The Honors and Awards Committee of Credit Management Association is now accepting nominations for the following Member Awards:

• CMA Credit Executive of the Year
• CMA Instructor of the Year
• CMA Mentor of the Year
• CBA Designation of Excellence
• CBF Designation of Excellence
• CCE Designation of Excellence

This is an opportunity for you to recognize those Credit Professionals who have demonstrated outstanding leadership, exemplary commitment to the Credit Profession, and who have inspired or have worked to promote the advancement of the Profession.  Any nominations received by March 1, 2012 will be considered.  The recipients will be awarded at CMA’s Annual Meeting on April 12, 2012 held at the Disneyland Hotel in Anaheim, California. 

Nominees will be judged on the basis of professional experience, education, leadership ability and participation in CMA groups, committees and activities.

Download the nomination forms (8) Submit your nominations by March 1, 2012 to:

Kim Lamberty CAE
Credit Management Association
Fax: (818) 972-5301
E-mail: klamberty@emailcma.org

CMA’s Credit Confidence Score is experiencing a bit of deja vu. The Q1 2012 score of 7.11 out of 10 is the exact same as Q1 2011.

Survey Results Questions 1 and 2

CMA Members report orders and payment increasing, and they predict that payment will be on time for the coming quarter.

Survey Results Questions 3-5

While some are continuing to tighten their credit policy, most predict no change for this coming quarter. The use of credit hold has increased and there has been a stabilization in the amount of accounts sent to collections and NSF checks received.

Some members are extremely confident about payment in Q1 2012 with 49% reporting a confidence score of 8 or more.

Survey Results Question 6

No FREE Lunch

Years ago, I worked for a division of a Fortune 500 company with sales in excess of $1 billion a year.  One day, the CFO told me that she wanted DSO reduced by 15% within three months.   I responded that I would begin work immediately and report back within 24 hours.  I returned to my office and outlined the plan for achieving the 15% reduction in DSO.  It involved, among other things:

1. Rejecting new credit applicants I considered to be high risk
2. Lowering or withdrawing open account terms on all accounts that could be classified as marginal risks
3. Holding orders as soon as a customer became more than 15 days past due (without justification)
4. Withdrawing open account terms to customers that became more than 30 days past due (without a valid reason for doing so such as we acknowledged that we owed them more than they owed us)
5. Placing customers on hold immediately if they took deductions without providing supporting documentation
6. Requiring the CFO to give me the authority to veto any request for extended terms proposed by sales
7. Requiring updated quarterly financial statements from all active customers as a condition for continuing to extend credit
8. Requiring all active customers to provide audited financial statements at least annually

The CFO review the email containing this list and scheduled a meeting.  In that meeting, I said that reducing DSO was easy but when the ‘costs’ associated with reducing DSO were examined, many companies were unwilling to accept the trade offs.  If my goal remained a 15% DSO reduction, “all” the CFO needed to do was to support these 7 proposals and deal with the inevitable collateral damage.  She declined to accept this list and I suggested a less rapid and less radical approach to DSO reduction.
The lesson here is that there is no Free Lunch.  A company can have whatever DSO it wants as long as it is willing to accept the trade offs.

Michael Dennis, MBA, CBF, LCM

What strategies do you use to reduce DSO?

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.

Hamlet - To Be or Not To Be

I recently received a call asking what I thought of this proposal to a creditor from a third party collection agency.  The agency would collect on a contingent fee structure debts at between 15% and 20% of the amount collected depending on the age of the debt when placed.

If the standard collection process did not produce results, the account would be transferred to an attorney for lawsuit.  At this time, the contingent fee would more than double to a minimum of 45% of the amount collected plus court filing fees.

I responded that this was a win-win situation — for the agency.  If the agency was able to collect with minimum effort, it picked up 15% to 20%.  If it went to an attorney, the collection agency probably still received a portion of whatever the attorney was able to collect.  My concerns were:

1. If the attorney works directly for the collection agency, the agency has little incentive to address the collection process aggressively, and
2. I always want to be the decision-maker relating to if or when an account is placed with an attorney.  Why?  If placing an account for collection seriously damages the business relationship between supplier and customer, suing the debtor usually destroys the relationship and any possibility of future business

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.

Postal Service

For those of you who may have forgotten, this phrase is part of the creed of the United States Postal Service.  Someone asked me recently if I thought that the proposal by the USPS to reduce services such as Saturday delivery could have a negative impact on credit and collection and on DSO.  It was a great question, and is one that I have given a lot of thought to and the answer is —- It Depends.

If the majority of your customers pay you by check and those checks represent more than 50% of the amount collected, then reduced service [such as the elimination of Saturday deliveries] could have a negative impact on DSO.   If the majority of customer payments are made by check but those payments represent, let’s say 20% of the total amount collected each month [based on the now well known 80/20 rule] then any reduction in services provided by the USPS would have a far less dramatic impact on DSO and collections.

If the majority of your customers pay the majority of the money collected each month by wire transfer or ACH payment, then clearly a reduction in USPS services would have a limited impact on your collections and your collection effectiveness as measured by changes in DSO.

I recommend migrating as many customers as possible, as quickly as possible, away from checks and to electronic payments (Fed wire and ACH).  Customers, including many midsized customers, have the ability to generate electronic payments.  Some do not do so because they recognize that issuing checks results in mail and process float.   However, the efficiencies associated with electronic payments for both the seller and the buyer are so significant that it is something that vendors need to recommend to their midsized customers and should expect to receive as the preferred payment mechanism from their larger customers.

Michael Dennis, MBA, CBF, LCM

What are your thoughts?

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.