When To Wear Velvet Gloves – Michael Dennis, CBF

Iron Fist or Velvet Gloves

Years ago, my manager and long-time mentor talked to me about delivering bad news to customers.  His comments were:  There is no good way to deliver bad news.  However, if you have to tell an applicant they have been rejected for open account terms or tell a customer that they don’t qualify for a higher credit limit, do whatever you can to soften the blow.

His advice was sound… Deliver the bad news as gently as possible.  He was fond of telling me to “put on velvet gloves” before making the phone call.   His reasoning was also sound:  Just because they don’t qualify today doesn’t mean we want to alienate them.  Find a way to leave the door open, even if all you can tell them is that you will re-evaluate the decision from time to time, and will flag the file for review in six months.

He was less concerned about telling customers with past due balances that orders were going on production or shipment hold.  His rationale was that the customer created the problem for themselves.  I think he enjoyed it when a delinquent customer, placed on credit hold, demanded to speak with him.   I know he enjoyed it when his manager, the Treasurer, refused to discuss credit holds with customers and immediately transferred calls of this type back to my manager.

The bottom line is this:  If managers do not support credit hold decisions, customers quickly learn that the fastest way to get  orders released is to demand to speak to the manager. If the credit manager is a soft touch, he or she can quickly find themselves overwhelmed with requests for reconsideration from customers.  With this in mind, I think it is important for the manager not to override decisions.  This is possible when there is a policy in place that requires collectors to discuss credit holds with the credit manager before implementing them.

Michael Dennis, MBA, CBF, LCM

There are bound to be differences of opinion about the ideas outlined above.  What different policies relating to credit holds work best for your company?

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.

3 Replies to “When To Wear Velvet Gloves – Michael Dennis, CBF”

  1. Collectors do not place accounts on hold. A collector brings a situation to the attention of the credit manager who then makes the decision. This is our procedure. Taking into consideration what the collector advises regarding the situation, reviewing the history and current situation, calling the account personally then making the decision.

    This ensures that the information provided by the collector is always considered and they know that they are an important part of the credit team. Once the decision is made to hold or not to hold that is discussed with the collector why the decision was made.

    HAPPY HOLIDAYS:)

  2. My rule of thumb… Say what you mean, mean what you say, just never say it in a mean way! We pride ourselves on full disclosure; this means that the customer, collector and sales know what’s expected of them and what the consequence is for non-performance and the date those consequences take effect for the hold situation.

    For applicants who can not be opened we’ll try and find a way to work something out such as job with joint check agreement; (the luxury of working in the construction industry!). Woo hoo!

    I find that most customers know why they are turned down. Some will call to press the issue, or will try the old “your competitor opened me” even if it’s not true…which goes back to Michael s’ excellent “shocked and appalled”! 🙂

    For push back or inquiry from sales, well, our history stands the test of time and most know we’ll go the last hard mile to make a sale work (see job rights above) so when we can’t put a deal together, they know it’s some steamy heap they really don’t want to step in (even if I do have to remind them every once in a while!)

  3. Dennis,

    The approach one takes to deliver bad news is like all situations, dependent upon the particular circumstances. This is true whether the account is being denied credit or an increase. In either case, the majority of times the account has a good idea what the answer should be, but sometimes is hopeful the news is better than expected.

    If an account has a history of delinquent payments or non-cooperation, the news delivery program will be different than the case where an otherwise cooperative account has just fallen on some hard times. In the former case, my approach would be a bit more stern. I would imply that they need “to show me the money”. If we are important vendors and they want open terms or more credit, they have to step to the plate. Quite often I find that they are paying other vendors timely. But all factors other than timely payment are really irrelevant.

    I expect them to build a better payment record with my employer. I’m not interested in their record with anyone else. There is an expectation of prioritizing payments in my employer’s favor and it must be sustained. This is the true measure of our importance as a vendor. And there is no reason to sugarcoat that need. This is an opportune time for both sides to be frank and honest about what is needed. This is a time for you both to move forward on the same page which might make life a little easier in the future. In the latter case, I would preface everything with apologies and regret.

    You do bring up another important point – – the criteria credit managers utilize to set credit limits and the grace period allowed for customers must be understood by their staff to minimize the occasions where a credit manager would feel the need to over-ride their assistants. The assistants would not be in that position if the decision-making process of their supervisor was clear to them and they acted accordingly.

    Unfortunately, the difficulty in setting credit policies to govern holds is that like any other art form, its a continual and shifting creative exercise.

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