk mistakenly made it payable to the credit manager. He says, he spent an hour in his car, reviewing all of his options and decided, it was not worth it and he returned the check and replaced it with a corrected one.
I’d love to hear your stories.
Merry Christmas!
Tuesday, December 16, 2008
Panic Collections
A company I know is hiring a number of temporary employees to work collections in a last ditch effort to boost revenues by the year’s end. The seasoned long terms collectors are supposed to focus on the most serious past due columns. On the surface, it sounds like a reasonable strategy. Allow the best collectors to work the most stubborn accounts and let a team of inexperienced collectors convince the customers to pay earlier than they normally do.
Oops, I just gave away the flaw in the logic.
Unless collections are considerably sluggish, usually, at least fifty percent of the accounts receivable is typically “current” at the beginning of the month. Twenty percent may be ninety days or more past due. This leaves thirty percent of the accounts receivable somewhere between thirty and sixty days past due. It is a well know truism of credit and collections that the older the balance the more difficult or unlikely recovery is possible. The most past due balances are made up of accounts that will never be collected, accounts that may be partially collected through litigation, accounts turned over to a third party, accounts that are making installment payments and a few accounts that will pay in full, finally, after an aggressive collection effort. The percentages of these are a fraction of the entire twenty percent.
So, this company I know is directing its best collectors to go after a very small percentage of the accounts receivable. Even though the objective is to increase collections, which by definition is to collect more money than usual.
Most of the money in an accounts receivable is between current and sixty days past due and this company believes it is a good collection strategy to put inexperienced, entry level collectors to go after it and let its ace collectors chase after what could be less than five percent of the receivables.
Why do companies think they can increase their cash flow by trying to collect the least collectible portion of the receivable? It seems, all companies do it. When in doubt throw your all stars at the impossible. This is just another indication that senior management does not fully understand their accounts receivables. “Ach, we need money, let’s try to collect from the bankrupts, skips and defaults.” Rather, “let’s go after the most amount of money, in the current, thirty and sixty day columns.”
And what will inexperienced temps accomplish? Management probably thinks that all it takes to collect money is to call the customers and remind them that payment is now expected. So, have your B team make the calls. Apparently, collections are just a matter of a power of suggestion. Even though, given today’s economic realities, companies are more than ever trying to extend payables where ever possible. So, imagine the match up; experienced accounts payable clerks trained in all matters of payable extension verses a collection clerk who has never called for money before.
It would make more sense to differentiate between increasing collections and salvaging collections. Put your best collectors on the largest collection percentages, current and thirty – sixty day past due and have them negotiate more favorable payments and let the temps…well, let the temps document the very past due amount for the lawyers.
In a bind? Let CreditPowers put a collection strategy in place that will work for you. Your comments are appreciated. See our website at http://www.strategiccreditmanagementsolutions.com/
Oops, I just gave away the flaw in the logic.
Unless collections are considerably sluggish, usually, at least fifty percent of the accounts receivable is typically “current” at the beginning of the month. Twenty percent may be ninety days or more past due. This leaves thirty percent of the accounts receivable somewhere between thirty and sixty days past due. It is a well know truism of credit and collections that the older the balance the more difficult or unlikely recovery is possible. The most past due balances are made up of accounts that will never be collected, accounts that may be partially collected through litigation, accounts turned over to a third party, accounts that are making installment payments and a few accounts that will pay in full, finally, after an aggressive collection effort. The percentages of these are a fraction of the entire twenty percent.
So, this company I know is directing its best collectors to go after a very small percentage of the accounts receivable. Even though the objective is to increase collections, which by definition is to collect more money than usual.
Most of the money in an accounts receivable is between current and sixty days past due and this company believes it is a good collection strategy to put inexperienced, entry level collectors to go after it and let its ace collectors chase after what could be less than five percent of the receivables.
Why do companies think they can increase their cash flow by trying to collect the least collectible portion of the receivable? It seems, all companies do it. When in doubt throw your all stars at the impossible. This is just another indication that senior management does not fully understand their accounts receivables. “Ach, we need money, let’s try to collect from the bankrupts, skips and defaults.” Rather, “let’s go after the most amount of money, in the current, thirty and sixty day columns.”
And what will inexperienced temps accomplish? Management probably thinks that all it takes to collect money is to call the customers and remind them that payment is now expected. So, have your B team make the calls. Apparently, collections are just a matter of a power of suggestion. Even though, given today’s economic realities, companies are more than ever trying to extend payables where ever possible. So, imagine the match up; experienced accounts payable clerks trained in all matters of payable extension verses a collection clerk who has never called for money before.
It would make more sense to differentiate between increasing collections and salvaging collections. Put your best collectors on the largest collection percentages, current and thirty – sixty day past due and have them negotiate more favorable payments and let the temps…well, let the temps document the very past due amount for the lawyers.
In a bind? Let CreditPowers put a collection strategy in place that will work for you. Your comments are appreciated. See our website at http://www.strategiccreditmanagementsolutions.com/
Wednesday, December 10, 2008
Adventures in Mechanic’s Lien Filing
It’s four o’clock on the 30th day after the notice of completion was filed. I’d given the customer every opportunity to make payment and he’s failed to comply. I have no choice. The law in California requires that a lien must be filed in the county where the work was done no later than thirty days after notice of completion. I’m in the Los Angeles County Recorder’s office in Norwalk. It shouldn’t take long. There are no less than twelve stations, glass windows with a gap and a tray at the bottom and a hole in the middle so you can talk to the clerk without bending down and talking sideways. The line extends the entire length of the hall, because there are only two stations open and one of them is being manned by The Claw Woman.
In Los Angeles, liens and any other document to be recorded, much first pass a review by one of these clerks. They check it for mistakes, making certain primarily someone is not trying to record a document in the wrong county and that all of the blanks are correctly completed. Sometimes their scrutiny borders on practicing law, but one does not dare complain. It is the reason I am hand carrying the document. Had I mailed it a week ago and one of these clerks decided that it was unacceptable; it would be weeks before I would find out my lien rights had evaporated.
The clock on the wall ticks and the line barely moves. Someone is arguing with the clerk in station one. They have a rule here now that only the person who signed the lien can bring it in to record, effectively eliminating messengers unless they work for a courier service who suffer a procedure all their own. Off to my left I can see the Claw Woman and I shudder. I probably should have arrived earlier because at five o’clock the windows close that the clerks abandon their stations leaving those in the hall without a recorded document. If that happens to me, my lien rights go down the drain.
And this is just the review line. I will still have to stand in the payment line. The guy with the complaint is moved to the supervisor window where he will stand until he gets frustrated and leaves and the line moves forward. I can see the Claw Woman. She has fingernails that are about twelve inches long and curled. After reviewing the document she must stamp it with two different stamps, one assigns it a document number and the second says “Amount _____” wherein she then must pick up a pen and write in the fee amount. She picks up the first stamp carefully, looking like the claw at the carnival that slowly makes its way to the prize and invariably fails to retrieve it. Slowly, she eases the stamp up and then down on to the document. I hear a murmur through the line, cheering her on. One down, one to go and it’s ten past four.
In nearby Orange County, incredibly, there is rarely a line. Two, usually attractive young ladies, record your document and take your money, a whopping six dollars plus another dollar for the conforming copy. The entire process takes about seven minutes. Over in Riverside County, the fee is nine dollars and one person does it all. San Bernardino County charges nine dollars, requires a review first before going to the pay station, but the line moves much more quickly there.
In Los Angeles, there is the base fee of $7.00, another $9.00 “involuntary lien fee”, and a $2.00 District Attorney Fraud fee, a total of $18.00. I’m praying now that I can get the job done within an hour. The Claw Woman has completed a second stamp and is carefully picking up a pen. We are all watching, wondering how she can hold a pen with all those curling fingernails in the way. The clock ticks off another minute.
Each county has its own recording foibles. One of the worst is unannounced fee increases. You’ll send your lien to some far off Northern California county, relying on the fee schedule posted on the website, only to learn, when the document is returned unrecorded and your lien time expired, that the fees changed while your document was in transit. Some counties require a space of at least six inches at the top of the document in order to fit their two inch recording document stamp and if they don’t have six inches they need to stamp a nearly blank second page, at a cost of another $3.00. If they don’t have the money, they return the document unrecorded.
I’m at a station. Thankfully the Claw Woman is not looking at my document. I pass inspection and rush to the next line. I have more than enough cash just in case. This line moves a little faster, usually there are three to four stations manned to take your money. I’m out before five. Too bad for all those I left behind.
You need help with Mechanic Lien filing, Stop Notice filing, (both public and private), Release of Liens, Extended Lien filing or any other related documents, contact CreditPowers, we’re the experts.
Additionally, while we are still working out the bugs, go ahead and visit our website, http://www.strategiccreditmanagementsolutions.com/. Your comments are appreciated.
In Los Angeles, liens and any other document to be recorded, much first pass a review by one of these clerks. They check it for mistakes, making certain primarily someone is not trying to record a document in the wrong county and that all of the blanks are correctly completed. Sometimes their scrutiny borders on practicing law, but one does not dare complain. It is the reason I am hand carrying the document. Had I mailed it a week ago and one of these clerks decided that it was unacceptable; it would be weeks before I would find out my lien rights had evaporated.
The clock on the wall ticks and the line barely moves. Someone is arguing with the clerk in station one. They have a rule here now that only the person who signed the lien can bring it in to record, effectively eliminating messengers unless they work for a courier service who suffer a procedure all their own. Off to my left I can see the Claw Woman and I shudder. I probably should have arrived earlier because at five o’clock the windows close that the clerks abandon their stations leaving those in the hall without a recorded document. If that happens to me, my lien rights go down the drain.
And this is just the review line. I will still have to stand in the payment line. The guy with the complaint is moved to the supervisor window where he will stand until he gets frustrated and leaves and the line moves forward. I can see the Claw Woman. She has fingernails that are about twelve inches long and curled. After reviewing the document she must stamp it with two different stamps, one assigns it a document number and the second says “Amount _____” wherein she then must pick up a pen and write in the fee amount. She picks up the first stamp carefully, looking like the claw at the carnival that slowly makes its way to the prize and invariably fails to retrieve it. Slowly, she eases the stamp up and then down on to the document. I hear a murmur through the line, cheering her on. One down, one to go and it’s ten past four.
In nearby Orange County, incredibly, there is rarely a line. Two, usually attractive young ladies, record your document and take your money, a whopping six dollars plus another dollar for the conforming copy. The entire process takes about seven minutes. Over in Riverside County, the fee is nine dollars and one person does it all. San Bernardino County charges nine dollars, requires a review first before going to the pay station, but the line moves much more quickly there.
In Los Angeles, there is the base fee of $7.00, another $9.00 “involuntary lien fee”, and a $2.00 District Attorney Fraud fee, a total of $18.00. I’m praying now that I can get the job done within an hour. The Claw Woman has completed a second stamp and is carefully picking up a pen. We are all watching, wondering how she can hold a pen with all those curling fingernails in the way. The clock ticks off another minute.
Each county has its own recording foibles. One of the worst is unannounced fee increases. You’ll send your lien to some far off Northern California county, relying on the fee schedule posted on the website, only to learn, when the document is returned unrecorded and your lien time expired, that the fees changed while your document was in transit. Some counties require a space of at least six inches at the top of the document in order to fit their two inch recording document stamp and if they don’t have six inches they need to stamp a nearly blank second page, at a cost of another $3.00. If they don’t have the money, they return the document unrecorded.
I’m at a station. Thankfully the Claw Woman is not looking at my document. I pass inspection and rush to the next line. I have more than enough cash just in case. This line moves a little faster, usually there are three to four stations manned to take your money. I’m out before five. Too bad for all those I left behind.
You need help with Mechanic Lien filing, Stop Notice filing, (both public and private), Release of Liens, Extended Lien filing or any other related documents, contact CreditPowers, we’re the experts.
Additionally, while we are still working out the bugs, go ahead and visit our website, http://www.strategiccreditmanagementsolutions.com/. Your comments are appreciated.
Monday, December 1, 2008
Cash Application - Credit or Accounting?
A key component of efficient credit management is accurate posting of receipts to the customers’ accounts. When money is unapplied or misapplied the account balance is distorted and it becomes indefensible. A collector must be able to state clearly the amount owed and have ready the invoices and credits that support the balance. When checks that are received are posted in a manner that differs from the intent of the customer, the collection process comes to a halt until the account is unraveled.
For this reason, the function of cash application should be the responsibility of the credit manager since the accuracy and timeliness of the function directly impacts the efficiency of the credit area. Yet, many companies make cash application a function of accounting; it is after all an accounting function. Auditors seem to prefer cash application under accounting as well for reason of security. The reasoning is cash application cannot be manipulated by unscrupulous credit personnel attempting to make their collections look better than they are. The trade off become making the accounts receivable look worse than they really are.
As with so many credit related functions, cash application appears, on the surface, to be a simple matter that should be easily mastered by entry level clerks. A check arrives and is applied to the customer’s account. It is simple as that. However, there are almost as many variables and oddities of payable methods and logic as there are customers. Each seems to have their own unique system for identifying how their check should be posted and many of them assume the cash posting clerk has extra sensory perception.
Typically, cash posting, when supervised by accounting, has as its primary criteria, speed. Hurry up and apply the cash is the mantra. Rather, it should be, “Don’t guess.” Apply accurately. Accounts receivable cash application clerks have neither the time nor the inclination to inquire of the customers how payments should be applied. They tend to assume or guess as to the application or they leave the payment as an unapplied credit. Worse, some will apply some and leave the rest as unapplied, leaving for some collector the task of reconciliation. For every hour of reconciliation a collector is required to do, an hour less is spent on collections.
When the account balance becomes indecipherable, the customer will have no confidence in the statement of account they receive from their vendor. Until it is figured out, they may delay payment. Even though the fault may be with the customer’s own payment method, if what the customer gets as a result is confusing or inaccurate, the result well certainly be to hold up payment.
If you are having cash application nightmares, contact CreditPowers. We’ve have years of experience with cash application. We know how to do it right and we know the importance of doing it quickly and accurately.
Your comments are appreciated. Contact us at patrickpowers@sbcglobal.net and see us on the web, soon, at strategiccreditmanagementsolutions.com.
For this reason, the function of cash application should be the responsibility of the credit manager since the accuracy and timeliness of the function directly impacts the efficiency of the credit area. Yet, many companies make cash application a function of accounting; it is after all an accounting function. Auditors seem to prefer cash application under accounting as well for reason of security. The reasoning is cash application cannot be manipulated by unscrupulous credit personnel attempting to make their collections look better than they are. The trade off become making the accounts receivable look worse than they really are.
As with so many credit related functions, cash application appears, on the surface, to be a simple matter that should be easily mastered by entry level clerks. A check arrives and is applied to the customer’s account. It is simple as that. However, there are almost as many variables and oddities of payable methods and logic as there are customers. Each seems to have their own unique system for identifying how their check should be posted and many of them assume the cash posting clerk has extra sensory perception.
Typically, cash posting, when supervised by accounting, has as its primary criteria, speed. Hurry up and apply the cash is the mantra. Rather, it should be, “Don’t guess.” Apply accurately. Accounts receivable cash application clerks have neither the time nor the inclination to inquire of the customers how payments should be applied. They tend to assume or guess as to the application or they leave the payment as an unapplied credit. Worse, some will apply some and leave the rest as unapplied, leaving for some collector the task of reconciliation. For every hour of reconciliation a collector is required to do, an hour less is spent on collections.
When the account balance becomes indecipherable, the customer will have no confidence in the statement of account they receive from their vendor. Until it is figured out, they may delay payment. Even though the fault may be with the customer’s own payment method, if what the customer gets as a result is confusing or inaccurate, the result well certainly be to hold up payment.
If you are having cash application nightmares, contact CreditPowers. We’ve have years of experience with cash application. We know how to do it right and we know the importance of doing it quickly and accurately.
Your comments are appreciated. Contact us at patrickpowers@sbcglobal.net and see us on the web, soon, at strategiccreditmanagementsolutions.com.
Monday, November 24, 2008
A Culture of Dishonesty
At the very heart of credit transactions is honesty. Without it there can be no credit. When a seller extends credit to a buyer, there is the assumption that the buyer will repay the seller. It is the belief that the buyer will do what he promises to do because he is honest. Character is the first “C” of credit, the reliance of the buyer to repay, because he said he would.
Most debtors who default do so, not because they are dishonest, but because they are unable to repay the obligation. They intended to, they wish they could, but they just cannot. We presume, because we still have a certain amount of faith in the goodness of our fellow man that most people will pay if they are able and only a few actually intend from the very beginning to renege on their bills.
A function of credit management is reviewing and analyzing the data from credit applicants to determine their honesty. While there are precise mathematical formulas to asses a customer’s ability to pay, determining an abstract such as honesty, character and integrity is almost entirely subjective. It is important that all available information is reviewed before making a major decision.
An equipment company granted a credit sale in the amount of $80,000 basing the decision solely on the customer’s credit references. The references were bogus, the customer was fictitious and the equipment was last seen headed for Africa. The credit manager neglected to obtain a credit report from Dunn and Bradstreet or some other credit reporting agency which would have at least confirmed the legal status of the business.
So often the litmus test for honesty is a gut feeling. Asked why he continued to allow an auto glass distributor to charge even after already defaulting on nearly $300,000, a branch manager stated the owner of the businesses was a well known member of the local church. All the while he was illegally transferring title and assets to friends and family.
Sometimes collectors themselves get too close to the customer and are unable to make the right decision. A collector for a ready mix company started to ignore the growing delinquency of a particular customer because they had started dating. Clearly the customer was taking advantage of the collector.
Dishonesty is not limited to small or fly-by-night outfits. A national building material supplier chain routinely back charges its vendors for damaged goods in excess of its purchases. It is so institutional that managers are coached in ways to deduct a few dollars here and there from the vendors’ billing. It is not seen as fraud, but rather creative bookkeeping. If the vendors complain, they risk losing future purchase orders.
What happens when a company’s culture of dishonesty does not directly impact the credit trends? A national distributor of auto glass was recently indicted for insurance fraud, even though they never missed a payment to their suppliers. The strategy may be to monitor the customer closely, keep a tight reign on the credit line and level of delinquency and hope that when and if there are substantial penalties and the principals are jailed, the exposure will not be too great.
Thus, dishonesty is not necessarily a reason for denying credit. It is merely another factor that may or may not influence payment. Back in the early 1960s a lumber company in Los Angeles extended credit, without worry of not getting paid, to a family member of the notorious Dragna mobsters. When it came to running a legitimate business, the family kept their suppliers happy. They had enough headaches with their other, illegal endeavors.
In times like these, when nothing is black and white and everything is gray and nothing is certain, extending credit is more than a science. Perhaps, a lot of it is judgments based on experience. That’s where CreditPowers can help. If your credit department is having trouble making those tough decisions, contact us and we can walk you through the minefields and get you to where you want to be safely. Email your comments to patrickpowers@sbcglobal.net and watch for our website strategiccreditmanagementsolutions.com
Most debtors who default do so, not because they are dishonest, but because they are unable to repay the obligation. They intended to, they wish they could, but they just cannot. We presume, because we still have a certain amount of faith in the goodness of our fellow man that most people will pay if they are able and only a few actually intend from the very beginning to renege on their bills.
A function of credit management is reviewing and analyzing the data from credit applicants to determine their honesty. While there are precise mathematical formulas to asses a customer’s ability to pay, determining an abstract such as honesty, character and integrity is almost entirely subjective. It is important that all available information is reviewed before making a major decision.
An equipment company granted a credit sale in the amount of $80,000 basing the decision solely on the customer’s credit references. The references were bogus, the customer was fictitious and the equipment was last seen headed for Africa. The credit manager neglected to obtain a credit report from Dunn and Bradstreet or some other credit reporting agency which would have at least confirmed the legal status of the business.
So often the litmus test for honesty is a gut feeling. Asked why he continued to allow an auto glass distributor to charge even after already defaulting on nearly $300,000, a branch manager stated the owner of the businesses was a well known member of the local church. All the while he was illegally transferring title and assets to friends and family.
Sometimes collectors themselves get too close to the customer and are unable to make the right decision. A collector for a ready mix company started to ignore the growing delinquency of a particular customer because they had started dating. Clearly the customer was taking advantage of the collector.
Dishonesty is not limited to small or fly-by-night outfits. A national building material supplier chain routinely back charges its vendors for damaged goods in excess of its purchases. It is so institutional that managers are coached in ways to deduct a few dollars here and there from the vendors’ billing. It is not seen as fraud, but rather creative bookkeeping. If the vendors complain, they risk losing future purchase orders.
What happens when a company’s culture of dishonesty does not directly impact the credit trends? A national distributor of auto glass was recently indicted for insurance fraud, even though they never missed a payment to their suppliers. The strategy may be to monitor the customer closely, keep a tight reign on the credit line and level of delinquency and hope that when and if there are substantial penalties and the principals are jailed, the exposure will not be too great.
Thus, dishonesty is not necessarily a reason for denying credit. It is merely another factor that may or may not influence payment. Back in the early 1960s a lumber company in Los Angeles extended credit, without worry of not getting paid, to a family member of the notorious Dragna mobsters. When it came to running a legitimate business, the family kept their suppliers happy. They had enough headaches with their other, illegal endeavors.
In times like these, when nothing is black and white and everything is gray and nothing is certain, extending credit is more than a science. Perhaps, a lot of it is judgments based on experience. That’s where CreditPowers can help. If your credit department is having trouble making those tough decisions, contact us and we can walk you through the minefields and get you to where you want to be safely. Email your comments to patrickpowers@sbcglobal.net and watch for our website strategiccreditmanagementsolutions.com
Monday, November 17, 2008
Minimum vs. Great Expectations
Minimum expectations:
The collectors are charged with “cleaning up” the ninety days past due and older balances.
When the customers’ account reaches ninety days past due, the collectors make a demand for payment, suggesting that no more orders will be processed until payment is received. The customers, on cue, agree to send the ninety days past due balance. When the check arrives, the collector has done a good job.
Great Expectations:
The collectors are charged with reducing delinquency and increasing the level of over all collections. The initial collection calls are made soon after the account becomes past due. If, somehow an accounts slips over ninety days, a payment schedule is negotiated that will ensure payment of not only the most past due amounts, but other delinquent balances as well, payable over a reasonable amount of time; a schedule set not by the customer but by the creditor.
Minimum expectations:
When a customer sends in a credit application, an account is immediately established with terms that state C.O.D. This is to facilitate the customer’s first order while the application is “processed.” Usually, because the duration of such processing is indefinite, the account remains on C.O.D terms until the customer begins to complain. Then, a credit line, matching the initial order and with no correlation to the customer’s potential volume, may be granted.
Great Expectations:
When a customer sends in a credit application it is immediately processed and a credit line, corresponding to known factors, such as experience with other like vendors, or a credit report score, is established. The credit line is communicated with the customer and if it is not enough, more information is obtained. Additionally, the customer is informed of the condition and payment terms and the customer’s acceptance is recorded.
Minimum expectations:
Sales reps are considered by the credit department as villains, willing to sell “anyone” regardless of the risk or the ultimate cost to the company. They are seen as greedy, sloppy and unreliable. There is no negotiating with them. If there is a dispute, they can take it up with senior management. Sales views credit as arbitrary and inflexible intent on thawarting sales. Arbitration between the sales and credit departments becomes a regular and wearisome task of the CEO.
Great Expectations:
Sales and credit are a team, each appreciating the importance of the other. Credit has credibility with sales. If there is an account that is too risky to take on, sales will pass, but not before exploring every alternative approach. Credit extends the largest possible credit line making sales aware of the customer’s potential. They communicate well because they understand each other.
Minimum Expectations:
May be what you have with your present credit department. It may be this way, because these are the normal management expectations. This is how it has always been and you expect, sadly, that it will always be this way.
Great Expectations:
Is what you could have with CreditPowers. We know what makes a credit department function with better than expected results. Contact us at patrickpowers@sbcglobal.net.
Your comments are welcome.
The collectors are charged with “cleaning up” the ninety days past due and older balances.
When the customers’ account reaches ninety days past due, the collectors make a demand for payment, suggesting that no more orders will be processed until payment is received. The customers, on cue, agree to send the ninety days past due balance. When the check arrives, the collector has done a good job.
Great Expectations:
The collectors are charged with reducing delinquency and increasing the level of over all collections. The initial collection calls are made soon after the account becomes past due. If, somehow an accounts slips over ninety days, a payment schedule is negotiated that will ensure payment of not only the most past due amounts, but other delinquent balances as well, payable over a reasonable amount of time; a schedule set not by the customer but by the creditor.
Minimum expectations:
When a customer sends in a credit application, an account is immediately established with terms that state C.O.D. This is to facilitate the customer’s first order while the application is “processed.” Usually, because the duration of such processing is indefinite, the account remains on C.O.D terms until the customer begins to complain. Then, a credit line, matching the initial order and with no correlation to the customer’s potential volume, may be granted.
Great Expectations:
When a customer sends in a credit application it is immediately processed and a credit line, corresponding to known factors, such as experience with other like vendors, or a credit report score, is established. The credit line is communicated with the customer and if it is not enough, more information is obtained. Additionally, the customer is informed of the condition and payment terms and the customer’s acceptance is recorded.
Minimum expectations:
Sales reps are considered by the credit department as villains, willing to sell “anyone” regardless of the risk or the ultimate cost to the company. They are seen as greedy, sloppy and unreliable. There is no negotiating with them. If there is a dispute, they can take it up with senior management. Sales views credit as arbitrary and inflexible intent on thawarting sales. Arbitration between the sales and credit departments becomes a regular and wearisome task of the CEO.
Great Expectations:
Sales and credit are a team, each appreciating the importance of the other. Credit has credibility with sales. If there is an account that is too risky to take on, sales will pass, but not before exploring every alternative approach. Credit extends the largest possible credit line making sales aware of the customer’s potential. They communicate well because they understand each other.
Minimum Expectations:
May be what you have with your present credit department. It may be this way, because these are the normal management expectations. This is how it has always been and you expect, sadly, that it will always be this way.
Great Expectations:
Is what you could have with CreditPowers. We know what makes a credit department function with better than expected results. Contact us at patrickpowers@sbcglobal.net.
Your comments are welcome.
Monday, November 10, 2008
The Case of the Mysterious Overpayments
It was another Southern California fall day, hot with the Santa Ana winds sucking the life out of everything. I was watching the winds blow the leaves off my liquidambar on to my neighbor’s yard when the phone rang. He was the credit manager for an equipment company and he sounded perplexed. Most credit managers sound perplexed.
“We have this customer, a distributor of construction related tools and accessories.” He said. “They’re actually a very good customer in that they buy a lot and they pay on time.” I knew there was going to be a “but”. “But, when they pay, they either short pay or over pay the invoices. Actually, they’ve accumulated a large credit balance, because ever since March, they are over paying most invoices. Funny thing is they claim they’re paying the quoted prices.”
“Okay.” I said. “You have a customer paying you too much. What’s the problem?”
“The auditors can’t stand unapplied cash.” He said, “The controller is on my back to clean it up. This account is a real mess and I just don’t have the time to be worrying about a customer with a credit balance when I have a growing delinquency problem.” He was starting to sound like a kid who wasn’t getting his way.
“What happened in March?” I asked.
“That’s when they have their annual users’ conference, as they call it. Their buyers get with our sales group and negotiate the prices for the year.”
“Sounds like your prices went down, but they’re not going with the program. Tell them to update their program.” It seemed like the problem was solved and I could bill him for the call.
“I tried that. They’re not budging. They send us a purchase order and our order department confirms it and ships the order. I can’t help it if they want to pay too much.”
I told the credit manager I’d make some calls. It was the least I could do. I got on the horn with the payable manager for the construction tool company. I asked him to describe his system. He sounded proud of it.
“When we get a requisition we write up the purchase order. Then we check the computer and see what the price was last time we ordered and that’s what we put on the purchase order. Once we get the confirmation back and the delivery copy, I pay from the purchase order.”
“Did you get updated pricing from the user conference in March?” I asked, but I suspected the answer.
“Nope.” He said.
Of course not. Why should two departments within the same company communicate with each other?
It seemed the purchase order was the key, so I called the credit manager back and asked him to check on something and get back to me.
“Your hunch was right on the mark.” He told me, though he did not sound happy about it. “Our order takers confirm the product and the quantity. They don’t even look at the price because that’s already set up in the computer.”
So on one computer the price is adjusted to the new negotiated price. On another computer the price is never changed, unless the confirming Purchase Order comes back with a difference.
“Send them back their money and in the future, have your order takers correct the price on the P.O. and the problem should go away.” I instructed.
Deductions and discrepancies are often system problems. Figure out the system and you can stop the payment oddities. That’s where Credit Powers can help. We know all about deductions, discrepancies and short pays. We can help you find the problem and fix the system.
Contact us at patickpowers@sbcglobal.net.
Your comments are welcome.
“We have this customer, a distributor of construction related tools and accessories.” He said. “They’re actually a very good customer in that they buy a lot and they pay on time.” I knew there was going to be a “but”. “But, when they pay, they either short pay or over pay the invoices. Actually, they’ve accumulated a large credit balance, because ever since March, they are over paying most invoices. Funny thing is they claim they’re paying the quoted prices.”
“Okay.” I said. “You have a customer paying you too much. What’s the problem?”
“The auditors can’t stand unapplied cash.” He said, “The controller is on my back to clean it up. This account is a real mess and I just don’t have the time to be worrying about a customer with a credit balance when I have a growing delinquency problem.” He was starting to sound like a kid who wasn’t getting his way.
“What happened in March?” I asked.
“That’s when they have their annual users’ conference, as they call it. Their buyers get with our sales group and negotiate the prices for the year.”
“Sounds like your prices went down, but they’re not going with the program. Tell them to update their program.” It seemed like the problem was solved and I could bill him for the call.
“I tried that. They’re not budging. They send us a purchase order and our order department confirms it and ships the order. I can’t help it if they want to pay too much.”
I told the credit manager I’d make some calls. It was the least I could do. I got on the horn with the payable manager for the construction tool company. I asked him to describe his system. He sounded proud of it.
“When we get a requisition we write up the purchase order. Then we check the computer and see what the price was last time we ordered and that’s what we put on the purchase order. Once we get the confirmation back and the delivery copy, I pay from the purchase order.”
“Did you get updated pricing from the user conference in March?” I asked, but I suspected the answer.
“Nope.” He said.
Of course not. Why should two departments within the same company communicate with each other?
It seemed the purchase order was the key, so I called the credit manager back and asked him to check on something and get back to me.
“Your hunch was right on the mark.” He told me, though he did not sound happy about it. “Our order takers confirm the product and the quantity. They don’t even look at the price because that’s already set up in the computer.”
So on one computer the price is adjusted to the new negotiated price. On another computer the price is never changed, unless the confirming Purchase Order comes back with a difference.
“Send them back their money and in the future, have your order takers correct the price on the P.O. and the problem should go away.” I instructed.
Deductions and discrepancies are often system problems. Figure out the system and you can stop the payment oddities. That’s where Credit Powers can help. We know all about deductions, discrepancies and short pays. We can help you find the problem and fix the system.
Contact us at patickpowers@sbcglobal.net.
Your comments are welcome.
Monday, November 3, 2008
Firing Up Collections
Recently, I was asked for ideas on incentives for a collection group. Apparently, the level of past due accounts was increasing and the company’s management was recognizing that money may help stimulate collections. I have seen bonus programs work before. A lumber company I know has a program whereby once a specific collection level is reached; the collectors are given a bonus for exceeding the minimum level. Since the collectors’ base pay is relatively low, the bonus is a critical piece of their compensation and indeed they are a motivated group.
Money is not always the only motivator. I once had a “Check of the Month” program. Each month I made a copy of a check that was received in the course of the previous month. It did not have to be the largest check, just one with the best collection story behind it. It may have been payment for a very past due and resistant account. It may have been the result of the resolution of a very complex dispute. Or, the collection circumstances made a good story. I had the check framed and presented to the collector responsible for its collection and it was displayed in their cubicle for the month. Every one of the collectors on my team was thrilled when they were presented with the framed check and they all worked hard to get one.
More recently, we had lunch brought in at the first part of a new month when our targets were met by the end of the previous month. The entire group worked very hard to hit those targets. As the group got closer to the targets and the end of the month drew near, the staff worked harder to make sure we succeeded.
Mostly, the chief incentive is recognition. If senior management recognizes that the collection effort is effective, that the team is making a difference and is making a contribution to the company, they will be motivated to work hard. All too often credit and collection departments are treated like a necessary evil and a drain on company resources. The credit department is one department the company would rather just do without. So any time it is recognized, the department is stimulated.
If you need some help motivating your credit department, contact CreditPowers today. We can provide an effective incentive program that the department will support and provide you with increased revenue as a result. We welcome your coments.
Contact us at patrickpowers@sbcglobal.net.
Money is not always the only motivator. I once had a “Check of the Month” program. Each month I made a copy of a check that was received in the course of the previous month. It did not have to be the largest check, just one with the best collection story behind it. It may have been payment for a very past due and resistant account. It may have been the result of the resolution of a very complex dispute. Or, the collection circumstances made a good story. I had the check framed and presented to the collector responsible for its collection and it was displayed in their cubicle for the month. Every one of the collectors on my team was thrilled when they were presented with the framed check and they all worked hard to get one.
More recently, we had lunch brought in at the first part of a new month when our targets were met by the end of the previous month. The entire group worked very hard to hit those targets. As the group got closer to the targets and the end of the month drew near, the staff worked harder to make sure we succeeded.
Mostly, the chief incentive is recognition. If senior management recognizes that the collection effort is effective, that the team is making a difference and is making a contribution to the company, they will be motivated to work hard. All too often credit and collection departments are treated like a necessary evil and a drain on company resources. The credit department is one department the company would rather just do without. So any time it is recognized, the department is stimulated.
If you need some help motivating your credit department, contact CreditPowers today. We can provide an effective incentive program that the department will support and provide you with increased revenue as a result. We welcome your coments.
Contact us at patrickpowers@sbcglobal.net.
Monday, October 27, 2008
Top Ten Credit Mistakes
In tough times like these, it is more important than ever that credit departments work smart and efficiently. It may be necessary to look at current processes and make changes that will increase productivity. As sales decline, companies will need to squeeze every possible dollar from the accounts receivable. Additionally, companies are faced with an increase in customer defaults, robbing them of revenue opportunities. What follows are some common mistakes credit departments make believing them to be logical and therefore good policy, but in fact they do nothing to enhance collections.
1. Hiring the wrong people to do credit and collection work
I have made the point often in this blog, accountants are not necessarily collectors. Without proper training, either are customer service reps. Yet, companies invariably draft clerk level employees to make collection calls only to be disappointed in the results. It takes a certain personality to ask a perfect stranger for money. Good collectors are like sales reps. They should be competitive, persuasive and engaging. No less important, good collectors like the work.
2. Working the oldest first
A common collection strategy is to focus nearly all of the collection resources to the oldest balances. Throwing 100% of the collection resources at what is typically only 15% of the accounts receivable over 180 days past due, is not only over kill, but usually doomed to fail anyway. Balances sitting out there that old are fated for write off or suit as it is. The correct approach is to pursue balances that are headed for the past due columns and get them collected before they go too far.
3. Waiting too long to start collections
Many collectors give the customer the benefit of the doubt. Few will ask for money while the account is “current” even though the bills are now currently due. Compounding the problem is to procrastinate well into the 30 day past due column assuming that payment is forthcoming any day now. So, come 60 days past due it’s time to get serious. The problem with this thinking is the customers catch on. If you don’t call they won’t pay. So, if you wait 60 days to call you can’t expect payment any sooner.
4. Not enforcing finance charges
A company I know stopped charging finance charges because the customers did not like them. That’s the idea. If there is a penalty for paying late, there is an incentive to pay on time. Take away the incentive and there is nothing to encourage prompt pay. If you are not going to call until 60 days and you are not putting the account on hold and you are not charging the customer for being delinquent, you cannot expect payment any sooner.
5. Ignoring security devises for reasons of trust or fear of offending
While it is important to be able to trust your customers, you cannot over look ability. Stuff happens and sometimes the most trustworthy is simply unable to make it. If there is a way to secure a receivable, do it. You can still trust your customer, but you are protected should he fail. As for customers you take offense to your security requests, they should not be trusted in the first place. No one should be offended for being prudent.
6. Setting number of call requirements
The logic is: the more calls that are made the more money will be collected. There are all sorts of telephone tracking products on the market, usually for the benefit of telemarketers, that keep track of the number of calls collectors make in a day. I have seen managers utilize all kinds of spread sheets and call sheets to track calls. However, this policy misses the point. The objective of collection calls is to collect money, not simply to make a requisite number of calls. Rapid fire collection calls often ignore such factors as skipped invoices or disputed balances. And it certainly prevents any sort of relationship building that is often essential for effective collections. Collectors should be given monetary targets instead and let them figure out how to accomplish the task.
7. Refusing to do the customer’s “bookkeeping”
I hear this complaint all too frequently. Before the customer will pay he needs a detail of all previous cash applications, or copies of all delivery receipts or details about credit memos. Collectors complain these are only delay tactics. However, the customer just may need help understanding the balance and if he relies on you to provide it, all the better.
8. Putting customers on COD status rather than hold
Sales people never want to lose a sale, so when they finally admit there is a problem with a customer’s payment trend (or lack of) they will usually support putting the customer on C.O.D. While this appears to be a logical course, it does not do much toward collecting an old balance. As long as the customer can still buy your product, there is no motivation to pay down the delinquent portion. C.O.D. terms should be allowed only once an acceptable payment plan for the delinquency has been agreed to.
9. Applying COD money to oldest balance
This is often a seductive gimmick to reduce the past due amount a customer owes by applying C.O.D. payments against the oldest balance. It doesn’t change the over all balance, only the aging of it and only for the short term because the new amounts will age eventually. Should the customer stop buying and paying, you are left with an accounting nightmare. The customer will claim the new invoices are paid and you are left explaining to the court how the C. O. D. invoices are not actually C.O.D. and that you’ve put the money somewhere it did not belong.
10. C.O.D. Plus
In this plan, the customer continues to buy, much to the delight of sales and each time he does, he pays a little more toward the delinquent amount. The main flaw with this plan is that it gives the customer too much control. If he doesn’t buy, he doesn’t pay. How do you force someone to keep buying? Then there is the issue of trying to keep track of the payments. Who tells the customer how much to pay? He gets a bill of lading that tells him the C.O.D. amount. Do you tack on an extra amount? That gets messy. Better to have the customer sign a promissory note.
If your company has been allowing any or all of these processes, you could probably use CreditPowers to help you design new ones. Contact patrickpowers@sbcglobal.net for more information. Comments are welcome.
1. Hiring the wrong people to do credit and collection work
I have made the point often in this blog, accountants are not necessarily collectors. Without proper training, either are customer service reps. Yet, companies invariably draft clerk level employees to make collection calls only to be disappointed in the results. It takes a certain personality to ask a perfect stranger for money. Good collectors are like sales reps. They should be competitive, persuasive and engaging. No less important, good collectors like the work.
2. Working the oldest first
A common collection strategy is to focus nearly all of the collection resources to the oldest balances. Throwing 100% of the collection resources at what is typically only 15% of the accounts receivable over 180 days past due, is not only over kill, but usually doomed to fail anyway. Balances sitting out there that old are fated for write off or suit as it is. The correct approach is to pursue balances that are headed for the past due columns and get them collected before they go too far.
3. Waiting too long to start collections
Many collectors give the customer the benefit of the doubt. Few will ask for money while the account is “current” even though the bills are now currently due. Compounding the problem is to procrastinate well into the 30 day past due column assuming that payment is forthcoming any day now. So, come 60 days past due it’s time to get serious. The problem with this thinking is the customers catch on. If you don’t call they won’t pay. So, if you wait 60 days to call you can’t expect payment any sooner.
4. Not enforcing finance charges
A company I know stopped charging finance charges because the customers did not like them. That’s the idea. If there is a penalty for paying late, there is an incentive to pay on time. Take away the incentive and there is nothing to encourage prompt pay. If you are not going to call until 60 days and you are not putting the account on hold and you are not charging the customer for being delinquent, you cannot expect payment any sooner.
5. Ignoring security devises for reasons of trust or fear of offending
While it is important to be able to trust your customers, you cannot over look ability. Stuff happens and sometimes the most trustworthy is simply unable to make it. If there is a way to secure a receivable, do it. You can still trust your customer, but you are protected should he fail. As for customers you take offense to your security requests, they should not be trusted in the first place. No one should be offended for being prudent.
6. Setting number of call requirements
The logic is: the more calls that are made the more money will be collected. There are all sorts of telephone tracking products on the market, usually for the benefit of telemarketers, that keep track of the number of calls collectors make in a day. I have seen managers utilize all kinds of spread sheets and call sheets to track calls. However, this policy misses the point. The objective of collection calls is to collect money, not simply to make a requisite number of calls. Rapid fire collection calls often ignore such factors as skipped invoices or disputed balances. And it certainly prevents any sort of relationship building that is often essential for effective collections. Collectors should be given monetary targets instead and let them figure out how to accomplish the task.
7. Refusing to do the customer’s “bookkeeping”
I hear this complaint all too frequently. Before the customer will pay he needs a detail of all previous cash applications, or copies of all delivery receipts or details about credit memos. Collectors complain these are only delay tactics. However, the customer just may need help understanding the balance and if he relies on you to provide it, all the better.
8. Putting customers on COD status rather than hold
Sales people never want to lose a sale, so when they finally admit there is a problem with a customer’s payment trend (or lack of) they will usually support putting the customer on C.O.D. While this appears to be a logical course, it does not do much toward collecting an old balance. As long as the customer can still buy your product, there is no motivation to pay down the delinquent portion. C.O.D. terms should be allowed only once an acceptable payment plan for the delinquency has been agreed to.
9. Applying COD money to oldest balance
This is often a seductive gimmick to reduce the past due amount a customer owes by applying C.O.D. payments against the oldest balance. It doesn’t change the over all balance, only the aging of it and only for the short term because the new amounts will age eventually. Should the customer stop buying and paying, you are left with an accounting nightmare. The customer will claim the new invoices are paid and you are left explaining to the court how the C. O. D. invoices are not actually C.O.D. and that you’ve put the money somewhere it did not belong.
10. C.O.D. Plus
In this plan, the customer continues to buy, much to the delight of sales and each time he does, he pays a little more toward the delinquent amount. The main flaw with this plan is that it gives the customer too much control. If he doesn’t buy, he doesn’t pay. How do you force someone to keep buying? Then there is the issue of trying to keep track of the payments. Who tells the customer how much to pay? He gets a bill of lading that tells him the C.O.D. amount. Do you tack on an extra amount? That gets messy. Better to have the customer sign a promissory note.
If your company has been allowing any or all of these processes, you could probably use CreditPowers to help you design new ones. Contact patrickpowers@sbcglobal.net for more information. Comments are welcome.
Monday, October 20, 2008
Forensic credit
A commercial loan officer for a leading commercial lending bank boasted back when banks were aggressively lending money, that he had recently signed a multi-million dollar operating credit line for an excavating company. I was a little surprised because banks as a rule, even then, were reluctant to lend to contractors. They generally have no assets other than equipment and I suspected the excavator’s was probably leased. The bank officer told me the contractor had a very large accounts receivable. “It’s secured.” The loan officer said confidently, “He said he has Stop Notices on all of it.”
The banker had been convinced that Stop Notices secured the receivable. I explained to him that in California, a Stop Notice was the first step that a contractor takes when payment is not forthcoming. It does not guarantee anything. For one, the notice only stops whatever money remains un-disbursed. Worse, if it was a public works project, the public agency is allowed to disburse as needed to complete the project regardless of any Stop Notices. In short, I told the banker, it was very possible, the excavator’s accounts receivable was an illusion.
The bank had done its homework and had sent in a team of auditors to review the excavator’s financials. Because the auditors knew more about accounting practices than they did about the realities of construction they were given a convincing spiel about Stop Notices that convinced them an everyone else that the receivable was secured.
I once explained to a team of bank auditors how the ready mix industry secured their accounts receivable with lien rights. The auditors believed that a lien was synonymous with second trust deeds. Allowing them to believe that resulted in a very favorable audit even though, filing liens was often a prelude to filing a suit to recover money and the outcome rarely resulted in full payment.
More recently, a team of auditors from one of the nation’s leading accounting firms was conducting a Sarbanes Oxley compliance test. They were looking at all of the company’s financial procedures and when they came to the accounts receivable they asked how they were reviewed. I explained the process which involved generating aged trial balances, identifying the delinquent accounts as well as accounts over credit limit and reviewing the collection progress with the collectors. It was a lengthy and involved process; too long for the auditor, who, distilled the entire process into “signing the aged trial balance.” Thus, the entire function of making sure the accounts receivable was being worked was reduced to a mandatory signature on the last blank page of a computer generated aging no one but the credit manager ever saw. It was a conclusion drawn from a lack of understanding the credit function and a desire to keep it simple.
In a time when more than ever stock holders and now the tax paying public are demanding accountability from major corporations and the leading accounting firms are expected to police businesses and restore confidence, there should be a higher level of commercial credit knowledge and not just accounting smarts. Perhaps there should be more “forensic credit” just as there is a need for forensic accounting.
That’s where CreditPowers can help. We know credit functions. We know when accounts receivables are secured by more than smoke and mirrors. We can do an assessment of the receivables and assist auditors in determining the strengths and weakness. We can provide a level of confidence and credibility that is so lacking.
For more information e-mail patrickpowers@sbcglobal.net
The banker had been convinced that Stop Notices secured the receivable. I explained to him that in California, a Stop Notice was the first step that a contractor takes when payment is not forthcoming. It does not guarantee anything. For one, the notice only stops whatever money remains un-disbursed. Worse, if it was a public works project, the public agency is allowed to disburse as needed to complete the project regardless of any Stop Notices. In short, I told the banker, it was very possible, the excavator’s accounts receivable was an illusion.
The bank had done its homework and had sent in a team of auditors to review the excavator’s financials. Because the auditors knew more about accounting practices than they did about the realities of construction they were given a convincing spiel about Stop Notices that convinced them an everyone else that the receivable was secured.
I once explained to a team of bank auditors how the ready mix industry secured their accounts receivable with lien rights. The auditors believed that a lien was synonymous with second trust deeds. Allowing them to believe that resulted in a very favorable audit even though, filing liens was often a prelude to filing a suit to recover money and the outcome rarely resulted in full payment.
More recently, a team of auditors from one of the nation’s leading accounting firms was conducting a Sarbanes Oxley compliance test. They were looking at all of the company’s financial procedures and when they came to the accounts receivable they asked how they were reviewed. I explained the process which involved generating aged trial balances, identifying the delinquent accounts as well as accounts over credit limit and reviewing the collection progress with the collectors. It was a lengthy and involved process; too long for the auditor, who, distilled the entire process into “signing the aged trial balance.” Thus, the entire function of making sure the accounts receivable was being worked was reduced to a mandatory signature on the last blank page of a computer generated aging no one but the credit manager ever saw. It was a conclusion drawn from a lack of understanding the credit function and a desire to keep it simple.
In a time when more than ever stock holders and now the tax paying public are demanding accountability from major corporations and the leading accounting firms are expected to police businesses and restore confidence, there should be a higher level of commercial credit knowledge and not just accounting smarts. Perhaps there should be more “forensic credit” just as there is a need for forensic accounting.
That’s where CreditPowers can help. We know credit functions. We know when accounts receivables are secured by more than smoke and mirrors. We can do an assessment of the receivables and assist auditors in determining the strengths and weakness. We can provide a level of confidence and credibility that is so lacking.
For more information e-mail patrickpowers@sbcglobal.net
Tuesday, October 14, 2008
It's Time to Upgrade
At the core of the national economic collapse are bad credit decisions. Lenders extended credit to high risk borrowers and in many cases, people who were just down right crooked. Who is to blame? Banks have credit managers just like other companies. Did all the bank’s credit managers make the same bad mistakes? Or, as I suspect, were the aggressive loan officers and their senior managers over-riding their credit analyst’s decisions?
There has been a trend in the recent past to ignore risk in favor of the almighty sale. The sale must go through. Anything or anyone standing in the way is viewed as anti-sales. One company I know labeled any delay in allowing a credit sale as being bureaucratic, meaning, any thoughtful analysis of the facts and assessment of the risk was a waste of time. During the last couple of decades, companies have sought aggressive sales people to lead the charge and have at the same time, hired accounts receivable clerks to perform the credit analysis functions. The meeker the person the better. When a credit person raises any kind of concern that a pending sale is likely to default, it is seen as a crying wolf and it is over ridden. Credit managers are no match for the high paid, persuasive sales managers. Instead they are told to be “team players” and to be “creative” and to always figure out a way to approve the orders. Turning down a credit sale has become an anathema. No credit manager in his right mind would do it and hope to keep his job.
Now we’re paying the price. Companies, banks and lenders of any kind are learning that you cannot make money making bad loans. They do not generate revenue. It is better that the loans were never made. You can sell all of the goods and services you can, but if the customer does not pay for them, you lose. It sounds so basic, but that’s the fact banks in particular seem to have ignored.
Perhaps it is time to reconsider the credit manager’s role. Credit managers must warn sales of impending dangers and their concerns must be heeded. Obviously, the argument must be credible and backed with sufficient research. The intent should not be to find a reason to deny credit in every circumstance, but instead to find a means to at least dilute the risk and manage the sale in such a way the recovery is made more likely than not. This may take a different kind of credit manager. One who can stand up to a highly charged must-make-the-sale-no-matter-what type of sales person. Perhaps it is time to upgrade the position, so that the credit manager and the sales manager can go face to face as equals. Maybe then they’ll work as real partners and manage risk and avoid the hits.
This is where CreditPowers can help. We know how to work with sales and we know how to analyze credit. We can help develop the proper credit – sales relationship that will take you into the future.
For more information e-mail us at patrickpowers@sbcglobal.net.
There has been a trend in the recent past to ignore risk in favor of the almighty sale. The sale must go through. Anything or anyone standing in the way is viewed as anti-sales. One company I know labeled any delay in allowing a credit sale as being bureaucratic, meaning, any thoughtful analysis of the facts and assessment of the risk was a waste of time. During the last couple of decades, companies have sought aggressive sales people to lead the charge and have at the same time, hired accounts receivable clerks to perform the credit analysis functions. The meeker the person the better. When a credit person raises any kind of concern that a pending sale is likely to default, it is seen as a crying wolf and it is over ridden. Credit managers are no match for the high paid, persuasive sales managers. Instead they are told to be “team players” and to be “creative” and to always figure out a way to approve the orders. Turning down a credit sale has become an anathema. No credit manager in his right mind would do it and hope to keep his job.
Now we’re paying the price. Companies, banks and lenders of any kind are learning that you cannot make money making bad loans. They do not generate revenue. It is better that the loans were never made. You can sell all of the goods and services you can, but if the customer does not pay for them, you lose. It sounds so basic, but that’s the fact banks in particular seem to have ignored.
Perhaps it is time to reconsider the credit manager’s role. Credit managers must warn sales of impending dangers and their concerns must be heeded. Obviously, the argument must be credible and backed with sufficient research. The intent should not be to find a reason to deny credit in every circumstance, but instead to find a means to at least dilute the risk and manage the sale in such a way the recovery is made more likely than not. This may take a different kind of credit manager. One who can stand up to a highly charged must-make-the-sale-no-matter-what type of sales person. Perhaps it is time to upgrade the position, so that the credit manager and the sales manager can go face to face as equals. Maybe then they’ll work as real partners and manage risk and avoid the hits.
This is where CreditPowers can help. We know how to work with sales and we know how to analyze credit. We can help develop the proper credit – sales relationship that will take you into the future.
For more information e-mail us at patrickpowers@sbcglobal.net.
Monday, October 6, 2008
Credit Fitness Trainer
When I go to the gym, I work out on a few of those exercise machines hoping they will tone and firm. I can work the machines and I know how they function, but I don’t really know how to use them effectively. Do I use light weights or heavy ones? Do I do fifteen reps or a hundred? Do I do so many abdominal crunches I can’t move? That is why members hire a personnel trainer. He helps to guide you in ways to use the machines to get the best out of a work out.
CreditPowers works like a personal trainer for you credit department. Your collection group may know the basics, but do they know how to handle the unusual or the exceptional? They may be good collectors, but are they strategic? Are they making a real impact on the past due? Do they know how to work with a sales department looking any where and every where for a sale?
CreditPowers has over thirty years of credit experience in a wide range of environments, from the conservative to the aggressive. We offer an affordable program that begins with a performance evaluation of your current accounts receivable situation. We can make recommendations that will get your department on tract and we can train the staff on sure fire methods that will achieve results. Finally, we can be a resource for information and services to enhance performance.
For more information, e-mail us at patrickpowers@sbcglobal.net
CreditPowers works like a personal trainer for you credit department. Your collection group may know the basics, but do they know how to handle the unusual or the exceptional? They may be good collectors, but are they strategic? Are they making a real impact on the past due? Do they know how to work with a sales department looking any where and every where for a sale?
CreditPowers has over thirty years of credit experience in a wide range of environments, from the conservative to the aggressive. We offer an affordable program that begins with a performance evaluation of your current accounts receivable situation. We can make recommendations that will get your department on tract and we can train the staff on sure fire methods that will achieve results. Finally, we can be a resource for information and services to enhance performance.
For more information, e-mail us at patrickpowers@sbcglobal.net
Monday, September 29, 2008
Who Do You Want Collecting Your Money?
How do you find good collectors? That was a question posed to me recently and my answer was, you have to know what you’re looking for. Too often, companies make bad choices when they select their credit manager or collection supervisors. As long as the credit function falls under Finance or Accounting, accountants will hire the credit / collection group. To the detriment of the goals and objectives of the company, accountants hire accountants to do the collection work.
In his book, “Taking Care of Business” the eminent psychiatrist David Viscott, M.D. describes three basic personality types: dependent, controlling and competitive.
A customer service rep may be a good example of a dependent type. Someone who needs to belong to a group, needs a routine and security and yearns for stability. They are not generally, leaders. They require a lot of supervision and they will follow whoever gives them the most attaboys.
Good examples of a competitive type are sales people. Like sports competitors, sales reps are goal oriented, driven to be recognized for their accomplishments, striving to improve on their numbers, be it sales units or dollars sold.
Good credit people should fit the competitive type. You want someone who sees collections as a game. Collecting the money is the objective. Good collectors strive to collect more money, or a higher percentage of the receivable, or whatever goal is set out for them. They want to be recognized for the work they do and they need benchmarks. Set a target and they will go after it.
Controlling types are people who, according to Dr. Viscott, “want to control you, write the rules, define the terms, and give the directions.” He continues, “They are rigid, ruled by precedent, and are likely to be limited in their creativity. Since controlling people are loyal only to the things that give them power, others do not feel loyal to them.”
This may describe a stereotypical credit person. However according to Dr. Viscott, controlling types “number all the top accountants”.
Managers look not only at experience and expertise when they are hiring. They also consciously or unconsciously consider their compatibility. You are going to hire someone you can get along with.
A sales manager will hire a young protégé, someone with the same competitive spirit, energy and drive. A controller will be looking for someone who is organized, systematic, and attentive to detail. They also tend to hire like personality types. Controlling types hire other controlling types. So, rather than hire a go-getter collector, they hire someone, like themselves: one who manages “by intimidation and manipulation not by understanding.”
In short, accountants are probably not likely to seek a competitive person for a collection spot, just like they would not consider a competitive type to calculate the budget because, accountants are not comfortable with other personality types. Thus, they hire the wrong person for the job.
End this trend, and let CreditPowers help you find the right candidates for your credit needs. We know what you are looking for.
For more information e-mail us at patrickpowers@sbcglobal.net
In his book, “Taking Care of Business” the eminent psychiatrist David Viscott, M.D. describes three basic personality types: dependent, controlling and competitive.
A customer service rep may be a good example of a dependent type. Someone who needs to belong to a group, needs a routine and security and yearns for stability. They are not generally, leaders. They require a lot of supervision and they will follow whoever gives them the most attaboys.
Good examples of a competitive type are sales people. Like sports competitors, sales reps are goal oriented, driven to be recognized for their accomplishments, striving to improve on their numbers, be it sales units or dollars sold.
Good credit people should fit the competitive type. You want someone who sees collections as a game. Collecting the money is the objective. Good collectors strive to collect more money, or a higher percentage of the receivable, or whatever goal is set out for them. They want to be recognized for the work they do and they need benchmarks. Set a target and they will go after it.
Controlling types are people who, according to Dr. Viscott, “want to control you, write the rules, define the terms, and give the directions.” He continues, “They are rigid, ruled by precedent, and are likely to be limited in their creativity. Since controlling people are loyal only to the things that give them power, others do not feel loyal to them.”
This may describe a stereotypical credit person. However according to Dr. Viscott, controlling types “number all the top accountants”.
Managers look not only at experience and expertise when they are hiring. They also consciously or unconsciously consider their compatibility. You are going to hire someone you can get along with.
A sales manager will hire a young protégé, someone with the same competitive spirit, energy and drive. A controller will be looking for someone who is organized, systematic, and attentive to detail. They also tend to hire like personality types. Controlling types hire other controlling types. So, rather than hire a go-getter collector, they hire someone, like themselves: one who manages “by intimidation and manipulation not by understanding.”
In short, accountants are probably not likely to seek a competitive person for a collection spot, just like they would not consider a competitive type to calculate the budget because, accountants are not comfortable with other personality types. Thus, they hire the wrong person for the job.
End this trend, and let CreditPowers help you find the right candidates for your credit needs. We know what you are looking for.
For more information e-mail us at patrickpowers@sbcglobal.net
Monday, September 22, 2008
CreditPowers Saves the Day
It was a cool fall morning. I was sitting in my office trying to master spider solitaire when the phone rang. She had one of those voices that made you think of possibilities.
“Please, you have to help me.” Her tone was desperate. “One of our customers is refusing to pay. He owes over $115,000.00. If my boss finds out he’ll fire me.”
“Tell me about it.” I said coolly.
“We sold him material for an office building and now he said he won’t pay unless we give him a huge discount.”
Someone was taking advantage of her inexperience and I didn’t like it. “Sounds like extortion to me.” I said, “Can you lien the job?”
“Yes, but he said he’d just bond around it.” She was not sure what that meant, but she knew it was bad.
“That’s not a bad thing.” I told her, reassuringly. “In fact it could be a good thing.” I told her why. It kept her from sobbing, but she was still afraid.
“It could still take months. We'll have to find a lawyer and it could get so expensive. My boss will have a fit.”
Bosses have fits like some people get hunger pangs. “Any chance there’s a construction loan?” I asked, hopefully.
I heard the rustling of papers. “As a matter of fact, there is.” She said in a voice that sounded like she’d been running.
I leaned back in my chair. The sun had broken through the morning gray. It was going to be a good day after all. “Do what I tell you and your boss will treat you like a hero.” I told her how to file a bonded stop notice.
She called me about two weeks later. “I could kiss you.” She said. She was bubbly, like French champagne. “I did just as you said, and the general contractor called up and asked me why we’d sent the big guns in. He said the bank was in a panic and they refused to disburse another penny until this was cleared up. The owner was so furious he had to be restrained. They cut us a check for the full amount and sent the subcontractor packing.”
“Glad I could help.” I said. Good things happen when you contact CreditPowers. We have the answers.
For more information e-mail us at patrickpowers@sbcglobal.net
“Please, you have to help me.” Her tone was desperate. “One of our customers is refusing to pay. He owes over $115,000.00. If my boss finds out he’ll fire me.”
“Tell me about it.” I said coolly.
“We sold him material for an office building and now he said he won’t pay unless we give him a huge discount.”
Someone was taking advantage of her inexperience and I didn’t like it. “Sounds like extortion to me.” I said, “Can you lien the job?”
“Yes, but he said he’d just bond around it.” She was not sure what that meant, but she knew it was bad.
“That’s not a bad thing.” I told her, reassuringly. “In fact it could be a good thing.” I told her why. It kept her from sobbing, but she was still afraid.
“It could still take months. We'll have to find a lawyer and it could get so expensive. My boss will have a fit.”
Bosses have fits like some people get hunger pangs. “Any chance there’s a construction loan?” I asked, hopefully.
I heard the rustling of papers. “As a matter of fact, there is.” She said in a voice that sounded like she’d been running.
I leaned back in my chair. The sun had broken through the morning gray. It was going to be a good day after all. “Do what I tell you and your boss will treat you like a hero.” I told her how to file a bonded stop notice.
She called me about two weeks later. “I could kiss you.” She said. She was bubbly, like French champagne. “I did just as you said, and the general contractor called up and asked me why we’d sent the big guns in. He said the bank was in a panic and they refused to disburse another penny until this was cleared up. The owner was so furious he had to be restrained. They cut us a check for the full amount and sent the subcontractor packing.”
“Glad I could help.” I said. Good things happen when you contact CreditPowers. We have the answers.
For more information e-mail us at patrickpowers@sbcglobal.net
Monday, September 15, 2008
First Aid For the Credit Department
Typically, when management is unhappy with the performance of their credit department, they replace the credit manager. The hope is a new sheriff will bring fresh ideas and a change in direction. Most of the time, management knows something is wrong, they just do not know what it is. They are relying on the new person to figure it out and fix it.
When a company follows this course, all they are doing is exchanging one set of experiences for another. Credit managers bring experience and some level of know how. If something changes with an organization, the credit manager may or may not be equipped to handle it. So, the company looks for another one, with the kind of experience that fits the current problems
The accounts receivable will continue to decline during the duration the new credit manager gets familiar with the lay of the land. Usually this process faces delays as the new manager deals with all the fires that have flared up. Then there is that period when change is recommended, accepted and implemented. This assumes the new person will actually come up with a workable plan of action. This is followed by measuring the changes and assessing the results. Hopefully, management made the right choice and the downward trend is finally reversed. The turnaround process could take somewhere between six to twelve months.
The company might be better served to turn to CreditPowers. Not only do we have the experience, we know how to make some immediate assessments, work with the current credit team, make recommendations, implement and train the staff and follow up as needed. Consider it a quick start for your credit department.
First, we look at the current situation. This involves a discussion with management and a review of the accounts receivable over a period of the last three or four months. Equipped with these findings, CreditPowers will go to work, meeting with the current credit department, making recommendations while evaluating the staff. Further recommendations can be made as a result of this session. Implementation and the necessary training begin simultaneously. All the while, there is no interruption of the current work flow. There is no period of adjustment, acquainting or reflection. We go to work to fix the problems immediately. The accounts receivable can begin to recover without any further delay. That translates into improved cash flow, improved morale, better efficiencies and increased production.
CreditPowers comes with a proven collection strategy, a method to bring the credit group and the sales team together, a system of bench marks and assessments and resources.
For more information, e-mail us at patrickpowers@sbcglobal.net
When a company follows this course, all they are doing is exchanging one set of experiences for another. Credit managers bring experience and some level of know how. If something changes with an organization, the credit manager may or may not be equipped to handle it. So, the company looks for another one, with the kind of experience that fits the current problems
The accounts receivable will continue to decline during the duration the new credit manager gets familiar with the lay of the land. Usually this process faces delays as the new manager deals with all the fires that have flared up. Then there is that period when change is recommended, accepted and implemented. This assumes the new person will actually come up with a workable plan of action. This is followed by measuring the changes and assessing the results. Hopefully, management made the right choice and the downward trend is finally reversed. The turnaround process could take somewhere between six to twelve months.
The company might be better served to turn to CreditPowers. Not only do we have the experience, we know how to make some immediate assessments, work with the current credit team, make recommendations, implement and train the staff and follow up as needed. Consider it a quick start for your credit department.
First, we look at the current situation. This involves a discussion with management and a review of the accounts receivable over a period of the last three or four months. Equipped with these findings, CreditPowers will go to work, meeting with the current credit department, making recommendations while evaluating the staff. Further recommendations can be made as a result of this session. Implementation and the necessary training begin simultaneously. All the while, there is no interruption of the current work flow. There is no period of adjustment, acquainting or reflection. We go to work to fix the problems immediately. The accounts receivable can begin to recover without any further delay. That translates into improved cash flow, improved morale, better efficiencies and increased production.
CreditPowers comes with a proven collection strategy, a method to bring the credit group and the sales team together, a system of bench marks and assessments and resources.
For more information, e-mail us at patrickpowers@sbcglobal.net
Monday, September 8, 2008
It’s Not Rocket Science…It’s Magic!
How hard can it be to collect money? You call up the customer, remind him what he owes, because surely it’s just an oversight that he hasn’t paid yet and… presto, a check is put in the mail. It’s so easy a billing clerk can do it.
How hard can it be to extend credit? A promising prospect sends in a credit application with all of the information you’ll ever need and… presto, you open the account. It’s so easy even a customer service rep can do it.
The customer gets a little behind, so what do you do? Put him on C.O.D. until he pays down the balance. Presto! Problem solved. In fact, you can accelerate the process by applying all of the C.O.D. payments towards the old delinquent balance. That’ll make that old balance disappear in a flash.
The customer’s orders exceed his credit line causing a delay in the processing. What to do? Increase the credit limit, of course! Presto! Problem solved!
This must be why there is no college degree in Credit Management. It just does not require that many skills. Some common sense and the ability to operate a telephone are all it takes. Anyone can do it.
Ask anyone doing the job and you’ll probably get another perspective. You call the customer, remind him what he owes and he lies to you. Now you have to call him again and he lies to you again.
The information on the credit application looked so good, the customer seemed to be so honest, but the mail, particularly your invoices, keep coming back marked, “no such address”.
You put the customer on C.O.D. but he just stopped buying altogether. Now what?
Suddenly it’s not so easy.
Perhaps credit work does take more than a pleasant telephone voice. Maybe a degree from Hogwarts School of Witchcraft and Wizardry would be beneficial. When you come down to it, to do the job well, credit managers must have the ability to read minds, predict the future and perform occasional acts of magic.
When the customer says he’s putting a check in the mail on Friday, it takes a pretty good mind reader to determine which Friday he’s referring to. You can pin him down to a specific date and time, but you still have to read his mind to determine if his intentions are pure.
When considering a credit application, you are actually attempting to predict the customer’s probable payment patterns as well as his longevity and financial soundness. In laymen terms that is predicting the future, pure and simple.
Then, the corporate account defaults and files bankruptcy but you pull out that personal guarantee and you find the principal has property he’s trying to protect. He pays you in full. Now, that’s pulling a rabbit out the hat!
You want a credit department that can predict the future, read minds and work magic? Contact CreditPowers. We can do the trick. We will evaluate the credit staff, give them the necessary tools, show them the way, and abracadabra, your receivables will be back in shape in no time.
For more information, e-mail us at patrickpowers@sbcglobal.net
How hard can it be to extend credit? A promising prospect sends in a credit application with all of the information you’ll ever need and… presto, you open the account. It’s so easy even a customer service rep can do it.
The customer gets a little behind, so what do you do? Put him on C.O.D. until he pays down the balance. Presto! Problem solved. In fact, you can accelerate the process by applying all of the C.O.D. payments towards the old delinquent balance. That’ll make that old balance disappear in a flash.
The customer’s orders exceed his credit line causing a delay in the processing. What to do? Increase the credit limit, of course! Presto! Problem solved!
This must be why there is no college degree in Credit Management. It just does not require that many skills. Some common sense and the ability to operate a telephone are all it takes. Anyone can do it.
Ask anyone doing the job and you’ll probably get another perspective. You call the customer, remind him what he owes and he lies to you. Now you have to call him again and he lies to you again.
The information on the credit application looked so good, the customer seemed to be so honest, but the mail, particularly your invoices, keep coming back marked, “no such address”.
You put the customer on C.O.D. but he just stopped buying altogether. Now what?
Suddenly it’s not so easy.
Perhaps credit work does take more than a pleasant telephone voice. Maybe a degree from Hogwarts School of Witchcraft and Wizardry would be beneficial. When you come down to it, to do the job well, credit managers must have the ability to read minds, predict the future and perform occasional acts of magic.
When the customer says he’s putting a check in the mail on Friday, it takes a pretty good mind reader to determine which Friday he’s referring to. You can pin him down to a specific date and time, but you still have to read his mind to determine if his intentions are pure.
When considering a credit application, you are actually attempting to predict the customer’s probable payment patterns as well as his longevity and financial soundness. In laymen terms that is predicting the future, pure and simple.
Then, the corporate account defaults and files bankruptcy but you pull out that personal guarantee and you find the principal has property he’s trying to protect. He pays you in full. Now, that’s pulling a rabbit out the hat!
You want a credit department that can predict the future, read minds and work magic? Contact CreditPowers. We can do the trick. We will evaluate the credit staff, give them the necessary tools, show them the way, and abracadabra, your receivables will be back in shape in no time.
For more information, e-mail us at patrickpowers@sbcglobal.net
Wednesday, September 3, 2008
Tough Times Trigger Changes
Times are tough. Your business is seeing a decline in sales and declining revenues. To make matters worse, your accounts receivable, which you’ve always relied on as a source of immediate cash, is not turning like it should. Delinquencies and defaults are up. The reserves are at record levels and the receipts are sluggish. The customers you do have are paying slower and you are afraid to scare them away.
You expect your sales team to get creative and find new customers. You expect operations to be more efficient and cost conscious. You expect your collection group to collect more money.
What does the collection group say? They’re doing everything they can. You can’t get blood from a turnip. If they tighten credit, they’ll drive off the customers. If they loosen up, delinquency will surely rise. What can they do differently?
Consider that very often, collection procedures do not change in good times or bad. In bad times particularly, senior management will demand more focus be put on the very past due columns. Everyone is hammering at twenty per cent or less of the accounts receivable that is made up of accounts either paying a little every month or are very close to becoming a legal or a collection agency assignment. However, this may have been the collection strategy all along. Perhaps the collection group has never tried to collect more current receivables.
It is also possible the collection group treats every past due amount equally, meaning that as much time is spent on small amounts as are spent on the larger amounts which equates to not enough time is spent where it belongs. The collection group may be spending too much time on non-collection issues. The sales group is eager to have the credit applications processed, the customers are looking for invoices and proof of deliveries, and they expect someone to respond promptly to credit rating requests. All of these responsibilities can drown a credit department. In these conditions follow up suffers and good follow up is key to successful collections.
This is where CreditPowers can help. We can evaluate your current collection trends and practices. We can provide tools that will improve collections and motivate the staff. We can provide a sure fire collection formula that will reduce delinquency. We can train the collection group and make them better collectors and we can help reallocate their resources so that they can be more productive.
For more information, e-mail us at patrickpowers@sbcglobal.net
You expect your sales team to get creative and find new customers. You expect operations to be more efficient and cost conscious. You expect your collection group to collect more money.
What does the collection group say? They’re doing everything they can. You can’t get blood from a turnip. If they tighten credit, they’ll drive off the customers. If they loosen up, delinquency will surely rise. What can they do differently?
Consider that very often, collection procedures do not change in good times or bad. In bad times particularly, senior management will demand more focus be put on the very past due columns. Everyone is hammering at twenty per cent or less of the accounts receivable that is made up of accounts either paying a little every month or are very close to becoming a legal or a collection agency assignment. However, this may have been the collection strategy all along. Perhaps the collection group has never tried to collect more current receivables.
It is also possible the collection group treats every past due amount equally, meaning that as much time is spent on small amounts as are spent on the larger amounts which equates to not enough time is spent where it belongs. The collection group may be spending too much time on non-collection issues. The sales group is eager to have the credit applications processed, the customers are looking for invoices and proof of deliveries, and they expect someone to respond promptly to credit rating requests. All of these responsibilities can drown a credit department. In these conditions follow up suffers and good follow up is key to successful collections.
This is where CreditPowers can help. We can evaluate your current collection trends and practices. We can provide tools that will improve collections and motivate the staff. We can provide a sure fire collection formula that will reduce delinquency. We can train the collection group and make them better collectors and we can help reallocate their resources so that they can be more productive.
For more information, e-mail us at patrickpowers@sbcglobal.net
Monday, August 25, 2008
Good Collectors are Super Sellers
Sales people persuade their customers to buy their products. Credit people persuade the customers to pay for the products they bought. Good persuasion skills are characteristic of both sales and credit / collection personnel. A good sales person is persistent, doggedly pursuing the potential customer until he buys. A good collector is the proverbial squeaky wheel who gets the grease. Persistence is another key component of both credit and sales. Sales people regularly negotiate sales deals and credit people regularly negotiate payment terms, schedules and settlements. Add negotiation skills to the list of critical characteristics of both sales and credit professionals.
It has been said that a very good sales person will convince a customer to purchase something he had not originally intended to buy. It can also be said that a good collector can get the debtor to pay more than he originally intended; the 60 and 30 day amounts for example. Effective sales and credit people are very much alike, contrary to the commonly held belief that they are opposites.
Yet, I have never met a sales person who claims to be a good collector. It is a job they usually loathe. However, obtaining payment is the final act of any sale and it is the reason for the sale in the first place. Therefore, given the similarities in the tools and characteristics, good collectors are actually, above average sales people. Yet companies are reluctant to compensate collectors on a similar scale. The logic is, sales people are revenue providers and credit departments are cost centers. Yet, if a good collector or a good collection team were to significantly increase the level of collections would that not be a providing revenue?
Businesses tend to focus more on past due amounts than the entire accounts receivable. If, though, the level of collections were to increase, the company could rely less on their lenders for immediate cash.
This is where CreditPowers comes in. We can analyze your current collection trends and if they are less than par, we can make the recommendations that will increase the collection levels. We can train the collection staff in strategic collection procedures and we can follow up to make sure they are on track.
For more information, e-mail us at patrickpowers@sbcglobal.net
It has been said that a very good sales person will convince a customer to purchase something he had not originally intended to buy. It can also be said that a good collector can get the debtor to pay more than he originally intended; the 60 and 30 day amounts for example. Effective sales and credit people are very much alike, contrary to the commonly held belief that they are opposites.
Yet, I have never met a sales person who claims to be a good collector. It is a job they usually loathe. However, obtaining payment is the final act of any sale and it is the reason for the sale in the first place. Therefore, given the similarities in the tools and characteristics, good collectors are actually, above average sales people. Yet companies are reluctant to compensate collectors on a similar scale. The logic is, sales people are revenue providers and credit departments are cost centers. Yet, if a good collector or a good collection team were to significantly increase the level of collections would that not be a providing revenue?
Businesses tend to focus more on past due amounts than the entire accounts receivable. If, though, the level of collections were to increase, the company could rely less on their lenders for immediate cash.
This is where CreditPowers comes in. We can analyze your current collection trends and if they are less than par, we can make the recommendations that will increase the collection levels. We can train the collection staff in strategic collection procedures and we can follow up to make sure they are on track.
For more information, e-mail us at patrickpowers@sbcglobal.net
Monday, August 18, 2008
Learning the tricks of the trade
A collection agency I know recently received an $80,000 claim from a building material client. The agency charges 20% of the amount they collect. The client had supplied material to a public works project. They had filed the necessary preliminary notice. They had even filed a Stop Notice. But they did not know what to do next so they assigned the claim to the collection agency. The collection agency sent a letter to the general contractor’s bonding company and soon thereafter they received a check for the entire $80,000. The agency made $16,000.
The building material company did almost everything right. With a little more training they could have sent their own letter to the bonding company and saved themselves $16,000. Where do credit departments get a little more training? There are an abundance of collection seminars but they require leaving the office, usually for the day, and they cover a lot of material, not all of it new or relevant, and there never seems to be enough time for questions. Webinars are all the rage, but they are topic specific and there are no opportunities for questions. This assumes that the credit personnel recognize they could use a little more training. Maybe, the building material supplier assumed the next step was assigning it to a third party.
That’s where CreditPowers comes in. We are not a collection agency. We are a credit management resource. We can identify those areas in a credit department that would benefit from a little more education and we can train your personnel in those specific areas. We can do in-house training customized to the needs of the department. It would be money better spent than letting someone else write collection letters.
For more information, contact us at patrickpowers@sbcglobal.net.
The building material company did almost everything right. With a little more training they could have sent their own letter to the bonding company and saved themselves $16,000. Where do credit departments get a little more training? There are an abundance of collection seminars but they require leaving the office, usually for the day, and they cover a lot of material, not all of it new or relevant, and there never seems to be enough time for questions. Webinars are all the rage, but they are topic specific and there are no opportunities for questions. This assumes that the credit personnel recognize they could use a little more training. Maybe, the building material supplier assumed the next step was assigning it to a third party.
That’s where CreditPowers comes in. We are not a collection agency. We are a credit management resource. We can identify those areas in a credit department that would benefit from a little more education and we can train your personnel in those specific areas. We can do in-house training customized to the needs of the department. It would be money better spent than letting someone else write collection letters.
For more information, contact us at patrickpowers@sbcglobal.net.
Sunday, August 10, 2008
Strategic Credit Solutions
There was once a home center business with ten stores in the Western United States that decided to offer credit to their contractor customers. After a year, the home center management was scratching their heads and wondering why the receivables were turning so slowly. The beleaguered credit manager was buried with past due accounts and had no time to figure out the problem. Management called upon a consultant to have a look see and he found in short order that the company was not mailing invoices to their customers.
Sometimes, as with this situation, the collection and credit group is so busy trying to stop leaks in the dam that they are unable to step back and find the root of the problem. That’s where CreditPowers comes in. We can analyze the credit performance and root out the issues. We can make recommendations that will put the receivables on tract, improve productivity and increase efficiency.
CreditPowers has over thirty years of credit experience in a wide range of sales environments, from the conservative to the aggressive. We offer an affordable program that begins with a performance evaluation of your current accounts receivable situation. We can make recommendations that will get your department on tract and we can train the staff on sure fire methods that will achieve results. Finally, we can be a resource for information and services to enhance performance.
For more information e-mail us at patrickpowers@sbcglobal.net
Sometimes, as with this situation, the collection and credit group is so busy trying to stop leaks in the dam that they are unable to step back and find the root of the problem. That’s where CreditPowers comes in. We can analyze the credit performance and root out the issues. We can make recommendations that will put the receivables on tract, improve productivity and increase efficiency.
CreditPowers has over thirty years of credit experience in a wide range of sales environments, from the conservative to the aggressive. We offer an affordable program that begins with a performance evaluation of your current accounts receivable situation. We can make recommendations that will get your department on tract and we can train the staff on sure fire methods that will achieve results. Finally, we can be a resource for information and services to enhance performance.
For more information e-mail us at patrickpowers@sbcglobal.net
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