All you CFOs, CEOs, Owners of business, Presidents, Controllers, out there, do you know how well your credit, collections, accounts receivable department is doing? How do you measure productivity and efficiency? A common method is Days Sales Outstanding, (DSO), this is a formula that measure the average time an invoice is on the books before it is paid. Lenders like this formula because it gives them idea of how well the receivable is turning. The smaller the number the more frequent the turnover and thus, the better the chances the borrower will be able to make payments on the loan. However, what is in your opinion a good number? I recently spoke with a company that was not too concerned with its current 75 day DSO. Other companies I know would be enraged with that kind of a number, so what should it be?
How about collection percentage? I don’t see many companies measure how much of the receivable is collected from beginning of the month until the end. I knew a lumber company that demanded a collection percentage of 80% or better. A ready mix company I know seemed perfectly content with 60%. A glass company I worked with condones less than 50%. What should yours be? Is anyone measuring? If not, why not?
The percentage of the receivable that is past due is another sign post. How much is too much? I’ve seen companies with over 20% of their receivables over 90 days past due. Is that a lot? What do you think it should be?
When should the first collection call be made? The day an invoice goes past due, or 90 days? What do you expect? If your terms are 30 days from invoice, should someone be calling on day thirty one, or is ok to wait until day 61 or even 91?
When should a customer’s credit be held for non-payment? Credit and sales people argue about this all of the time, but what is the opinion of you senior executives? I’ve seen customer get away without paying COD invoices for up to four or five months. When does your patience finally run out? Do you put them on hold or always go straight to COD?
How strictly should credit limits be enforced? How meaningful are they? How does your credit department calculate credit limits? How do the enforce them?
Do you use collection agencies exclusively, or attorneys, or both? How do you choose one over the other? How do you choose an agency or a law firm?
When should you write off an uncollectable account to bad debt? Here, the range is all over the map. I’ve seen accounts written off as soon as a lien is filed or thirty days after it is turned over to an agency. Others will keep an account on the books if there is the slightest possibility for some kind of recovery. What is the standard?
How many collectors should you have? I’ve seen four person groups for a six million dollar A/R and I’ve seen one or two person departments handling twenty million dollar receivables. How many is enough?
Who supervises cash application? Who should supervise cash application? Credit or Controller?
For you with multiple branches, should you have a credit person at each one, or does centralization work for you?
When do you file a UCC? Do you always obtain a security agreement? Do you insist on financial statements? Do you rely on them? Do you believe in them?
Do you always get a signed credit application? Do you do anything with it when you do? What credit reporting agency do you use? Do you clear references? How long does the process take? How long should it take? What are you looking for from a reference?
Do you take only checks for payment? Do you accept credit cards, wires, joint checks, checks by FAX? Do you have payment on line? How do you handle invoice copies? Online or mailed / fax hard copy?
What is the limit your credit manager can adjust as a credit without documentation? How many levels of management is in place to make a decision about a credit of under $1,000?
These are issues your credit group handles every day, if you cannot help them, who can?
If you need help answering these questions, Strategic Credit Management Solutions can help you. We can review your situation, make recommendations, implement solutions, train you group, and we’ll provide follow up as necessary. It doesn’t take long in most cases either. A couple of days to a couple of weeks and we can get you where you want to be going. Contact us a patrickpowers@sbcglobal.net and check out our website at http://powerscredit.com/. Your comments are welcome.
Tuesday, May 26, 2009
Wednesday, May 20, 2009
The Home Depot Scandal
Nothing is more of a nuisance than deductions. When the two most important jobs in a credit office are collections and credit approval, dealing with those pesky deductions can drive a credit manager crazy. It’s usually a little more than the small insignificant amounts that the cash application clerk merely adjusts off rather than start the entire credit memo process that are the most maddening. There is always a customer or two who not only scrutinize every bill for mistakes, but they make their own calculations as to what the bill should be in their minds. But sometimes, deductions are just wrong and should be challenged, particularly when they start to add up to big money.
We had entered into a sale agreement with The Home Depot, the largest building material retailer in the country. Given their clout and their sales potential, the sales group had already agreed to a series of sales discounts, payment discounts, new store discounts and other price concessions. However, we did not agree to their “Return To Vendor” (RTV) policy. If product was delivered damaged, it was exchanged, upon notification and billed at a no charge. The RTV policy as it was defined in The Home Depot’s own purchase order agreement stipulated that should a vendor’s product be found defective by the end user, it could be returned to the store and The Home Depot would create a deduction. Since our company was selling glass for frames or French Doors, it was assumed if it was good enough to sell and it had not been returned or claimed as damaged at the time of delivery, no RTV back-charge was applicable. It is important to note, that The Home Depot, agreed in writing to our exclusion of the RTV policy.
Not long after the vendor agreement was signed and orders were being delivered and payments were made, the deductions began. Twenty dollars here, fifty dollars there, sometimes less, sometimes more. Given that The Home Depot was on track to spend over a million dollars and the volume of invoices was, well, voluminous. The account manager at the time was up to his eye balls on other collection matters and so, he dismissed the deductions as insignificant and authorized their being credited without review. However, the deductions not only continued, they seemed to be growing at an alarming rate.
I started reviewing the payments and the remittance. The deductions were labeled as RTV damage claims and they never referenced an invoice, sales order, date of delivery or anything that would help trace the problem back to an original order. In fact, the only reference was to a The Home Depot store number. So, I started to track on a spread sheet the stores making the RTV claims. I was startled by what I discovered. Some of the stores were claiming as damaged amounts that far and away exceeded their actual purchases. A stores that had purchased only a few hundred dollars in picture frame glass were back charging us thousands of dollars! In less than a year’s time, the stores combined total RTV back charges amounted to over $100,000.
Since RTV deductions were invalid according to the vendor agreement, we could reject the deduction and make a demand from The Home Depot to reverse the claim and pay the deducted amount. This we could do after submitting their forms and following their procedure and waiting and waiting and waiting for the payment. This we did, but for me the issue was the fraudulent nature of the claims. At the store level, some clerk, was making entries on their system that over stated the damages. In fact the damages were non-existent. They were false, plain and simply. Yet some clerk could make the entry and short us whatever dollar figure they chose. It was not unlike taking money right out of our cash registers.
My complaints to the Atlanta office about the practice seem to fall on deaf ears. So, I began to reject orders placed by the most grievously offending stores. This got the attention of the store managers. When I explained to them that taking falsely stated deductions was similar to my issuing invoices for product they never bought, it went right over the head. They were only doing what they were told. I could only conclude that stealing from the vendors was an institutional The Home Depot policy. I notified the Atlanta office that I was prepared to contact 60 Minutes, or Dateline, or any other news organization that might be interested in knowing that The Home Depot was committing fraud on a wide spread basis. Soon I was meeting with some of their purchasing and payable personnel and soon after that I received a check for nearly all of the $100,000.
Need help in identifying legitimate deductions from the not so legitimate? Need a program to resolve deductions and prevent them from taking up more of your precious time? Contact us at http://powerscredit.com/ and let Strategic Credit Management Solutions assist you. We’ve taken on the big guys. Your comments are welcome. E-mail us at patrickpowers@sbcglobal.net
We had entered into a sale agreement with The Home Depot, the largest building material retailer in the country. Given their clout and their sales potential, the sales group had already agreed to a series of sales discounts, payment discounts, new store discounts and other price concessions. However, we did not agree to their “Return To Vendor” (RTV) policy. If product was delivered damaged, it was exchanged, upon notification and billed at a no charge. The RTV policy as it was defined in The Home Depot’s own purchase order agreement stipulated that should a vendor’s product be found defective by the end user, it could be returned to the store and The Home Depot would create a deduction. Since our company was selling glass for frames or French Doors, it was assumed if it was good enough to sell and it had not been returned or claimed as damaged at the time of delivery, no RTV back-charge was applicable. It is important to note, that The Home Depot, agreed in writing to our exclusion of the RTV policy.
Not long after the vendor agreement was signed and orders were being delivered and payments were made, the deductions began. Twenty dollars here, fifty dollars there, sometimes less, sometimes more. Given that The Home Depot was on track to spend over a million dollars and the volume of invoices was, well, voluminous. The account manager at the time was up to his eye balls on other collection matters and so, he dismissed the deductions as insignificant and authorized their being credited without review. However, the deductions not only continued, they seemed to be growing at an alarming rate.
I started reviewing the payments and the remittance. The deductions were labeled as RTV damage claims and they never referenced an invoice, sales order, date of delivery or anything that would help trace the problem back to an original order. In fact, the only reference was to a The Home Depot store number. So, I started to track on a spread sheet the stores making the RTV claims. I was startled by what I discovered. Some of the stores were claiming as damaged amounts that far and away exceeded their actual purchases. A stores that had purchased only a few hundred dollars in picture frame glass were back charging us thousands of dollars! In less than a year’s time, the stores combined total RTV back charges amounted to over $100,000.
Since RTV deductions were invalid according to the vendor agreement, we could reject the deduction and make a demand from The Home Depot to reverse the claim and pay the deducted amount. This we could do after submitting their forms and following their procedure and waiting and waiting and waiting for the payment. This we did, but for me the issue was the fraudulent nature of the claims. At the store level, some clerk, was making entries on their system that over stated the damages. In fact the damages were non-existent. They were false, plain and simply. Yet some clerk could make the entry and short us whatever dollar figure they chose. It was not unlike taking money right out of our cash registers.
My complaints to the Atlanta office about the practice seem to fall on deaf ears. So, I began to reject orders placed by the most grievously offending stores. This got the attention of the store managers. When I explained to them that taking falsely stated deductions was similar to my issuing invoices for product they never bought, it went right over the head. They were only doing what they were told. I could only conclude that stealing from the vendors was an institutional The Home Depot policy. I notified the Atlanta office that I was prepared to contact 60 Minutes, or Dateline, or any other news organization that might be interested in knowing that The Home Depot was committing fraud on a wide spread basis. Soon I was meeting with some of their purchasing and payable personnel and soon after that I received a check for nearly all of the $100,000.
Need help in identifying legitimate deductions from the not so legitimate? Need a program to resolve deductions and prevent them from taking up more of your precious time? Contact us at http://powerscredit.com/ and let Strategic Credit Management Solutions assist you. We’ve taken on the big guys. Your comments are welcome. E-mail us at patrickpowers@sbcglobal.net
Thursday, May 14, 2009
Big Brown Blows Billing
Rule number one: if you expect to collect a bill, you must be able to defend it and document it.
While that is elementary, it seems a large international company like UPS has a problem with the concept. A vendor to a company I know, shipped some of its products and paid the UPS freight bill in advance. $339.00. The company receiving the product is open for business Monday through Friday from as early as 7:30 in the morning until sometime after 5 except on Fridays when they close around 4:00 so naturally UPS attempted to deliver sometime after 4:00 on the one day they close early. They did make the delivery during normal hours the following week and charged the receiving business $690.00. This happened last December. Since then, the company has been trying to get a clarification of the bill. It doesn’t seem right, so UPS has been asked to explain how after they’ve already received $339.00 they can justify demanding another $690.00.
The office manager called UPS on the 8th of December, asking for an explanation. Instead, she was sent another copy of the invoice. So, she called for the UPS rep on December 10th and left a message. She left another message on the 12th, the 31st and again on the 29th of January. No one called her back. UPS did not however, stop sending past due notices with increasing threats of legal action. Finally on the 6th of February, the office manager got a hold of someone who… sent another copy of the invoice. On the 2nd of March, the office manager sent a letter to a UPS office in Richmond. Again, there was no response.
On the 21st of April the company got a “Formal Notification” letter. Included was a phone number. The office manager called and left a message for the account manager. She left another message on the 24th. As of May 5th, she’s had no reply to her inquiries. Clearly, UPS feels, by way of their actions, that they are not required to discuss a bill with a customer.
My advice to the company is: do not spend any more time or effort with it. UPS gave up their legitimate claim to the bill when they failed to respond to the inquiries. I can imagine UPS having an enormous number of disputed charges and their current system for handling customer complaints has failed. They are not going to sue, they would not win if they did, so they’re left with not accepting any deliveries or pick ups or turning the claim over to a collection agency. A collection agency will drop the claim like a hot potato once they’re told of the circumstances. And should they restrict service, well the firestorm will surely bring someone to the forefront to deal with it.
The moral of the story is: always be able to defend a bill. If it’s wrong, fix it. If it’s correct, prove it to whoever is asking. If the amount is too small to bother with, get rid of it without delay. You’ll make more friends that way and customers will come to rely on the bills. When customers believe the bill is accurate, they’ll pay it. UPS could be flushing enormous amounts of money down the drain simply by ignoring through inefficiency legitimate charges. Someone has decided it’s makes more economic sense to under staff the customer service / billing area than to beef it up, make it reliable, and collect more.
This is where Strategic Credit Management Solutions can help. We’ve seen lots of billing systems and customer service programs. We can see what you have, find what’s making it work poorly and make the recommendations that will take care of the problem. We can assist in the implementation and the training. We’ll even follow up later to check on how things are working. It beats flushing your bills down the toilet.
Check out our website at http://powerscredit.com/. You can e-mail us at patrickpowers@sbcglobal.com. Your comments are welcome.
While that is elementary, it seems a large international company like UPS has a problem with the concept. A vendor to a company I know, shipped some of its products and paid the UPS freight bill in advance. $339.00. The company receiving the product is open for business Monday through Friday from as early as 7:30 in the morning until sometime after 5 except on Fridays when they close around 4:00 so naturally UPS attempted to deliver sometime after 4:00 on the one day they close early. They did make the delivery during normal hours the following week and charged the receiving business $690.00. This happened last December. Since then, the company has been trying to get a clarification of the bill. It doesn’t seem right, so UPS has been asked to explain how after they’ve already received $339.00 they can justify demanding another $690.00.
The office manager called UPS on the 8th of December, asking for an explanation. Instead, she was sent another copy of the invoice. So, she called for the UPS rep on December 10th and left a message. She left another message on the 12th, the 31st and again on the 29th of January. No one called her back. UPS did not however, stop sending past due notices with increasing threats of legal action. Finally on the 6th of February, the office manager got a hold of someone who… sent another copy of the invoice. On the 2nd of March, the office manager sent a letter to a UPS office in Richmond. Again, there was no response.
On the 21st of April the company got a “Formal Notification” letter. Included was a phone number. The office manager called and left a message for the account manager. She left another message on the 24th. As of May 5th, she’s had no reply to her inquiries. Clearly, UPS feels, by way of their actions, that they are not required to discuss a bill with a customer.
My advice to the company is: do not spend any more time or effort with it. UPS gave up their legitimate claim to the bill when they failed to respond to the inquiries. I can imagine UPS having an enormous number of disputed charges and their current system for handling customer complaints has failed. They are not going to sue, they would not win if they did, so they’re left with not accepting any deliveries or pick ups or turning the claim over to a collection agency. A collection agency will drop the claim like a hot potato once they’re told of the circumstances. And should they restrict service, well the firestorm will surely bring someone to the forefront to deal with it.
The moral of the story is: always be able to defend a bill. If it’s wrong, fix it. If it’s correct, prove it to whoever is asking. If the amount is too small to bother with, get rid of it without delay. You’ll make more friends that way and customers will come to rely on the bills. When customers believe the bill is accurate, they’ll pay it. UPS could be flushing enormous amounts of money down the drain simply by ignoring through inefficiency legitimate charges. Someone has decided it’s makes more economic sense to under staff the customer service / billing area than to beef it up, make it reliable, and collect more.
This is where Strategic Credit Management Solutions can help. We’ve seen lots of billing systems and customer service programs. We can see what you have, find what’s making it work poorly and make the recommendations that will take care of the problem. We can assist in the implementation and the training. We’ll even follow up later to check on how things are working. It beats flushing your bills down the toilet.
Check out our website at http://powerscredit.com/. You can e-mail us at patrickpowers@sbcglobal.com. Your comments are welcome.
Tuesday, May 5, 2009
You Can't Cash an Invoice
In the April 28, 2009 L.A. Times question and answer column In Box, writer Karen E. Klein replied to a question on improving a company’s lagging cash flow with the following: “Business owners often fall prey to the erroneous thought that the more they sell, the more money they’ll make. Remember than an invoice is not cash.” Amen, Karen Klein. What amazes me is that this statement is so true. Companies do not see a correlation between sales and revenue. It is like thinking you are rich because you have a lot of checks in the checkbook. In order for a sale to be worth anything, it must be paid for. I know a Memphis based company that had at one time over two million dollars in unpaid Cash On Delivery sales. These guys thought the sale was more important than the payment they did not bother getting the payment on delivery.
Companies prove they are ambivalent about cash when they spend enormous resources on sales and marketing and nearly nothing on collections and effective credit management. Indeed, a company must increase sales if only a fraction of them are paid for. Yet, why not collect a larger share? It seems a more practical approach than chasing a declining market. With just a little more effort and training a company with lackluster collections could improve cash flow considerably. Often, waiting two months rather than three months to call on past due accounts can make a major difference.
One company I know, a distributor of cheap household goods, chose to dramatically increase their sales by extending credit to just about anyone who applied, regardless of their history or capital. The idea was to then use the accounts receivable as collateral and borrow against it. That was the solution to a lagging cash flow. However, as the collections fell off, so did the available line of credit and the company had a very difficult time paying down what they had already borrowed. Let’s face it, there is no substitute for good old cash on the barrel head.
The owner of a lumber company once said to me, “We are going to be the best in price, the best in service but we are going to be bastards about paying.” Above his group of inside sales reps hung a sign that read, “A Sale is Not a Sale Until it is Paid For.” Collections for this company were consistently in excess of 80%. Further more the company’s sales philosophy was one of the most aggressive that I’d ever seen. What they had was both aggressive sales and collections.
It is not rocket science, but credit remains one of the most over looked under utilized functions of a company. This is where Strategic Credit Management Solutions can help increase your revenue. We know how to collect; we’ve been doing it for over thirty years. You don’t need another collection agency to do it for you, just let us train the group you currently have. I assure you, it’ll make a positive difference. See our website at http://powerscredit.com/ and contact us at patrickpowers@sbcglobal.net.
Your comments are welcome.
Companies prove they are ambivalent about cash when they spend enormous resources on sales and marketing and nearly nothing on collections and effective credit management. Indeed, a company must increase sales if only a fraction of them are paid for. Yet, why not collect a larger share? It seems a more practical approach than chasing a declining market. With just a little more effort and training a company with lackluster collections could improve cash flow considerably. Often, waiting two months rather than three months to call on past due accounts can make a major difference.
One company I know, a distributor of cheap household goods, chose to dramatically increase their sales by extending credit to just about anyone who applied, regardless of their history or capital. The idea was to then use the accounts receivable as collateral and borrow against it. That was the solution to a lagging cash flow. However, as the collections fell off, so did the available line of credit and the company had a very difficult time paying down what they had already borrowed. Let’s face it, there is no substitute for good old cash on the barrel head.
The owner of a lumber company once said to me, “We are going to be the best in price, the best in service but we are going to be bastards about paying.” Above his group of inside sales reps hung a sign that read, “A Sale is Not a Sale Until it is Paid For.” Collections for this company were consistently in excess of 80%. Further more the company’s sales philosophy was one of the most aggressive that I’d ever seen. What they had was both aggressive sales and collections.
It is not rocket science, but credit remains one of the most over looked under utilized functions of a company. This is where Strategic Credit Management Solutions can help increase your revenue. We know how to collect; we’ve been doing it for over thirty years. You don’t need another collection agency to do it for you, just let us train the group you currently have. I assure you, it’ll make a positive difference. See our website at http://powerscredit.com/ and contact us at patrickpowers@sbcglobal.net.
Your comments are welcome.
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