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No Bullies

There is a widely held belief that if you stand up to a bully, they will back down.  In reality, bullies sometimes back down and other times they knock you flat.  This is my story about being knocked flat.

I was working with a large retail customer that took unearned cash discounts and other unauthorized deductions. These deductions eventually totaled more than $200,000.  My team fully documented why the $200,000+ in deductions were taken in error.  After sending this supporting documentation, I scheduled a visit with the customer and met with accounts payable.

The A/P rep told me that she was authorized to settle the matter for 40 cents on the dollar.  I responded that I did not have the authority to accept this proposal, since it would involve my company writing off over $100,000 in deductions I proved was owed.

When I returned to the office, I met with my CFO, and he instructed me to send a letter to the customer’s Controller stating their offer was rejected, and indicating that if payment in full was not received within 30 days that we would consider placing the account on credit hold.  At that time, my division sold $15 million a month to this customer.  The debtor company’s Controller responded:  If you place orders on hold, we will end our relationship with your company – meaning your division and the other divisions of your corporation.   This would have meant a loss of about $40 million a month in sales to the corporation that I worked for.

In response, our division President sent a letter of apology. In it, he assured the debtor that orders would not go on credit hold.  His letter added that if the offer of 40 cents on the dollar was still available, we would be pleased settle the dispute for that amount.  His letter also said the account was being re-assigned to another member of the credit and collection team.

Michael Dennis, MBA, CBF, LCM

Sometimes you get the bear, and sometimes the bear gets you. Does anyone have a similar experience?  If so, did you have a better outcome?  What made the difference?

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

8 Responses to “Standing Up To Bullies – Michael Dennis, CBF”

  1. Jodi Owens says:

    Michael,
    I always enjoy your stories.

    • Cathy P. says:

      Seems some of our bullies have backed off a bit. This is primarily due to the fact that their paying ability has been diminished. They are now begging instead of bullying, since we are now in the driver’s seat. How nice is that? Great stories, Mike.

  2. George Firebaugh says:

    Understanding the dynamics is important! A process where the customer is taking unearned discounts is a mine field when that customer is high profile and is doing a large dollar business.
    In my experience, the credit manager needs to get someone higher on the management ladder to schedule a meet and greet with the customer to discuss the issues. I have had this take place on occassion, not often mind you but it has happened.
    In the example here is less than 2% of the monthly business the customer is spending ($14M) per month. I hate to say this, but the ‘letter’ of the contract is what we live and die by in most cases, and it sometimes asks us to fall on on our, well you get it. By going to the sales office, the CFO, the VP in charge and the legal department and getting them together to discuss the matter of discounts with high volumn high dollar customers that take unearned discounts it’s the best way to go (if you can get it done).
    We don’t live in a peachy world anymore! Executive management has to make the call and that call gives your your marching orders.
    I know this may sound like a total sell out of the credit managers mission; ultimatly the chickens will come home to roost when commission checks are smaller and the expense an attorney hits the bottom line to collect the discounts.
    The ONLY way to get the attention of the movers and shakers is to let the customer reach into their wallet and take out the dollars!

  3. Deb says:

    Seems there is always the occasion when the pendulum swings to the other side depending on the size of the Horse in question.

    As a new hire, I had a similar experience with a customer who represented about 4 million per month. Having worked down all of the skipped and overlooked items I’d inherited that had birthdays’ along the way, I was left with approximately $50k in disputed back charge items.

    Fortunately for me, my relationship with the COO was such that I could recommend he and Mr. Customer have an arm-wrestling match (figuratively). over a nice lunch and we walked away with a 50/50 split as full resolution. I can guarantee had I tried to strong arm… even at the COO’s request, I would have been kicked under the bus just as quickly.

    Its a fine line doing the work we do and maintaining the necessary relationships and credibility needed to keep everyone on the bus and moving forward.

  4. Nicole D says:

    When you were meeting w/ CFO on the 40% proposal did you bring it to his attention how much potential business was as risk? Customers always use the “I”ll go elsewhere” card no matter how big or small they are– it’s the only play they have. It’s our jobs to measure risk vs reward to determine if we call the bluff. If you have an exclusive product or something that will be a pain to transition to another supplier the customer will usually come back to the table with a reasonable counter.

    Sounds like you may also have some internal bullies Mike. Did your division President know that the CFO instructed you to send the letter? Did either of them acknowledge & apologize for throwing you under the bus “for the greater good”?

    Also you don’t give a time frame on how long it took them to rack up the 200k. I find that attempting to address deductions & UD’s in the month they occur delivers better results. That gives customer the ability to correct behaviors before they rack up a 6 figure bill.

  5. You have hit upon the magic formula. The importance of the disputed items is calculated by subtracting the profitablilty and business value of the customer.from the value of the disputed items. Obviously the value of the disputed items shrunk to 40% using this formula. This has been my experience and my guidance in dealing with these nasty but nice customers!

  6. Unfortunately over the years I have also encountered a number of “bullies”. In reality in a business relationship where you are selling a commodity and there are comparable competitors a large buyer can easily dominate the relationship.
    The best recourse for a bully is to provide incentive for them not to be a bully and to know when it is just best to cut and run. Credit hold would be my last choice.
    If I was unable to independently make a decision and had to bring the issue up internally, I always armed myself with numbers. Volume at low margin is impacted more significantly by unearned deductions than when margins are high. First demonstrate the effect accomodating the customer has on net profit. Sometimes it makes more business sense to just lick your wounds and maintain the relationship. In some cases continued abuse makes for an interesting bargaining point during subsequent contract and pricing renewals. (IE: “We have to adjust our price because your business practices are the margin we require to remain a reliable supplier.) In some cases you may just hold your ground.
    At one company I worked for we had a major customer who abused prompt pay discounts regularly. I visited the Procurment Officer with the our head of Sales. We offered a substantial annual rebate if the customer met two criteria. First a minimum volume and secondly payment within an average time-frame.
    They met the first requirement but failed the second. During the last quarter of the year they paid promptly thinking we would cut them a break. The Procurement Officer incorporated the sizable rebate into his budget, thinking we would come through, in spite of their lack of compliance.
    We did not. At the meeting when this was announced, he just stared across the table wide eyed and red faced. Then, his nose began to bleed. So much for bullies. We retained the customer and were paid at an acceptable pace. True story.

  7. Michael Dennis says:

    Thank you for your comments and concern. No one pushed me under the bus. My CFO took full responsibility for directing that the demand letter be sent to the debtor. When the customer pushed back HARD, our Division President playing the role of “good cop” was able to smooth things over with the customer and ensure that that $40M+ in sales a month our corporation did with this retailer was not placed at risk.

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