An associate of mine recently took a credit manager’s position probably beneath his skill level and he is biding his time until something better comes along. Rather than utilize his experience and expertise, the company forces him to work within some very strict and inefficient policies and procedures. For example, towards the end of each day, sales reps enter orders for the following day. Often, the orders come up on credit hold, due to non payment. The sales force rants and raves, insisting that the orders be released but the credit manager’s hands are tied. The responsibility for calling the customers lies not with the credit department but with the sales reps. They did not make the calls, the customers did not pay, the account goes on hold and everybody starts screaming at the credit department.
I understand the logic. Companies that are sales driven do not want credit people calling customers, fearing they will irritate them. Rather, let the person who sold the product go after the money. If the sales rep wants a repeat sale, he’ll make sure the customer pays for the last order. While I have said before that the art of collections incorporate the same techniques as sales, it does not necessarily mean sales people are good collectors. They have other things to do, selling. Besides, the collections process is a full time job. Sales reps will always be measured on their total sales and never on their total collections. They may be dinged if a portion of their sales becomes delinquent or is written off later, but they will always try to stay ahead by making more sales, not by collecting more money.
By and large sales people do not want to ask the customer for money. They’ll procrastinate or make excuses for the customer and when they do call they go about it all wrong. The result: the customer has placed an order that credit will not release so a skirmish between sales and credit ensues.
My friend knows this system is wrong, inefficient and counter productive, but he is powerless to change it. The powers that be have spoken and rocking the boat is not an option. It is unfortunate. The company could use his talents to improve not only collections but the relationship between credit and sales as well. If allowed to, he could make things a whole lot better.
If management would let him, Strategic Credit Management Solutions could help. First, we could show management the error of their ways, convincingly and objectively. Second, we could provide some proven collection techniques and processes, help the credit manager implement them and soon, they’d have themselves an improved cash flow, a more streamlined order release system and a sales force free to do what they do best. See our website, http://powerscredit.com/, or e-mail us at patrickpowers@sbcglobal.net. Your comments are welcome.
Tuesday, July 28, 2009
Tuesday, July 21, 2009
Know When To Hold 'em
When should you put an account on hold?
Nothing seems to ignite the sale rep’s ire more than restricting orders to the customers. Yet at some point when the customer is not making payments it is time to say, “No more.” And I do not mean, putting the account on C.O.D. No more orders means no more orders, period.
I’ve seen on some company’s credit applications and invoices a statement along the lines of, failure to pay or extended delinquency may require the creditor to place the account on C.O.D. until it is brought current. I don’t believe the customer should be given this option automatically.
Presumably, continuous buyers need your products. A framing contractor is dependent on his lumber suppliers. Glaziers need glass. Concrete contractors need a steady supply of ready mix. When they fail to pay and their credit privilege is taken away but they are still allowed to purchase albeit with cash on delivery, they still do not have any incentive to pay down the past due amount. However, when you put them on hold and refuse to sell them anything, the debtor has to make some decisions. Yes, he could go somewhere else; however, he could always do that when placed on C.O.D. Or, he could work something out with the creditor. And that’s the whole idea behind putting the customer on hold.
Putting the customer on C.O.D. allows the customer to call the shots. He can continue to place orders and receive orders, but now he has to pay for them upon deliver, with the money he was going to use to pay down the account. That doesn’t get anybody anywhere does it? I’ve seen some credit managers then, apply the C.O.D. money, not to the intended cash sale, but to the oldest outstanding invoice. That’s about the dumbest thing anyone can do. It does nothing to decrease the over all indebtedness, though it may in the very short term decrease the delinquency. However, after awhile, you have the same balance as you started with, aged out as before only now it is made up of C.O.D. invoices. Try taking those before a judge as evidence of non payment. “Yes Your Honor, they are C.O.D. invoices, and yes we did get paid, but we applied the money somewhere else.”
I’ve seen schemes like “C.O.D. plus”. Here the customer is supposed to pay something over and above the amount of the C.O.D. invoice. While it may be previously established, usually, whoever is receiving the goods is going to pay only what it says on the invoices. When you try to increase the amount, you get into a real accounting nightmare. And, the customer still makes the decision when to order and when to buy and how much if anything he’ll pay toward the delinquency.
My advice is: put the account on hold. No more orders until there is either payment of the delinquent amount or a mutually acceptable payment schedule whereby payments are made separately and independent of any C.O.D. orders. Most of the time, the customers will go along with this kind of program, contrary to the beliefs of most sales reps.
They go along with it because; you are working with them to solve a temporary problem. You are not just shutting them off by making the do something they may not be able to do, pay on delivery. They may also go along with it when they are warned in advance. You let them know that you believed them when they made a promise to pay and you continued to release orders based on their promise. However, now that they’ve broken that promise, they are not credible and you must restrict further orders until they make amends. If the sales people have done their job and made the products indispensible, the customer will come to the table with a reasonable plan. If the customer isn’t interested, or unable to work out a payment plan then putting him on hold has frozen the balance. There’s no waiting for the C.O.D. checks to bounce.
There is no reason, therefore, to wait ninety days to finally stop the flow. As soon as a customer has broken his own commitment, lower the boom. They get the message. You are serious and you are not going to let them take advantage of you. Believe me, it works.
You need help in implementing good solid controls? You need some help training the collectors in what to say and when to say it? Contact us at Strategic Credit Management Solutions at http://powerscredit.com/. Or e-mail patrickpowers@sbcglobal.net.
Your comments are welcome.
Nothing seems to ignite the sale rep’s ire more than restricting orders to the customers. Yet at some point when the customer is not making payments it is time to say, “No more.” And I do not mean, putting the account on C.O.D. No more orders means no more orders, period.
I’ve seen on some company’s credit applications and invoices a statement along the lines of, failure to pay or extended delinquency may require the creditor to place the account on C.O.D. until it is brought current. I don’t believe the customer should be given this option automatically.
Presumably, continuous buyers need your products. A framing contractor is dependent on his lumber suppliers. Glaziers need glass. Concrete contractors need a steady supply of ready mix. When they fail to pay and their credit privilege is taken away but they are still allowed to purchase albeit with cash on delivery, they still do not have any incentive to pay down the past due amount. However, when you put them on hold and refuse to sell them anything, the debtor has to make some decisions. Yes, he could go somewhere else; however, he could always do that when placed on C.O.D. Or, he could work something out with the creditor. And that’s the whole idea behind putting the customer on hold.
Putting the customer on C.O.D. allows the customer to call the shots. He can continue to place orders and receive orders, but now he has to pay for them upon deliver, with the money he was going to use to pay down the account. That doesn’t get anybody anywhere does it? I’ve seen some credit managers then, apply the C.O.D. money, not to the intended cash sale, but to the oldest outstanding invoice. That’s about the dumbest thing anyone can do. It does nothing to decrease the over all indebtedness, though it may in the very short term decrease the delinquency. However, after awhile, you have the same balance as you started with, aged out as before only now it is made up of C.O.D. invoices. Try taking those before a judge as evidence of non payment. “Yes Your Honor, they are C.O.D. invoices, and yes we did get paid, but we applied the money somewhere else.”
I’ve seen schemes like “C.O.D. plus”. Here the customer is supposed to pay something over and above the amount of the C.O.D. invoice. While it may be previously established, usually, whoever is receiving the goods is going to pay only what it says on the invoices. When you try to increase the amount, you get into a real accounting nightmare. And, the customer still makes the decision when to order and when to buy and how much if anything he’ll pay toward the delinquency.
My advice is: put the account on hold. No more orders until there is either payment of the delinquent amount or a mutually acceptable payment schedule whereby payments are made separately and independent of any C.O.D. orders. Most of the time, the customers will go along with this kind of program, contrary to the beliefs of most sales reps.
They go along with it because; you are working with them to solve a temporary problem. You are not just shutting them off by making the do something they may not be able to do, pay on delivery. They may also go along with it when they are warned in advance. You let them know that you believed them when they made a promise to pay and you continued to release orders based on their promise. However, now that they’ve broken that promise, they are not credible and you must restrict further orders until they make amends. If the sales people have done their job and made the products indispensible, the customer will come to the table with a reasonable plan. If the customer isn’t interested, or unable to work out a payment plan then putting him on hold has frozen the balance. There’s no waiting for the C.O.D. checks to bounce.
There is no reason, therefore, to wait ninety days to finally stop the flow. As soon as a customer has broken his own commitment, lower the boom. They get the message. You are serious and you are not going to let them take advantage of you. Believe me, it works.
You need help in implementing good solid controls? You need some help training the collectors in what to say and when to say it? Contact us at Strategic Credit Management Solutions at http://powerscredit.com/. Or e-mail patrickpowers@sbcglobal.net.
Your comments are welcome.
Thursday, July 9, 2009
Follow Up, Follow Up, Follow Up
An often overlooked component of collection calls is the follow up. It’s one thing to make the initial call, but if there is no timely follow up, the call was all for naught. A common complaint made by credit personnel is that they do not have time to make collection calls and the first thing that suffers is the follow up call. Let’s face it, people lie. They promise to send a check and well, they don’t. If you wait too long to get back to the debtor, you are in effect giving him a longer time to pay or worse, more opportunities to procrastinate. The best collectors follow up on the day the promised check was supposed to arrive but did not. When there is this kind of follow up, the debtor knows you are serious. What’s he going to say when you ask, “I didn’t get the check today. Did you mail it?” Whatever the excuse, debtors caught failing to abide by their own commitment usually make it up by sending the promised payment almost immediately. They want to restore their damaged credibility. They want to prove their honesty and reliability. It is counter productive therefore to wait another thirty days or more before responding to a broken promise.
Follow up requires that the collector be equipped with complete notes of all previous calls. When a customer says, “I didn’t say I’d send you a check.” With notes, you can reply with the date and time and his own words. “Look, you told me on the 8th you were sending a check that very afternoon.” It is important for collectors to be relentless so that the debtor will come to realize if he doesn’t do what he said he was going to do the collector is going to be all over him like bees on honey.
Unfortunately, it is the persistent collector who gets the most complaints. Customers feeling badgered because every time they lie to the collector they are called on it, will attempt to get the collector off their back by calling their sales rep and crying foul. The collector is painted as being “rude” simply for asking for payment. This is a blatant attempt to subvert the collection process. If the customer can get management to reign in the collector, he can continue to postpone payment. And since the customer is always right, he’ll get a sympathetic ear. This is why it is critical the management support the collection effort and not automatically side with the customer. An effective collection program is a team effort. All departments must be on board. I knew a lumber company that had as a motto, “We are the best in product and service, but we are bastards about payment.” The message was clear. Senior management expected payment from the customers and they would not tolerate customers who complained about being called for money. If you don’t like being called, pay the bill.
If the collection team does not have time to make all the necessary collection calls, particularly the follow up calls, something has to change. A common problem is the multitude of non-collection duties the collectors are expected to do. I visited a dairy distributor not too long ago that had their collectors apply cash as part of their daily duties. For every hour a collector is performing an accounting function like cash application, is another hour they are not collecting money. It may be money well spent to spin off clerical work to clerks and let the collectors collect.
This is where Strategic Credit Management Solutions can help. We can take a look at your current collection processes and we can help train the collectors to become better collectors. We can also look at what may getting in the way of the collection process and provide assistance. Sometimes a little reorganization can benefit everyone and increase revenue in the short term. See our website http://powerscredit.com/. You can contact us at patrickpowers@sbcglobal.net. Your comments are welcome.
Follow up requires that the collector be equipped with complete notes of all previous calls. When a customer says, “I didn’t say I’d send you a check.” With notes, you can reply with the date and time and his own words. “Look, you told me on the 8th you were sending a check that very afternoon.” It is important for collectors to be relentless so that the debtor will come to realize if he doesn’t do what he said he was going to do the collector is going to be all over him like bees on honey.
Unfortunately, it is the persistent collector who gets the most complaints. Customers feeling badgered because every time they lie to the collector they are called on it, will attempt to get the collector off their back by calling their sales rep and crying foul. The collector is painted as being “rude” simply for asking for payment. This is a blatant attempt to subvert the collection process. If the customer can get management to reign in the collector, he can continue to postpone payment. And since the customer is always right, he’ll get a sympathetic ear. This is why it is critical the management support the collection effort and not automatically side with the customer. An effective collection program is a team effort. All departments must be on board. I knew a lumber company that had as a motto, “We are the best in product and service, but we are bastards about payment.” The message was clear. Senior management expected payment from the customers and they would not tolerate customers who complained about being called for money. If you don’t like being called, pay the bill.
If the collection team does not have time to make all the necessary collection calls, particularly the follow up calls, something has to change. A common problem is the multitude of non-collection duties the collectors are expected to do. I visited a dairy distributor not too long ago that had their collectors apply cash as part of their daily duties. For every hour a collector is performing an accounting function like cash application, is another hour they are not collecting money. It may be money well spent to spin off clerical work to clerks and let the collectors collect.
This is where Strategic Credit Management Solutions can help. We can take a look at your current collection processes and we can help train the collectors to become better collectors. We can also look at what may getting in the way of the collection process and provide assistance. Sometimes a little reorganization can benefit everyone and increase revenue in the short term. See our website http://powerscredit.com/. You can contact us at patrickpowers@sbcglobal.net. Your comments are welcome.
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