There must be a philosophy floating out there in the business world that believes billing for goods and services is unnecessary. If you do the work, perform the services or provide the goods, you will be paid, even if you don’t tell anybody about it. I have mentioned this odd phenomenon before in a previous blog. I described a small building material distributor that was having severe collection problems and I determined that it started with the failure of the corporate office to mail invoices to the customers. I was reminded of this belief in not telling the customer that money is due in exchange for performance recently by my buddy with the collection agency. He has been receiving claims from local trucking companies. They delivered goods but did not get paid, so, in desperation they turned the claims over to his collection agency. The customers of the trucking companies would have paid, had they received invoices. The trucking company believed all that was necessary for reimbursement were their bills of lading. The trucking company had quoted the price and delivered the goods. All the customer had to do was the math and send a check. It would not have mattered if the trucking company told their clients, “pay whatever you want”. Some accounts payable clerk would still insist on an invoice.
There is also a definite correlation between when invoices are sent to the customer and the time it takes to receive payment. The longer it takes to send them, the longer it takes to get paid. It is not rocket science, but companies ignore this all of the time. A concrete supplier saw a fifteen day delay in payments when a computer glitch caused a fifteen day delay in the mailing of invoices. Another company waited until the end of the month to send invoices along with the statement, effectively giving customers an additional thirty days to pay. A lumber company with terms of “invoices due upon presentation” had a mail clerk, trying to save a few dollars, withholding the mailing of invoices until more than one could be stuffed into the envelope. This attempt to save a few dollars was disrupting the lumber company’s cash revenue.
Subcontractors complain that general contractors are slow paying. However, too often it is the subcontractor who loathes the whole billing process and procrastinates, all the time wishing for an improved cash flow. Some subcontractors delay billing until all of their work is done, regardless of interruptions caused by other subcontractors. In some cases several months can go by before the subcontractor submits a bill. When it comes time to pay his suppliers, he insists that he will pay as soon as he gets paid, someday.
It is also not enough to bill promptly. It is equally important to bill correctly. That not only means the billing must be accurate, it must be acceptable to the customer. Framing contractors once called some of the State’s largest developers “sub breakers” because of their payment habits. But it turned out that those subcontractors, who billed in strict compliance with the developers’ contracts, got paid promptly and those who chose not to did not.
Inaccurate billing only gives the customer another reason not to pay. This follows the first standard excuse that the invoice was never received. If the customer can challenge the billing, payment can be extended indefinitely. I have seen collection efforts grind to a complete halt after the customer complains about the bill and it is sent back to the sales department to be fixed. If there is no subsequent follow up, “disputed” billing can languish on the accounts receivable forever.
Much is being written about companies surviving in these tough times. One recent L.A. Times article suggested that many businesses failing today were simply lucky to have survived at all in good times. A robust economy covers up a lot of mistakes. Now, those mistakes can mean the end. Successful businesses will be exceptional. They will not only supply a need, they will conduct themselves with the highest degree of efficiency. An element of that should be in timely and reliably accurate billing. If the customer cannot say the bill was not received and it is not disputed, there are no more reasons not to pay it. Unless, of course, there was a failure to bill and there is no money to spend.
This is where we can help. Strategic Credit Management Solutions will review your current billing system, identify issues that are causing payment delays and propose solutions. Give us a call, delays only cost money. See our website at http://powerscredit.com/. Your comments are welcome.
Monday, January 26, 2009
Tuesday, January 20, 2009
No Sour Grapes
The following is my submission to NACM’s “Most Memorable Credit Experience” writing contest. The winners were announced today and inexplicably, my entry did not make the top three. I can’t imagine how anyone topped this. The articles will be published next month so we’ll wait and see. Until then, you be the judge. It's a true story.
My Most Memorable Credit Experience
Tom, not his real name, was a concrete contractor with a penchant for beer. He was known to have an impressive monument to Bud in the form of his discarded empties piled in his yard. It was said that he started drinking at dawn, about the time of his first pour, the term for a ready mix concrete delivery. Often, Tom came to my office and offered me a beer because, he said, he did not care to drink alone.
I was the credit manager for one of Tom’s few remaining concrete suppliers. He paid most of his bills in cash for fear that if he deposited money into a bank, previous creditors would claim the funds. We sold Tom strictly on a “job basis”, meaning every sale was secured with lien rights and we arranged for joint checks with the general contractor beforehand.
On one particular job, Tom’s concrete bill was about $20,000 and for some reason, the general contractor was not paying. I threatened to file a lien. The general offered to pay for the material if we sent him copies of the invoices. I had no objection to this request, since, if the claim went to foreclosure, the general contractor would get them anyway through discovery and he was, after all, willing to pay.
Tom balked because he did not want the general contractor to know what he was paying for concrete and our general manager agreed. All this did was delay payment further. Finally, after a few weeks of back and forth negotiations, Tom consented to surrendering the invoices. I sent them off and followed up with the general contractor for a payment date.
Tom grew more and more impatient with my collection efforts. His efforts, of course, were going nowhere and I assumed his performance on the job was behind the general contractor’s reluctance to pay in the first place. Finally, as my lien time was nearing a deadline, I received word from the general contractor that I could pick up a check.
That same morning, just as I was making final arrangements with the general contractor, Tom came into my office. It was a little before nine in the morning and he was already swaying. He said, “Come on, let’s go get our @#%* money.” I saw a revolver in his hand. It looked like something Gary Cooper carried in “High Noon.” I was dumbstruck and seconds from bolting from the office.
A drunk with a gun was no way to start the day. Our salesman and I told Tom to sit down and stay put. I assured him that I was just leaving to see the general contractor and I’d be back with a joint check, shortly. The general contractor’s office was only fifteen minutes away. As I pulled into a parking space in front of his office, I saw Tom’s pick up parking next to mine. I told Tom; again, to sit still, I’d be right back with the check. It would take just a few minutes. I went inside and asked to see the general contractor.
Sometime within the hour or so that I’d made the deal with the general contractor and the time I arrived at his office, the general contractor had a change of heart. Rather than pay the entire $20,000, he wanted to pay only $15,000. We were going to have to negotiate.
The general contractor had no real basis for taking a $5,000 deduction and I still had lien rights. After about twenty minutes of haggling, the general contractor conceded and instructed a clerk to prepare a check for the entire amount. During all of this, Tom was waiting in his truck, probably refreshing himself with more beer. The general contractor complained of Tom’s behavior over the last few weeks. He said Tom had threatened to shoot him if he didn't pay. I suggested that it may not have been an idle threat.
As we waited for the check, Tom strolled in and approached us as if we were associates he recognized in a restaurant. I started looking for a hiding place beneath the desk. Tom looked at me and asked if everything was okay. I told him that we were just waiting for the check and I’d be out soon. I did not see a revolver in his paw. Tom said, “Okay then.” He turned and left.
“Do you think he’s armed?” The general contractor asked. I nodded and said he probably was. He went to his clerk and asked her to hurry up with the check. A few minutes later I was back out in the parking lot with the joint check for the full amount in hand. Tom signed it off and he drove from the lot, hurrying off to his next job. That’s the problem with job basis selling, I thought, you’ll sell to just about anybody.
Tom, not his real name, was a concrete contractor with a penchant for beer. He was known to have an impressive monument to Bud in the form of his discarded empties piled in his yard. It was said that he started drinking at dawn, about the time of his first pour, the term for a ready mix concrete delivery. Often, Tom came to my office and offered me a beer because, he said, he did not care to drink alone.
I was the credit manager for one of Tom’s few remaining concrete suppliers. He paid most of his bills in cash for fear that if he deposited money into a bank, previous creditors would claim the funds. We sold Tom strictly on a “job basis”, meaning every sale was secured with lien rights and we arranged for joint checks with the general contractor beforehand.
On one particular job, Tom’s concrete bill was about $20,000 and for some reason, the general contractor was not paying. I threatened to file a lien. The general offered to pay for the material if we sent him copies of the invoices. I had no objection to this request, since, if the claim went to foreclosure, the general contractor would get them anyway through discovery and he was, after all, willing to pay.
Tom balked because he did not want the general contractor to know what he was paying for concrete and our general manager agreed. All this did was delay payment further. Finally, after a few weeks of back and forth negotiations, Tom consented to surrendering the invoices. I sent them off and followed up with the general contractor for a payment date.
Tom grew more and more impatient with my collection efforts. His efforts, of course, were going nowhere and I assumed his performance on the job was behind the general contractor’s reluctance to pay in the first place. Finally, as my lien time was nearing a deadline, I received word from the general contractor that I could pick up a check.
That same morning, just as I was making final arrangements with the general contractor, Tom came into my office. It was a little before nine in the morning and he was already swaying. He said, “Come on, let’s go get our @#%* money.” I saw a revolver in his hand. It looked like something Gary Cooper carried in “High Noon.” I was dumbstruck and seconds from bolting from the office.
A drunk with a gun was no way to start the day. Our salesman and I told Tom to sit down and stay put. I assured him that I was just leaving to see the general contractor and I’d be back with a joint check, shortly. The general contractor’s office was only fifteen minutes away. As I pulled into a parking space in front of his office, I saw Tom’s pick up parking next to mine. I told Tom; again, to sit still, I’d be right back with the check. It would take just a few minutes. I went inside and asked to see the general contractor.
Sometime within the hour or so that I’d made the deal with the general contractor and the time I arrived at his office, the general contractor had a change of heart. Rather than pay the entire $20,000, he wanted to pay only $15,000. We were going to have to negotiate.
The general contractor had no real basis for taking a $5,000 deduction and I still had lien rights. After about twenty minutes of haggling, the general contractor conceded and instructed a clerk to prepare a check for the entire amount. During all of this, Tom was waiting in his truck, probably refreshing himself with more beer. The general contractor complained of Tom’s behavior over the last few weeks. He said Tom had threatened to shoot him if he didn't pay. I suggested that it may not have been an idle threat.
As we waited for the check, Tom strolled in and approached us as if we were associates he recognized in a restaurant. I started looking for a hiding place beneath the desk. Tom looked at me and asked if everything was okay. I told him that we were just waiting for the check and I’d be out soon. I did not see a revolver in his paw. Tom said, “Okay then.” He turned and left.
“Do you think he’s armed?” The general contractor asked. I nodded and said he probably was. He went to his clerk and asked her to hurry up with the check. A few minutes later I was back out in the parking lot with the joint check for the full amount in hand. Tom signed it off and he drove from the lot, hurrying off to his next job. That’s the problem with job basis selling, I thought, you’ll sell to just about anybody.
Check out our website at http://powerscredit.com/. Your comments are welcome.
Monday, January 12, 2009
Caution, Full Speed Ahead
In the January issue of CFO.com Magazine, reporter Kate Plourd in her article “Rethinking Risk” gives kudos to the CFO of a cellular phone supplier for having the insight to tighten the credit granted to Circuit City just prior to their filing bankruptcy. The CFO saw signs of impending doom and he quickly moved to reduce his company’s exposure. Specifically he “tightened billing terms, demanded cash payments, and adjusted shipments.” When Circuit City did file, the cellular phone company was not as badly hurt as it could have been.
My hats off to the cautious CFO. The article does not mention if there was a credit manager advising the CFO, but I’d like to think that there was. Someone was generating the credit reports, talking to other Circuit City suppliers, watching the payment trends and keeping tabs on the orders. I’d like to think it was the credit manager who came into the CFO’s office and said, “Hey boss, we better be careful with Circuit City, I think they’re going to tank.”
In this scenario, there are two important dynamics occurring. One, a credit manager with the analytical acumen to discover the potential liability and secondly, a CFO who gives credence to such a report. With the historic downgrading of the credit manager position to little more than a collection arm of the company, competent credit analysis has become a forgotten science. During the boom times, credit was extended to anything that had a pulse. Credit managers who waved a cautionary flag were labeled Chicken Little bureaucrats. Businesses figured they could make up any losses with increased sales.
Now the sales are not there, customers are defaulting left and right and risk management is everyone’s new buzz word. The natural reaction is to slam on the brakes. This is what banks are now doing, lending to only those with A+ credit. Hence, they are not doing much lending.
If a business wants to be extremely cautious with its credit extension, it need only to look to the most inexperienced novice credit clerk. Those new and inexperienced in the credit profession have the highest fear factor. They will turn down anyone and everyone with a hint of slow pay, an old tax lien, or a lawsuit for any reason whatsoever. An over burdened collection clerk is not likely to open a new account for a new customer unless the likelihood of prompt pay is guaranteed. In short, it is easy for a company to tighten up on credit. Just raise the standards and shut off everyone who does not comply.
Or, the company can think and act strategically. Credit management and sales become a team. Both know the risks and both act to minimize those risks with carefully applied controls. It is one thing to deny credit to a shaky business, it is quite another to extend credit cautiously and manage it aggressively. In order to gain a competitive edge, companies will be forced to extend credit to less than stellar customers. The successful companies will utilize the management resources that will allow them to take on a little more risk, apply the necessary controls, work closely with the customers, and reel in payments in much the same way a fisherman reels in a marlin. It’s hard work, but it’s much more satisfying.
This is where Strategic Credit Management Solutions can help. We have the experience of enough down times to know how to get your credit department up to speed. We can not only train them in credit analysis techniques, show them the tools and resources, we can also train them to use this information strategically. We can get your credit and sale groups working together and we can show you the right tools to use to maximize credit and increase your return.
Contact us at http://powerscredit.com/. Your comments are welcome.
My hats off to the cautious CFO. The article does not mention if there was a credit manager advising the CFO, but I’d like to think that there was. Someone was generating the credit reports, talking to other Circuit City suppliers, watching the payment trends and keeping tabs on the orders. I’d like to think it was the credit manager who came into the CFO’s office and said, “Hey boss, we better be careful with Circuit City, I think they’re going to tank.”
In this scenario, there are two important dynamics occurring. One, a credit manager with the analytical acumen to discover the potential liability and secondly, a CFO who gives credence to such a report. With the historic downgrading of the credit manager position to little more than a collection arm of the company, competent credit analysis has become a forgotten science. During the boom times, credit was extended to anything that had a pulse. Credit managers who waved a cautionary flag were labeled Chicken Little bureaucrats. Businesses figured they could make up any losses with increased sales.
Now the sales are not there, customers are defaulting left and right and risk management is everyone’s new buzz word. The natural reaction is to slam on the brakes. This is what banks are now doing, lending to only those with A+ credit. Hence, they are not doing much lending.
If a business wants to be extremely cautious with its credit extension, it need only to look to the most inexperienced novice credit clerk. Those new and inexperienced in the credit profession have the highest fear factor. They will turn down anyone and everyone with a hint of slow pay, an old tax lien, or a lawsuit for any reason whatsoever. An over burdened collection clerk is not likely to open a new account for a new customer unless the likelihood of prompt pay is guaranteed. In short, it is easy for a company to tighten up on credit. Just raise the standards and shut off everyone who does not comply.
Or, the company can think and act strategically. Credit management and sales become a team. Both know the risks and both act to minimize those risks with carefully applied controls. It is one thing to deny credit to a shaky business, it is quite another to extend credit cautiously and manage it aggressively. In order to gain a competitive edge, companies will be forced to extend credit to less than stellar customers. The successful companies will utilize the management resources that will allow them to take on a little more risk, apply the necessary controls, work closely with the customers, and reel in payments in much the same way a fisherman reels in a marlin. It’s hard work, but it’s much more satisfying.
This is where Strategic Credit Management Solutions can help. We have the experience of enough down times to know how to get your credit department up to speed. We can not only train them in credit analysis techniques, show them the tools and resources, we can also train them to use this information strategically. We can get your credit and sale groups working together and we can show you the right tools to use to maximize credit and increase your return.
Contact us at http://powerscredit.com/. Your comments are welcome.
Monday, January 5, 2009
Bone Headed Assumptions, Beliefs and Policies
A partner in a ready mix concrete chain once told me that there was nothing older than sixty days past due on his company’s accounts receivable. As it turned out, this was not a circumstance of effective collections or even of a liberal write off policy. His aged trial balance went no further than sixty days. There was stuff in that sixty day column that was growing moss, but he was blissfully unaware.
The credit manager of a glass distributor once told me that it was her policy to allow glazier customers only one “job account” at a time. A job account is defined as one that can be secured with lien rights. I did not have the opportunity to ask a flood of questions that flowed into my head. If a contractor is allowed only one job account, are all of his other purchases unsecured? Or, is the contractor forced to purchase material for his other jobs from someone else? Does the company’s senior management condone this policy? If the credit manager is going to secure one job, why not secure all of them?
A credit manager for a building materials company once told me that their company would not accept joint checks. Even though a joint check is usually a better bet because the issuer is higher on the construction project food chain, the company was willing to sacrifice its lien rights and gamble on the customer’s single party check because it was less of a hassle.
A credit manager in Memphis told me that they had stopped the practice of assessing a finance charge on delinquent balances because the customers did not like them. One more incentive to pay on time was taken away. I think I’m going to call up my friendly Visa rep and complain about the interest they charge and see if they won’t stop.
An assistant credit manager set up all of the “job accounts” under her responsibility with sixty day terms because it took that long for them to pay anyway. Of course, she was not calling on delinquent accounts until they aged out another sixty days past due, effectively giving the customers one hundred twenty day terms. And she wondered why her DSO was so bad.
A credit manager in Greensboro set up with his past due customers an arrangement whereby all COD payments would be applied to the oldest outstanding invoices. Somehow this was going to bring down the level of delinquency. Do the math.
A credit manager in Santa Clara objected to the suggestion that collection calls should start earlier than 60 days past due. It would upset the customers, she said. Sure it would, they would be asked to pay earlier!
A manager of a building material store in Atlanta objected to putting customers who had stopped paying on hold, because they would just buy somewhere else. Apparently payments were not a necessary component of the sale.
Sometimes, the cause of a bottleneck in a company’s cash flow is a little more than a misguided belief. A little training can go a long way. This is where Credit Powers can help. We can get to the root of the problem and apply the proper fix. See our website at http://www.powerscredit.com/. Your comments are welcome.
The credit manager of a glass distributor once told me that it was her policy to allow glazier customers only one “job account” at a time. A job account is defined as one that can be secured with lien rights. I did not have the opportunity to ask a flood of questions that flowed into my head. If a contractor is allowed only one job account, are all of his other purchases unsecured? Or, is the contractor forced to purchase material for his other jobs from someone else? Does the company’s senior management condone this policy? If the credit manager is going to secure one job, why not secure all of them?
A credit manager for a building materials company once told me that their company would not accept joint checks. Even though a joint check is usually a better bet because the issuer is higher on the construction project food chain, the company was willing to sacrifice its lien rights and gamble on the customer’s single party check because it was less of a hassle.
A credit manager in Memphis told me that they had stopped the practice of assessing a finance charge on delinquent balances because the customers did not like them. One more incentive to pay on time was taken away. I think I’m going to call up my friendly Visa rep and complain about the interest they charge and see if they won’t stop.
An assistant credit manager set up all of the “job accounts” under her responsibility with sixty day terms because it took that long for them to pay anyway. Of course, she was not calling on delinquent accounts until they aged out another sixty days past due, effectively giving the customers one hundred twenty day terms. And she wondered why her DSO was so bad.
A credit manager in Greensboro set up with his past due customers an arrangement whereby all COD payments would be applied to the oldest outstanding invoices. Somehow this was going to bring down the level of delinquency. Do the math.
A credit manager in Santa Clara objected to the suggestion that collection calls should start earlier than 60 days past due. It would upset the customers, she said. Sure it would, they would be asked to pay earlier!
A manager of a building material store in Atlanta objected to putting customers who had stopped paying on hold, because they would just buy somewhere else. Apparently payments were not a necessary component of the sale.
Sometimes, the cause of a bottleneck in a company’s cash flow is a little more than a misguided belief. A little training can go a long way. This is where Credit Powers can help. We can get to the root of the problem and apply the proper fix. See our website at http://www.powerscredit.com/. Your comments are welcome.
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