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.