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.
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