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. 

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. 

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

Dialing For Dollars – On Steroids!

The accounts receivable department is a very busy place – processing credit applications, limit increase requests, sales inquiries, processing and posting payments, and of course making collection calls. If your list of customers on your Aged Trial Balance is quite large, you may never get to the end of your customer call list before its time for another month end.

If This Sounds Like You – You’re Not Alone.

Many credit professionals have the same challenges. If the customer were to call, you could find the time to talk; however the reality is that the smaller balances do not get the same treatment as the larger ones. One solution could be to hire another credit analyst to make those calls if you have the time to train and budget for it.  Another common option, if your system allows for it, is to send your customer a system generated demand letter.

No Extra H/R Budget? Here’s a Cost Effective Option

If your system is capable of exporting customer data such as telephone numbers, customer account number, and customer name, we can create an automated telephone call campaign using a custom pre-recorded message. Thousands of calls can be completed each day. The message asks your customer to call your office or they have the option of speaking to a live operator at your company. You maintain complete control of the customer experience with all funds directed to your office.

Bottom Line

Custom calling campaigns have produced some amazing results. Clients report a payment in full rate of up to 50% for much less than the cost of another employee. Sales Managers report increased sales as a result of old accounts being resolved. And customer satisfaction results actually improve as customer issues are getting solved.

 If you are interested in deciding if custom calling campaigns are right for your business – give us a call today for a free review.

1-866-266-0117 Ext. 350

Recovering Your Collection Fees

To be able to recover your collection costs from a commercial debtor in the United States, you must have a valid signed agreement whereby the debtor has agreed specifically that the costs of collection are recoverable.  

A version of this clause may look something like this:

“The customer shall pay all solicitor's fees and expenses, and all legal costs as between solicitor and his own client on a full indemnity basis, as well as an allowance for the time, work and expenses of the Credit Grantor, or of any agent, solicitor or employee of the Credit Grantor, for any purpose herein provided for and whether such sums are advanced or incurred with the knowledge, consent, concurrence or acquiescence of the Customer or otherwise, together with interest thereon at the rate provided for herein, shall be repayable to the Credit Grantor on demand, or if not demanded then with the next ensuing installment payable to the Credit Grantor.”

Where these costs are recoverable, often the courts decline to add the total amount of the collection costs and/or contingent fees in the event you decide to sue your customer.

Funds paid for court filing fees, service of documents, etc.  are legally recoverable are added to the final judgment amount.

The Reality of Recovering Collection Costs

Notwithstanding the legalities, what are the chances of recovering collection costs from your slow-paying customer?

As with any business transaction, if you have a signed agreement where the customer has agreed to your terms and conditions, the chances are more favorable than if you do not.  Sometimes it may take court action to facilitate the recovery of collection fees.  It is only possible to enforce a legal contract through the courts.  Reputable and ethical collection professionals will not visit a debtors business premises to force payment of the collection fees.

At AAB, our approach is to recover all principal and interest charges on an amicable basis.  If the creditors agreement with its customer contains the required clauses to hold the debtor company liable for collection fees, then we will work to obtain those expenses as well.

Should your customer balk at paying these fees, they may be used as a negotiating tool to encourage prompt remittance of the principal amount of the debt.

When pressed, some debtors will agree to pay the interest expense, especially if they want to work with the creditor again in the future; however if there is no signed agreement to pay interest or collection expenses, the debtor will not pay them.

How to Hire Top Shelf Credit Staff

In most small and medium sized companies the accounts receivable clerk was recruited from the accounting department and got the job by accident. If you were to ask these credit clerks if they actually enjoy their work – most will answer with a resounding NO! Employee turnover in this position is extremely high.

Low Job Engagement = Big Problems

If you check out the help wanted ads they are chock-full of employers looking for credit and collection personnel. We regularly see advertisements for the same companies every month. Turnover in any employee position is expensive; however the turnover of credit and collection staff can be exponentially more expensive if not caught and corrected right away.

Untrained Staff Managing Your Largest Asset?

So how do you attract and retain quality credit & collection staff? It all starts with your advertisement. Workopolis, Monster and Career-Builder are popular help wanted sites. Firms like Robert Half and Mercer Bradley can help you with recruiting as well. Increasingly sites like Craigslist and Kijiji have become excellent sites to post your advertisements.

Your advertisement is critical. Be specific about the job expectations. Post the salary or the hourly wage. Let people know exactly what they can expect. Pre-qualify candidates to make sure they possess the qualities of top credit and collection professionals.  There are several pre-employment tests that can be administered to help you short-list candidates for this specific position.

Ounce of Prevention vs. Pound of Cure

Once you have posted your advertisement, pre-qualified your candidates, and given thoughtful consideration to the job requirements – you are ready to make an employment offer. Attracting and retaining the right credit and collection personnel is critical to your firm’s financial success. Don’t leave it to chance otherwise you can expect the same results with your accounts receivables.

Need Help? No Time?

If you know you need help with your accounts receivable, we can help you draft an advertisement, test candidates and provide you with a short-list of people that actually want to work in credit and collections.

Call us today at 1-866-448-3936 for a free consultation and don’t leave your financial results to chance. 

Cash Flow Is King

The number one mandate of any business is to survive. This mandate supersedes any other.  An organization must generate enough cash flow to meet its obligation such as payroll, taxes, and payment to trade suppliers and avoid being insolvent.

During negotiations with many debtor companies, the #1 response we typically hear is “We had tons of orders- I don’t understand why I’m in trouble”.  These “successful” business people become insolvent because they simply didn't have enough cash to meet operating expenses, including the added cash requirement that increased sales generates. Without adequate cash planning these debtor companies were not capable of meeting payroll and the purchase of raw materials to meet the sales demand.

With any business the cash cycle looks like this:

Cash is used to buy raw materials or pay for services rendered in the production of the final product or service. The sale of the goods or services produces cash and accounts receivables. When customers pay their bills, the accounts receivable goes down and the bank balance increases. Unfortunately the cash doesn't usually come in the same month as the sales generates.

If a business finds itself short of cash, the options are:

•       The owner can inject more cash into the business.
•       The business can use a pre-existing bank line of credit.
•       The business can slow its payments to trade suppliers.
•       Sale of fixed assets.
•             Sale of non-current inventory.
•             Issuance of company stock.

One of the easiest methods of raising some fast cash flow is to ensure you are collecting money from your credit customers in a timely matter. Your collection efforts should include a systematic and consistent follow-up. This is vital to the establishment in the credibility of your credit terms in the minds of your customers. Time is of the essence when credit and collections are concerned. To be effective one must follow-up diligently. An accurate, timely report of your aged trial balances is crucial to the efficient control of collections and release of new orders.

Putting a customer’s order on credit hold is an excellent way to get their attention. Prompt contact with your customer in a professional, tactful manner usually produces the desired effect. Make sure you respond quickly when your customer pays his account to make sure there are no delays with their next order.