Saturday, 15 August 2015

The Credit Department. You’re Paying for it Anyway – What Else Can It Do?

Typically most credit departments are looked upon as a cost center – only demonstrating their value when your customers begin to extend your terms.

Let’s look at what you actually have in a typical credit department.

1.       Credit Manager – could have formal training, but not necessarily. Generally it is invaluable experience having been in the position for several years and likely in several industries.
2.       Credit Administrators – one or more credit-related staff either in “head office” or spread throughout your trading area in branch offices, often very familiar with the local business scene.
3.       Sales Manager – at first this position may seem counter-intuitive as part of the credit team; however they are the key customer-facing people.
4.       Accounts Receivable Clerks – these are the men and women who work with your slow-paying customers. Often these people gather valuable market intelligence as it relates to your industry and that of your customer base. Given proper attention, these people can become fantastic negotiators. 

So we have a risk management professional with great “street smarts”. A team of local “detectives” familiar with your customers’ geographic location. A rainmaker that understands the value of getting paid; and finally a group of “hands-on” negotiators whose job is to listen to the customer and understand what is really going on.

What Else Could They Do for Me?

The cost of sales is ever increasing, especially when it comes to a face to face meeting, so it becomes vital to determine the profitability of bringing a customer on board before you consummate the deal. Have your credit team develop a list of prospective customers for you ranked by credit quality. No sense chasing a potential customer if they pay too slow or not at all.

Invite your credit team into a marketing meeting. Solicit their feedback with respect to the various customers and geographic factors. You may be shocked at the market intelligence you have already paid for!

Vendor contracts like leases can often turn into nightmares that you are locked into for an unreasonable time frame. Use your Credit Manager to take a preliminary review of contracts you are considering. The Credit Managers' risk management skills will prove invaluable – pointing out clauses that you may have overlooked and helping you to avoid personal liability. Sometimes the best deal is no deal.

Finally, encourage your Sales Manager to foster good relations with your credit team, ensuring that all sales representatives and credit staff get to know each other really well and on a personal level. Together your sales and credit personnel form a formidable team of profit generators.

I Know That Already

Many of you are saying “I know all that already” and thinking how will I get the last minute of my life back after reading this far?

Have you considered building your business through acquisition? What about opening a new location? Maybe you’re considering selling your business? Or perhaps you are contemplating a new software system for your business.

 In all of these cases and many more – you would do well to engage your credit team early. Avoid paying too much for your acquisition targets' receivables. Gathering market intelligence of that prospective branch office trading area. Getting your receivable team to bring your Days Sales Outstanding (DSO) well into your industries acceptable norms. Be an attractive purchase. And finally, make absolutely certain that your new whiz-bang software actually gives your Credit Department all the tools they need to get the job done. 

The faster and more efficient the credit team is – the better will be your margins, cash-flow, and most importantly your customer satisfaction and staff morale level. 

Friday, 17 July 2015

Top 10 Steps to Making Powerful Commercial Collection Calls

     Over the last ten years, the number one topic requested at our credit seminars is “how to make an effective collection call.” The best medium for this still remains the telephone; however just picking up the phone is not good enough. If you don’t have a predetermined strategy in place, you’re probably spinning your wheels – being ineffective and costing your company money. 

So how do you improve?

Here are the top ten steps you can take right now:

1.       Know your customer and their business. Are they impacted by seasonal cash flow etc.?
2.       Deciding what strategies you will use to stay on track.
3.       Set goals for yourself. For example – reduce DSO by 12% to improve cash flow.
4.       Deciding and outlining which strategies you will use to achieve its goals.
5.       Create effective call scripts so the conversation flows well and you can effectively manage objections and/or stall tactics.
6.       Measure your results to see what works and what does not. Establish key performance indicators (KPI) to help benchmark future results/ activities.
7.       Make detailed notes of your conversations with your customers. Before hanging up the phone – provide the customer of a recap of your understanding of the conversation. Better to catch misunderstandings now.
8.       Try to establish quickly if the customer is slow paying because of a dispute or cash flow issues. You can increase customer satisfaction by simply listening. If there is a legitimate dispute – deal with it. If it is a cash flow problem – see if you can work with the customer.
9.       Be decisive. If you are getting many promises but no meaningful action (money) then consider bringing in a professional collection agency or lawyer. If you don’t follow through – your customer will take advantage of you.

10.   Consistency is key. Consistent follow up – consistency doing what you say you’re going to do. Customers (and your bossJ) will soon learn that your invoices get paid before others. 

Tuesday, 14 July 2015

My Most Satisfying War Story

  Early in my career as a commercial collector, I had a small local printing company as a customer. I had met the owner, Bernie, at a local Chamber of Commerce function earlier that week. It was a Thursday when I received a panicked call from Bernie explaining that his largest order had bounced a check for $18,000.00 and he was counting on the funds to make payroll the following Tuesday. 

  I drove to Bernie’s office and had a look at the check. It was drawn on a bank two time zones a head so I couldn’t simply drive over to the bank and certify the item. I asked Bernie if his customer was offering to replace the check and he said yes, but only $5,000.00 and it would have to be the following week because they had cash flow issues of their own.

  As any business owner can relate, Bernie was elated to finally land his biggest order to date. It wasn’t a simple printing job either. It was individually numbered and perforated lottery tickets. The order was a rush and Bernie and his team worked extra hours to get the order shipped on time. In fact, Bernie had paid extra to source special paper stock from his suppliers to complete the job.

  I took the check anyway and drove back to the office. Upon contact with the debtor firm, we got the same story as Bernie had received.

It Was 2:00 PM

  It was 2:00 PM on a Thursday.  Almost as an afterthought, we called the bank to see if there were sufficient funds on deposit and we learned that YES!! there was. I immediately couriered the check to the bank to arrive overnight for next day certification. We received the check back certified on the following Monday. Our firm deposited the funds into our trust account and the issued a special check run so Bernie could access his money in the time to meet his payroll.

  Bottom-line? Bernie meets his payroll – staff paid their bills and feed children not knowing how close they were to big problems.

  Today, almost 30 years later, Bernie’s firm is thriving and has grown considerably. Bernie has learned many practical tips and techniques to manage his cash flow; however he still likes to tell our story with pride. 

I Love This Business