Write It Off Already!

As I suspected the company I’ve been talking to is a high tech company marketing very sophisticated products, mostly to the military. However, only recently have they ventured into the private sector, marketing to businesses intending to be more environmentally efficient. This high tech company is still in the very embryonic stages of credit. This is mostly attributed to their “very conservative” CFO. I’m now envisioning a wiry old man straight out of a Dickens novel. As I said last week, they have a DSO of better than 75 days, but everyone I talked to agrees, they have had no write offs in a very long time. Further discussions with various employees from financial compliance directors, controllers and accounts receivable clerks revealed the primary reason they’ve not had any write offs has more to do with the fact that since they are not tolerated by the CFO, old uncollected balances do not get written off. There are balances going back to 2005 or more still on the books.

If this is true, that the CFO will not allow anything to be written off, he’s a little out of touch. He’s not read a financial management text or article in thirty years. He’s like a doctor who doesn’t keep up with today’s technology. He’s still using whiskey and biting on a bullet for anesthesia. Most modern financial scholars will tell you write offs are one, going to happen and two, they are often a barometer of a credit policy that is either too strict or too loose. If there are none, possibly, credit is hampering sales. A competitive business must be willing to take some risks or they might as well not bother trying to sell anything. It is interesting; this particular company has sales reps that are paid a commission when they make the sale, regardless if it gets paid. I can only imagine the raging arguments that must transpire between sales and whoever is responsible for approving, or in this case, disapproving credit.

On the other had is a company I know very well has a sales manager who told me once that it doesn’t matter if an account is written off as long as it had a healthy profit margin. He encouraged write offs as a means to reducing the bad debt reserve. Yes, there are some major gaps in his financial education. The company defaulted on one of their loans because they did not have the cash. Small wonder, they were showing a profit margin of nearly 25% and a negative cash flow. Scary. Another company I know wrote off a balance as soon as it went “legal”. All history of the account was erased, so that they were free to extend credit to that same account again. Mind boggling.

This is where Strategic Credit Management Solutions can help. We’ve had over thirty years experiences and we’ve seen it all. There is a way to control your accounts receivable and credit policy so that you will not have too many or too few write offs. It is all part of being strategic.

Contact us at patrickpowers@sbcglobal.net and see our website http://powerscredit.com/. Your comments are welcome.