Keep Holding On

One of the questions that I am frequently asked is this:  When should I place an account for collection?  In my opinion, most creditors hang onto delinquent debts far too long before placing a debtor company for collection.  There are a variety of reasons that this is true, including hope that the debtor will pull out of their downward spiral just in time.  The problem with holding on too long is that the older a past due balance becomes, the less collectable it becomes.  The real problem is that the older the debt becomes, the faster the probability of collecting approaches zero.

There is another factor worth considering as it relates to working seriously delinquent accounts and it relates to the fact that the time spent chasing accounts you have held onto for too long is time and energy and focus that is taken away from collecting from debtors that are both able and willing to pay, but require a gentle nudge from you to release payment.

I think holding onto too long is a mistake that can be easily corrected.  How?  By making a commitment to place accounts for collection when you find that you are no longer making reasonable progress in your collection efforts.  Here are a few examples of scenarios suggesting that it is time to use a third party collection agency:

• Your customer will not take or return your calls;
• The account is now 90 days or more past due;
• The debtor has broken two or more commitments to pay the past due balance;
• The debtor promised to pay one amount, but paid significantly less;
• The debtor’s phone is disconnected;
• The debtor has bounced a check to you but cannot or will not try to make it good.

Michael Dennis, MBA, CBF, LCM

That’s my opinion. What’s yours?

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.

Coffee Is For Sales "Collectors"

In a previous blog post, I suggested using salespeople in the debt collection process. More specifically, I said that salespeople could use their close working relationships with customers to convince them to more quickly retire past due balances.  The feedback that I received was not entirely favorable.

Several people suggested that it was never a good idea to involve salespeople in the collection process. I disagree.  While I definitely do not believe that salespeople should be allowed to negotiate extended payment plans with delinquent customers, I think salespeople can play a very useful role. How?  By using their personal relationships combined with their knowledge of the internal workings of the debtor company to bring additional pressure to bear on the right person or department.  One technique I have seen work effectively is for the salesperson to bypass A/P and finance entirely and go directly to the Purchasing department.  Even if the salesperson does not get a commitment for an immediate payment, they often get additional information or insights about the problems the debtor is facing that can be used by the credit function to decide on the best course of action.

Michael Dennis, MBA, CBF, LCM

That’s my opinion.  What’s yours?

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.

Square Peg, Round Hole

As a consultant, I often find that clients had assigned their most experienced collectors or their best collectors to their largest customer accounts.  There is a widely-held theory was that the larger the customer account and balance due, the more experienced the collector should be.

In my opinion, regardless of the size of the credit limit or A/R balance, customer accounts should be assigned to a creditor company’s collectors based on their complexity.  In other words, the best or most experienced collectors should be assigned to accounts that require their experience and expertise, irrespective of the size of the credit limit or the balance due.  There are several risks associated with assigning your best collector to your biggest accounts, including these:

• Your best collectors are not handling the accounts that need their expertise the most
• Therefore, the effectiveness of your collection efforts are not optimized
• In a best case scenario, disputes take longer to resolve and payments take longer to collect
• In a worse case scenario, the debtor uses the collector’s inexperience or ineffectiveness to delay issuing payment
• In a worst case scenario, money owed to your company that could have been collected relatively easily and fairly quickly by a more experienced collector is either not paid at all or is seriously delinquent before it is ever paid by the debtor

The solution is to assign your best and brightest to the accounts most difficult to collect from, irrespective of the size of the balance due.

Michael Dennis, MBA, CBF, LCM

That’s my opinion.  What’s yours?

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.

IAB

CMA is excited to announce our partnership with longstanding deduction management company IAB Solutions. CMA is always on the lookout for services that will assist the Credit Department through the order to cash cycle. IAB Solutions has proven themselves a favorite among our members for quality deduction management services.

“The greater the deduction volume, the greater the profit dilution.  Effective deduction management adds to your bottom line!” Source:  Best Practices Today – Deductions by David Schmidt

• Have you seen an increase in the amount of incoming deductions your company is receiving?
• Do you find yourself challenged to find time and/or resources to deal with these tasks?
• Are you finding yourself dealing with the same issues over and over again?

If you answered yes to any of the above questions, CMA has a solution!  We have partnered with IAB Solutions, the industry’s leading service provider in Deduction and A/R Management to bring you access to this value added service.

BENEFITS

• Cleaner receivables and reduced Days Deductions Outstanding (DDO)
• Increased collections and recoveries
• Root cause analysis provides valuable trending information to prevent future claims
• Ability to reallocate internal resources for maximum effectiveness
• Access to a highly developed network of industry information
• Productivity Based Pricing – PAY ONLY FOR RESULTS!

With over 27 years of experience in a variety of industries, their experienced analysts provide you with a focused, professional, and transparent approach to manage the more time and labor intensive deduction tasks.

Want more information?

Please contact:

Diana Crowe
Manager, Business Development
(800) 742-0014 (toll free)
(630) 537-0840 (direct)
DCrowe@iabllc.com

Risk and Reward

I attended a seminar recently.  One attendee suggested that export sales are often more trouble than they are worth.  She expressed frustration about the difficulties evaluating credit risk including the problems getting trade references and bank references, as well as the challenges often associated with collecting past due balances.

In my opinion, the opportunities that sales to foreign customers represent are so significant that most U.S. based creditor companies have no choice but to extend credit to foreign customers.  Why? For all of the following reasons:

• Export sales can result in higher gross sales and higher net profits
• Exporting allows companies to diversify their customer base and reduce their risk
• Companies selling seasonal products may find demand higher in what is normally the low season by exporting
• Products that have reached the maturity phase or even the decline phase in the domestic market can be introduced into a foreign market and begin the product life cycle all over
• Companies with excess inventory or excess production capacity may be able to sell goods and maintain full employment and operate at full capacity without having to offer deep discounts to customers to do so

Yes, export open account sales can present significantly higher risk than domestic sales, and yes export credit sales require more specialized skills and expertise to manage but I believe the risk if properly managed by the credit department is more than offset by the rewards.

Michael Dennis, MBA, CBF, LCM

That’s my opinion.  What is yours?

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.