Consult Before You Hire

Got a call from a company that has a problem. Their DSO is quickly approaching 75 days and their terms are net 30. There is a lot of that going around. Only 20% of the business is commercial, the rest are government accounts and contracts and they’re blaming the commercial side for the trend towards slow pay. One of their customers is GM. Yesterday’s no problem account is today’s write off. To make matters worse, they have a three person “A/R” department. I always worry when they don’t call it a credit department or even a collection department. Sure enough, the three people are responsible for everything: credit analysis, order entry, billing, cash application and last but not least, collections. The question then is, are the three responsible for the collection of a forty million dollar receivable accountants or credit specialists? Their current supervisor lauded one of the three for being amazingly accurate, but has some rough edges. I’ll bet. Take an accountant out of their element and make them do something that is completely contrary to their nature and yes, they will develop a few rough edges. I’m thinking the personality of a pit bull.

The current strategy is to throw more people at the problem. They don’t have an official credit manager now. The treasurer oversees the functions as well as a number of other financial areas. He just doesn’t have time to handle credit and it is getting out of hand. He’s also thinking of adding more collectors / order entry / billing clerk / cash applicators. In other words, he’s thinking one more person to do a little of everything should do the trick.

He is also looking for a soothsayer to make the right call on customers who would be charging as much as a half million dollars. He alluded to a belief that credit people have their own “tricks” for making these kinds of decisions. I wanted to tell him I use a dart board. One side says “Yes” and the other side says “No” and I close my eyes and throw. I resisted, because it would have been mean spirited sarcasm. The real trick to extending credit is research and negotiation, but too often sales driven companies demand that the credit manager come to only one conclusion – yes - and then be willing to take the fall when the account defaults. It is never the fault of the customer for failing to pay; it is the fault of the collector for not being able to collect.

After spending about an hour with a couple of members of this company’s financial team, I am envisioning a small group of accounts receivable billing clerks who have been drafted into the role of credit and collection specialists. Zealous and desperate sales reps berate them into making hasty and possibly disastrous credit decisions. In addition to performing the billing tasks, they must handle all of the customer requests for invoice copies, proof of deliveries, credit ratings, price disputes, damage claims, apply cash and somehow they must make the necessary collection calls and follow up. They are a small group holed up in some corner of the office, probably without food and water, and if something doesn’t happen soon, they could get ugly.

This company would like to hire a full time credit manager, for as little as possible. However, the problem may require only a short term fix. Re-organize the department into clerical and collectors, establish the goals, train the group in how to be effective collectors, write up the policies and procedures and establish the guidelines for credit approval. Once this is done, it is just a matter of maintenance. Therefore, it might be more beneficial in the long run to contract with Strategic Credit Management Solutions to provide the quick fix and then find someone to maintain it, for the salary they want to pay.

We’re talking. I’ll keep you posted.