Do You Want Wally Cox or Phil Silvers Collecting Your Money?

Employers seeking credit managers frequently insist on two qualifications I don’t see too often on other job descriptions. One is “flexibility” and the other is “hands on.” These are in the job description now, because the last credit manager was neither hands on or flexible. I think I know why. The previous credit manager was an accountant. So many senior managers make the mistake that since credit is a function of accounting; you can make credit managers out of accountants. Wrong. Think about it, just how flexible do you want your accountants to be? It goes back to the old joke, when somebody asked the accountant how much is two plus two? The “flexible” accountant answered, “What do you want it to be?” This kind of flexible accountant became “Enron accounting”. As a rule, accountants are not flexible. Two plus two equals four, period. There is no gray area. People who take up accounting as a profession embrace the certainty of numbers. They are secure in the order and harmony of numbers adding up to what they are supposed to. Balancing is more than an objective, it is nirvana.

Therefore, when an accountant takes the reigns of credit manager, their first act is to establish the rules. Rules govern accounting, thus, rules will govern credit. They are very specific do and don’t lists and usually, they are written in stone. No gray areas allowed; accountants loathe gray. The second act of an accountant credit manager is to go about enforcing the rules. Thus starts the conflict between credit and everyone else in the company, sales, operations and ultimately senior management, who wishes the credit manager could be just a little more flexible.

The second “qualification” being hands on you would think would be no problem for an accountant. They seem to be very “hands on” when it comes to creating spread sheets, pro formas and financial statements. Why are they not “hands on” credit managers? Simply put, “hands on” means different things to different people. Like I said, an accountant considers being hands on doing spread sheets themselves and not having someone else do it. In fact, accountants, in order to satisfy their controlling needs, are very “hands on”. They usually make poor delegators. But, accountants tend to be very “hands off” when it comes to dealing with other people, particularly disagreeable customers and sales reps. For example, if the rules say a customer will be put on credit hold at sixty days, the account will be put on hold. The rule did not call for someone to call the customer and tell them. Accountants prefer to have someone else make that call and they usually tag the sales rep. Accountants are not people persons. They like and find comfort in numbers and charts and spread sheets. They are uncomfortable with people, particularly confrontational people.

That is why when I see the requirements, flexibility and hands on, I am convinced the problem is not with who has been hired, but who is doing the hiring. Accountants hire accountants. The problem is systemic. The company will always have the issue of stubborn “inflexible” credit managers, seemingly unable to get their hands around the problems of the customers and the sales reps as long as they have controllers managing credit managers.

This is where Strategic Credit Management Solutions can help. We know credit managers. We know what it means to be hands on and flexible. We can teach it or we can find you qualified individuals who are both. See our website, http://powerscredit.com/. You can reach us at patrickpowers@sbcglobal.net. Your comments are welcome.

The Case of the $60,000 Ambiguity

So it’s time to update your credit application because there’s been some significant changes in your company due to merger, acquisition, buy out, incorporation, relocation or just because it has been a long time and it needs to be done. With computers you can redesign, cut and paste, move things from one page to another elaborate, shorten, and add graphics borders boxes and tables. Whatever you do, be careful. Your credit application can be a land mine it you’re not careful. Here’s a true story to illustrate.

A wholesale distributor of automobile windshields was owed nearly $100,000 by a retail auto glass shop. Another $60,000 in interest (or finance charges) had accumulated over time. The wholesale distributor had closed, so the retailer had to find another supplier, and simply stopped paying. As that was not going to be a good defense, they claimed that they had paid everything and the wholesaler simply failed to post all of the payments. They were counting on the wholesaler’s history of poor documentation storage, but they were able to reconstruct the entire history of the account and account for every invoice, credit memo and dollars received. At the end of the day, the wholesaler proved its case and the judge awarded a favorable decision.

However, (yes, there is always a “however”) the defense attorney pointed out a discrepancy in the terms of sale on the credit application. There just so happened to be two sections on the credit application that described the interest rate and neither were identical. In one section the finance charges were described as 1 ½ % per month or 18% per annum and in another section the finance charge was only 1% per month.

Why were there two sections? Way back when the wholesaler was purchased by a national chain, the credit manager re-did the credit application, using a cut a paste method with the old form and incorporating the new and as the finance charge descriptions were in two different locations they were put on the new form, one on one page and the other on another. It was never proof read or was it noticed for years, until as it always happens, they were in court.

The judge did not have to struggle with the decision. The terms were ambiguous therefore, he disallowed any. $60,000 wiped out in a heart beat. The equivalent of the credit manager’s annual salary, lost because of a simple oversight.

It seems when times are busy, and they are always busy, no one has time to review the simple things. Yet, omission, such as this example, or others, such as terms on an invoice or purchase order, can cost you a fortune. This is where Strategic Credit Management Solutions can help. We know forms, terms and documents. We can review yours and make sure they are in order and free of omissions and or ambiguity. Spend a little, save a lot. See our website http://powerscredit.com/. You can e-mail us at patrickpowers@sbcglobal.net. Your comments are welcome.

Watch Out For Third Party Scams

The caller was full of righteous indignation. Finally it was his turn to be offensive. For the longest time we had been chasing after him for payment, finally, turning him over to a collection agency. I am frequently questioned as to my policy of not writing an account off to bad debt soon after turning a delinquent account over to a collection agency. This particular account, while in the hands of an agency now for several months, was still on the books and he was still receiving statements. That was the rub. The caller claimed to have paid the past due bill directly to the collection agency and to prove it; he was sending me the front and back of the cancelled check. Sure enough, he had paid the bill. The collection agency just did not inform us, or, more importantly, they did not send us our share.

It happens all of the time.

Another agency I encountered made it a practice to work a claim for several months and then inform us that it was going to be necessary to sue. They requested up front court costs of $750.00. Then, a few months later, after making a request for documents to support the claim, which invariably they would not receive, we would receive a notice that they were closing their books on the file, without filing suit or returning our $750.00.

Collection agencies get away with these practices because no one is watching them. Most companies, I believe, write the balance off their books within thirty days of assigning the claim. It is out of sight, out of mind. So many agencies are remiss in sending updates about the status of the claims and companies do not except much of a recovery. This allows the unscrupulous agency to collect money from a assignment and keep it.

This practice is not limited to collection agencies either. Years ago I had a claim large enough to sue and the attorney we used was very diligent about getting a very good settlement which he kept. After months of trying to collect it from the customer, I was now faced with the task of collecting it from my own attorney. A threat to notify the bar was enough to get paid, but it was the idea that I had to go that far. Again, had the account be written off and forgotten, who’s to know?

That is why I believe you should treat legal items just like any other account. You’ve simply taken the next step. The time to write them off is when someone tells you the customer cannot be found or the courts have found not in your favor. And you need to watch your agencies and insist on frequent reports. Same goes for attorneys. Work with ones that do not intimidate you, have a good reputation and are forthcoming with the money they recover.

Strategic Credit Management Solutions can help you find reputable collection agencies. (We are not a collection agency). We can also help you find lawyers that will help you without helping themselves to your hard earned cash. See our website at http://powerscredit.com/. You can also e-mail us at patrickpowers@sbcglobal.net. Your comments are always welcome.

We Need to Negotiate

A necessary component of management is authority. Yet many companies are loath to give it to their credit manager. Most commonly, credit managers are restricted in the authority to put delinquent customers on hold. This is like disallowing sales reps the authority to quote prices. It effectively makes the credit manager impotent, relegating the position to some sort of advisor. Management, particularly sale management is convinced that any action by the credit department will permanently scare the customer away. What senior management misses is the need to allow credit people the authority to negotiate. If they do not give this tool to the collectors, they are left with a room full of clerks. Then to make matters worse, the collectors and credit managers are then blamed for the delinquency levels and the sluggish DSO.

Credit managers must have the authority to set terms and restrict credit sales, just like sales reps negotiate prices. A customer can choose to buy or reject a price and walk away. Customers who owe money are also given a choice. They can pay and continue to charge their purchases, or they can walk away. The fall back for the credit manager is to either file suit or turn the account over to a collection agency. Customers know this and they usually come to the table to work out a payment plan.

Without the authority, collectors are reduced to begging and if that doesn’t work eventually management will insist the past due customers be place on C.O.D. and when that doesn’t work then they finally consent to suing the bastard. See? Without the authority to negotiate, management misses out on a revenue possibility.

Credit managers are denied authority to negotiate because management fears they won’t negotiate. Strict and arbitrary credit managers operate on the belief that rules are rules and when a customer breaks a rule, that’s it, he is shut off. Period.
Here’s where Strategic Credit Management Solutions can help. We can help train your credit people to think like sales people and we can teach them viable negotiation techniques that will not only help them collect money, but also work with other departments in the company. See our website at http://powerscredit.com/. You can e-mail us at patrickpowers@sbcglobal.net. Your comments are welcome.