Benefit of the Month: anscersX Multibureau Trade Credit Report

Have you checked out CMA’s exclusive anscersX multi-bureau trade credit report that contains the key factors about your customers payment habits from the top three credit reporting bureaus?
The anscersX multi-bureau commercial credit report combines key elements of the data from the three largest trade credit reporting agencies (D&B, Experian and Equifax), giving credit managers the most complete payment story available. The report is affordably priced, which is based on the number of reporting agencies you request. Better yet, anscersX Reports are available on a transactional basis – no contracts, no minimums, no hassles!

For more information on the report, click here.

CMA Industry Credit Groups, Your Best Search Engine, by Larry Convoy

Larry Convoy, lead group facilitator

My kids find it hard to believe that when I was in school, the place you went to find answers to your homework or to gather information for a paper was the Encyclopedia Britannica. This was several thick books with information on anything you needed, although the accuracy depended on what edition you had. My edition claimed the US had only 48 states.

The current generation has it much easier since Google came along, just enter, click and multiple results appeared with everything you needed.

Your membership in CMA and an Industry Credit Group makes it just as easy. Have a question on Chapter 11 BK; call Molly Froschauer in the Adjustment Bureau. Need an effective Demand Letter, go to the Encyclopedia of Credit. If it is the most current trade information on a customer, draw an anscers report or enter an RFI. Looking for accounts receivable software that is credit friendly, poll your group. Need to further your credit education, CMA has that covered.

If you utilize CMA and the Industry Credit Group as your primary search engine for all credit related issues, the results will reduce your time and expenses.

It will not be necessary to pay your corporate attorney an hourly fee for researching Bankruptcy questions that CMA can answer for free. Whose recommendation means more, salesmen trying to sell you a $100K computer system or someone in your group performing the same job as you using the system? Need to file Lien, get a D&B, place an account for collection, take a financial statement class, start your search with CMA.

You have the support of a Business Association that has been around for over 130 years. Behind each tab on the anscers home page are people waiting to assist you.

Whether you have been in credit for 30 years or 30 days, there are laws and procedures that are changing daily. CMA membership guarantees you the most current edition.

How CMA Group Members Helped Conquer Hurdles Associated With Payment Portals, by Patrick Spargur

Over the years, I have sat in on numerous Industry Credit Group meetings, each with a unique membership structure, and almost all have the same challenges. Recently, during one of the meetings I attended, the members communicated that they were having a harder time collecting their money since their customers recently introduced a new “payment portal” for them to submit their invoices for payment.

For many credit & collection professionals, payment portals are nothing new, but for some these portals can be confusing. Here are just a few problems that were identified:

  • invoices weren’t compatible with customer portal
  • invoices are being skipped
  • capacity issues, as some portals cannot handle large volumes of invoices
  • invoice status are not always up to date
  • fees are being charged to process invoices
  • there is nobody to speak to when you can to follow up on an invoice that was short paid or skipped

Many credit professionals do realize that there are benefits to both sides when we leverage technology to expedite things. However, they also know there must be good communication and reasonable expectations on both sides for these programs to work.

This is just one example of how belong to an Industry Credit Group can help you navigate these various cash flow challenges. During the meeting, Group members shared their experiences and have given examples of how they have effectively navigated these payment channels to get paid.

Does your company belong to an Industry Credit Group? If you don’t, please give me a call to see if there is one that will help your company get paid faster.

Patrick Spargur, CICP
702-259-2622 / 800-841-5793

Why a good credit manager should have regular meetings with the CFO, by Patrick Spargur

Patrick Spargur

In my opinion, the credit management position is often overlooked and undervalued (and since I was a credit manager in the past, I speak from experience). After thinking about the many areas that a credit manager is involved with on a daily basis, I believe a good credit manager can directly impact the company’s bottom line. This is why I believe your company’s CFO should make a point to have regular meetings with the credit manager.

These are a few areas to help make my point:

  • Quote to Cash: A good credit manager will help create visibility and reports to identify potential forecasting problems.
  • Compliance: The credit manager often has unique information about the suitability of a prospective customer that may impact the bottom line of the company.
  • Contract process: An experienced credit manager can help identify Terms & Conditions language, verify true corporate structure of the customer and their related entities, and they can help create profitable financing options that are often overlooked especially with repeat customers.
  • Shipping: By partnering with the Shipping department, the credit manager can make sure the credit policy is effectively being followed, cash deposits have been collected, and change orders have been properly identified prior to shipping. Without the credit manager’s insight, possible serious disputes, invoicing problems, and audit issues may appear downstream that may impact cash flow or revenue recognition.
  • Receiving-returned merchandise issues may also over-inflate A/R if credits are not processed in a timely manner.
  • Collections: The credit manager has a major role in the rhythm of the Cash Cycle. They are the drummer in the band; they help manage A/R to Finance relationships; they manage collections, disputes, and workout agreements with customers on a daily basis; all while being customer-centric to make sure the customer is satisfied and will be a repeat customer.
  • Miscellaneous: a seasoned credit manager can help identify best practice resources and quality assurance issues in many areas since they are required to see the BIG picture of the company’s sales objectives.

As the person at your company in charge of assigning credit, do you regularly meet with the CFO? If so, are those meetings useful? I’d love to get your feedback. Thanks for reading!

Patrick Spargur, CICP, is a business development executive with Credit Management Association. He can be reached at 800-841-5793 or by email at pspargur@emailcma.org.

Detecting Fraud: Basic Checks You Should Do Before Extending Business Credit

With the recent rise in bankruptcies, it is more important than ever before to have a handle on business to business (B2B) risk management. More and more fraudulent companies are emerging, as business lines are being blurred from start-up manufacturers operating from a garage, e-commerce “e-tailers” businesses that may or may not be legitimate. Because of this, it’s tough for credit managers and risk management professionals to tell the good companies from the “bad” ones.

So what’s a credit professional to do? Here are several activities you can do before you decide to extend B2B credit.

  • Validate their address. With Google maps, you can tell more about the location of a business than ever before. Does their address come up on Google maps? Does the satellite view (photo) show that they’re a residence or a business? Are they located in an area where it would be impossible to do business (i.e., a forest)? Answering these location questions ahead of time could alert you to red flags of fraud before you take them on as a client.
  • Make them fill out a credit application and check and confirm their credit references. When you call their list of references, are they companies who’ve done businesses with them recently? Are the phone numbers of their references valid? Are the numbers for all companies mobile phone numbers, leading to the conclusion that these are individual numbers not businesses? Are the references related to the potential client? If any of this data they provide sounds fishy, it could be another red flag.
  • Visit the customer’s website. There are many red flags that can be gained by visiting the site, including poor design, phone numbers not matching those given in the references, broken image links and other items that can cause you to question the validity of the business.
  • Utilize your Industry Credit Groups. Utilize the knowledge of your fellow industry credit managers by bringing up any suspicious companies during your Industry Credit Group meetings. As we see repeatedly in Credit Group meetings, fraudulent companies tend to go to multiple companies in a particular industry until they get what they need. Additionally, anscers RFIs and alerts can help you on an as-needed basis, and CMA members get unlimited access to these alerts and RFIs.
  • Use credit reports and decisioning data to help. CMA provides access to reports from the major reporting agencies and also offers the NACM National Trade Credit Report, which aggregates information submitted to all of the NACM affiliates that is not typically provided to the major credit reporting bureaus. And better yet, CMA members who contribute their A/R information receive 25 free NACM reports per year.
  • If you’re in the construction industry, consider using THE Construction Credit Report, providing access to public record data; title search (with live links to actual documents) on mechanics lien filing/release; notice of completion; notice of Lis Pendens (action/discharge); tax lien or judgment; active trade lines; credit analysis and score; collection agency and factoring company activities; and links to state Registrars Of Contractors. For more information on this unique report, click here.

If you consider doing these tasks before deciding to extend credit, you’ll help eliminate obvious fraud from occurring, protecting your company’s most valuable resource, its accounts receivable.

What processes does your company have in place to help protect from fraud? We’d love to get your input!

You Want me to Tell My Competitors WHAT?, by Larry Convoy

Finding companies that would fit in your industry credit group is not a difficult task. There are trade publications, mailing lists, associations and websites where you can input a company name and receive a list of that company’s competitors. The challenge is convincing an owner who has never been involved in a group to allow his credit manager to sit down with the competition and discuss their customers’ paying habits. To an “old school” individual, this is against every business principle they know. So how do we (and I am including officers and
current members) communicate the advantages when this would involve working with the enemy?

One method is waiting for the opportune time. Recently, a group approached a company owner that lost a great deal of money by not knowing that a bankruptcy was approaching. His pain was magnified when he learned that his competitors were aware of the problem months before and reduced their exposure. They will join the group if they survive.

Another method is owner-to-owner direct contact. Chances are, some member of the group has an owner or executive who knows the right person at the prospect company. A phone call explaining how the group has saved them $$$, reduced money spent on report contracts, lowered write-offs and improved their credit departments efficiency through the Best Practices exchange, carries a great deal of weight.

Finding, vetting and securing new members is a task requiring group members and the group facilitator working together. Keep in mind the selling points that convinced your company to join and apply them to any potential prospects.

The whole of Group participation is far greater than simply the sum of its parts. In your next Group meeting, let us know who we’re missing.

Thanks so much!

Larry Convoy
Lead Group Facilitator

My Greatest Takeaways from NACM Credit Congress, by Tracy Rosenbach, CCE

IMG_7974ef

Greetings everyone! As you probably know by now, I am a huge proponent of education. I feel that every little nugget that I take away helps me to be a better credit professional and add to my skill set. I’ve achieved the CCE designation, and I try to attend every CMA or NACM event that I can, schedule permitting, as all of them have offered something that I can bring back to the office and implement.

I just got back from the NACM National Credit Congress in Las Vegas and had a great experience. The conference offered a great selection of session topics such as how a credit manager can protect him or herself when selling into Latin America to cloud based solutions for the credit department. Aside from the amazing educational offerings, Credit Congress offers its members the opportunity for networking with other credit professionals from all over the country which can be invaluable. In addition to the education and networking, attendees can talk to various service providers including NACM in the conference’s Expo center to find out about services that are available to credit professionals to make our jobs better and more efficient. I truly believe that information is the key to our success and it is what sets us apart from everyone else.

From the information gained from the packed rooms of the sessions I attended, to the different service providers whom I spoke with, to the cocktail receptions I reconnected with old friends and met new ones, to the client dinners I went to, I felt that my attendance at this event helped reassure that my company’s credit operations are going in the right direction. If you haven’t attended an event like this one, CreditScape or Western Region Credit Conference, I can’t express how valuable it is to experience firsthand what other credit departments are doing to maximize efficiency.

For those who attended the event (and more than 100 CMA members did!), what were your biggest takeaways? I’d love to get your feedback.

Have a great month!

Tracy

Easy-to-Implement Technology That Can Make a Credit Manager’s Job Easier, by Michelle Herman

Yesterday I mentioned that I’d be listing several technologies I use that make my job easier. These are all things that I don’t have to call the I.T. department to install for me. These tech tools are easy to learn, easy to use, super helpful in the credit and collection department, make you look good, and best of all, are FREE!

Free Conference Call/Webinar/Video Chat tool
Free Conference Call.com
www.freeconferencecall.com
Yes – it really is free! You get assigned a phone number and code that is static and is yours to use whenever you need to have a conference call. You can even do free webinars (and record them) with all the standard tools that pricey tools like WebEx offer. Now they even offer video chat!

Free Online Large File Management Tool
Dropbox
www.dropbox.com
Large files are often rejected, or never make it out of your own server. Dropbox solves this issue by allowing you to convert any document into a link that is easily shared and can be password protected. You can store or send pictures, PowerPoint’s, excel files, etc. This product comes with a basic level of storage than can be incrementally increased through a variety of actions.

TheCreditApplication.com
eMagia Software
www.thecreditapplication.com
Another great new product from our friends at Emagia that provides you with an online credit application that you customize – for FREE! You re-create your credit app online, no tech support from your company necessary. You can export data into excel or your ERP, it is integrated with credit sources like the NACM National Trade Credit Report and even Yahoo financials.

Low-to-No-Cost Productivity Tools
Your Nerdy Best Friend
www.yournerdybestfriend.com
If you missed seeing Beth Ziesenis, known as “Your Nerdy Best Friend,” at last year’s Western Region conference in Portland, you don’t want to miss seeing her at Credit Congress. Visit her site to get comprehensive reviews on super productivity tools that touch virtually every area of your department. You are sure to find something that will change your life – personally and professionally.

Multi-Bureau anscersX Commercial Credit Report
CMA
www.anscers.com
Ok, this one isn’t really free, but it is one of the easiest and most cost effective ways to get data from the leading commercial credit bureaus all in one place. The AnscersX report provided by CMA, gives you the greatest hits from D&B, Experian and Equifax all in one easy to read report. No contracts, no minimums, no hassle.

Use anyone of these tools and you’ve got some instant sizzle. You instantly up your professionalism and your image. All of these tools have impressive graphical reporting features to help you share the results with your boss, making you and your team, look great. The key is to take one step at a time, start with simple low- or no-cost options for some of the most basic productivity tools, and generate some good looking reports that tell a story. Just pick one and sign up. Didn’t see one that floats your boat? There are hundreds of these types of tools, and just starting with one and seeing immediate real success – the sizzle- is what you need to keep going. Track me down at CreditScape and I’ll give you a live demo of how easy these tools are and how they may your life easier and make you look sharp.

Ok, we get it. You’re busy, overworked, underpaid. And probably under-valued. If that is your reality, and your perception, it’s time to take action to change it. We know it is hard to get out of the office, but if you’re not viewed by management as you’d really like to be, take the time, learn a few new tricks. Generate some sizzle. See you at CreditScape!

CreditScape
This is just a surface view of one of the topics that will be discussed in detail at the upcoming CreditScape Summit and Annual Meeting in Newport Beach, CA on March 24-25, 2016. Come to CreditScape, learn from experts and peers who have done this, share you own experiences with others. For more information, visit www.CreditScapeConference.com.

Michelle Herman is a business development manager at NACM. She will also be moderating several of the panel discussions and workshops at CreditScape.

Read the other posts in this series here:

Why is it So Difficult to Implement New Technology Solutions in the Credit Department, by Michelle Herman

Why is it that credit, especially commercial credit, always seems to get the short end of the stick when it comes to resources? Why does it seem just the opposite for sales and marketing? Why do they always get the newest equipment, the coolest gadgets, the fancy business cards, even the latest version of Microsoft office before you? Why? It’s because those folks are externally facing representatives of your company and your company already knows the value of their efforts. Huge marketing campaigns cost huge dollars and are visible inside and outside of the company. Huge sales get noticed and celebrated – and commissioned. These teams may annoy the heck out of you, but they have a few things figured out: get noticed = be valued. They are constantly throwing out the sizzle – and people notice sizzle, all the time.

So why can’t credit sizzle? Why are we always in the back room? Why are our requests and projects always “on the list”? Why doesn’t anyone else get excited that your 90+ bucket just dropped below x percent? At this point, my only conclusion is this: Perception really is reality. If you have everything you need in your department, you can save ten minutes and stop reading this now. If you are still struggling to get basic tools and funding for training and attending conferences, read on.

For every person in your company who has nothing to do with (or knows nothing about) credit or collections, their PERCEPTION about what you and your team do or don’t do, their stereotypes, biases, and assumptions, really is their REALITY. How you and your team are perceived, almost more than how you actually perform, is how you are valued, whether you like it or not. And they will support you only to the extent that they think you are valuable.

We all know, none of us ever planned to get here, it just happened. Many never even heard of commercial credit until we were suddenly knee deep in it. Clearly, as an industry and a profession, we’ve got some work to do, but we’ll save that for another day. The point is, no one really knows what you do, and it is your job to educate them, to prove your value – but take some notes from those flashy sales folks, sometimes you need a little sizzle to do it!

So how do you sizzle? How do you prove your value? How do you get a seat at the table? How do you get to be seen as a strategic player, not just an administrative cost center? How do you really change their perception? You must start by changing your reality, and you can do it starting today, through technology, without spending a dime.

If you are still reading, I’m going to assume that you’d like to improve a few things. Many in our industry have been around a long time, and have heard “no” so often, that they just stop asking, and they stop learning. I’m still amazed at what isn’t being implemented in our member’s offices and even in our own NACM offices, because we haven’t taken time to find out what’s out there. We did a short survey at one of the regional conferences about why technology isn’t adopted more often.
Reason Number 1: No Time. No one takes the time to investigate the technology, because they have no time. They have no time, because they have no technology. It is a vicious and evil cycle. Result: no sizzle, no value, no tools.

Reason Number 2: No Budget. This really shouldn’t be an excuse anymore as so many services are offering their basic tool for free, only charging if you want to upgrade. It is a great business model that lets folks like us actually explore things, test it out, kick the tires – before we commit, or spend a dime. And they are all web-based – nothing to install, no tech involvement needed, just go to a website and register.

Tomorrow, I’ll list a few of my favorite tech tools that are easy to learn, easy to use, super helpful in the credit and collection department, make you look good, and best of all, are FREE!

CreditScape
This is just a surface view of one of the topics that will be discussed in detail at the upcoming CreditScape Summit and Annual Meeting in Newport Beach, CA on March 24-25, 2016. Come to CreditScape, learn from experts and peers who have done this, share you own experiences with others. For more information, visit www.CreditScapeConference.com.

Michelle Herman is a business development manager at NACM. She will also be moderating several of the panel discussions and workshops at CreditScape.

Read the other posts in this series here:

So Your Software or Automation Initiative Has Been Approved, What Do I Do Now?, by Robert S. Shultz

Define the Project Purpose and Scope? It is Not all about the Technology

Any software or automation improvement addresses defined business objectives that impact multiple areas within the company. In order to pull off these changes effectively all stakeholders affected should be aware of and involved in the coming changes. Depending on the project and the company, the target audience may differ. As an example: You can’t consider changes in credit and collection software without involving such areas as sales, customer service/order administration, project managers, operations and IT, while keeping senior management informed. Every project has a defined mission that requires cross-functional buy in. Realistic objectives and timelines have to be agreed to. Roles have to be defined.

This takes planning and cross-functional communication. If you are heading the implementation team you will need a clear vision on how the changes will support company goals and performance expectations. Processes, policies and procedures may need changes and streamlining to best leverage the new tools.

Ready Fire Aim… Don’t get bogged down with long term major system implementations. They are hopes and dreams.

A solution provider will have to be vetted that meets your company’s requirements. This will involve a well thought out selection process where both you and the provider understand each other’s business needs, strengths and weaknesses. You will need a basis for your selection. Try to make this as objective as possible, looking at each potential provider with the same criteria. A well rounded score card that lists and weights your critical needs. The selection process should provide all the stakeholders involved an opportunity to participate. If you get buy in at this stage, there will be much less push back later.

No system is perfect or addresses all the needs of all the users. Often it is best to reduce expectations in order to actually get the basics in a reasonable time-frame. Credit and collections are tactical issues: The needs are immediate and have to be addressed today. Complex ERP implementations are strategic in nature. By the time the specialized needs of a Credit Manager are addressed, too much time is lost, the department fails to gain efficiency and results have not improved.

Making the Choice Between an ERP and a Specialized Solution

ERP solutions are robust and have many company-wide advantages. They are also complex, expensive and have long implementation cycles. Let’s face facts. Credit Departments typically have fewer headcount that other areas supported by an ERP. The value in spending research and development dollars for a minimal number of users isn’t in the cards.

Companies specializing in credit and collection software, billing automation, document management and cash administration, address the issues you are trying to resolve on a full-time basis. Credit and collections is not an after-thought, it is their market and revenue stream. They continually focus on user needs and spend R&D dollars to improve their product. Many have user groups you can participate in, that have a real impact on the next release. Implementations are easier and of shorter duration. Cloud based solutions require minimal use of your internal IT resources. Costs are surprisingly low.

Many are faced with this obstacle, “Oh we are putting in or upgrading our ERP next year. It will do fine for you. We don’t want to do any other projects in this area until after the ERP is up and running. We are going to implement the ERP straight vanilla. Anything you need will be in Phase 2 (i.e.: Never)” If that is the case, push hard for incremental improvements and results in a relatively short time-frame.

A Credit Manager has a strong position. You should illustrate a good return on the investment. Show how other departments and most importantly, your customers will benefit. An interim fix with a decent ROI will pay for itself before the ERP initiative is complete.

When the day comes and the ERP vs an interim solution is looming, do a gap analysis between the interim solution and the ERP. You are likely to be surprised by what you already have.

At the upcoming CreditScape Summit and Annual Meeting, you will be able to discuss how to choose a solution provider. Expert Panelists will give you insight on their experiences, victories and losses. You will have ample time to ask questions and network with others who are, or who have faced, the same technology challenges you have. This is definitely a good use of your time.

CreditScape
This is just a surface view of what it takes to convince management an automation initiative should be approved. Each of these points and more will be discussed in-depth at the upcoming CreditScape meeting in Newport Beach, CA on March 24-25 2016. Come to CreditScape, learn from experts and peers who have done this, share you own experiences with others. For more information, visit www.CreditScapeConference.com.

Robert S. Shultz is a Partner at Quote to Cash Solutions (Q2C) LLC. He will also be moderating several of the panel discussions and workshops at CreditScape.

Read the other posts in this series here:

Why You Need to Attend the CreditScape Spring Summit, by Michael W. Fenner, CBA

Now that we have all made our “New Years resolutions,” make sure you don’t drop the ball on your professional goals. Maybe you would like to improve your own personal skill set in your organization. Or perhaps you want your team to get up-to-date with the latest credit training / information in the market place. For me, as I move through this New Year, I look at budget planning and ideas on how to improve our credit department. I urge you to please take some time to review the latest CMA CreditScape Spring Summit information. By attending the two days of workshop training, I believe that it will propel you and your department to the next level.

What will be covered this spring…“The Efficient Digital Credit Department”.

Let’s take a look at some of the items that stood out to me:

  • All Levels of Expertise Welcome – Good for beginners to experts in your departments.
  • The discussions are led by practitioners, not marketing people – Get a 360-degree look into the elements of an efficient digital credit department, focusing on best practices and real-world case studies with the best and brightest practitioners in credit and collections, including top credit executives from companies such as Sony Entertainment, Sysco Foods, Ganahl Lumber, Kendall-Jackson, Walters Wholesale, UTA/United TranzActions, the U.S. Department of Commerce and Watsco.
  • Focusing on your Departments Efficiencies – Such as why should your department go digital…You’ve decided to “Go Digital” Now What?…Automating your customer onboarding process…Vetting your customers…Automating your A/R management processes…International resources and government automation tools……Using third-party vendors to create efficiencies…and emerging technologies impacting the credit department to name a few.
  • Convenient Location – This will be in Southern California this spring at The Island Hotel Newport Beach saving costs for those of us who live locally.

The event information is as follows:

Date: March 24-25, 2016
Location: The Island Hotel Newport Beach 690 Newport Center Drive Newport Beach, CA 92660 ($189 a night)
Cost: $495 for CMA members and $595 for non-members
Registration: To register go to www.creditscapeconference.com

We all know how it is important to stay up-to-date with our education. And finding the time to go to these events can be hard too. Invest in your team, and challenge them to improve and grow. This program will be packed with information and has many excellent speakers too. I would highly recommend it.

Additionally, CMA has a prewritten “letter to your boss” to help you show the value of the event. To get a copy, go to http://creditmanagementassociation.org/events/creditscape/cma-annual-meeting-letter-to-your-boss/

Please take a few minutes to read through the program highlights to answer all of your questions on the CreditScape Spring Summit 2016 brochure located at http://creditmanagementassociation.org/wp-content/uploads/2016/01/creditscape-brochure-spring-2016.pdf

Make sure you encourage your teams, support CMA…your association, and network with old friends and make some new ones too. Team up with your colleagues and learn together. Then bring back your experiences to incorporate into your jobs. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Manager of Corporate Credit Operations for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

Welcome Back, by Larry Convoy

To some, January 1st is like the first day of school. Everything starts out fresh and clean (even though I know many of your fiscal years start at different times of the year). For those group members who attend and contribute regularly, the beginning of the year is just a continuation of what you have done in the past.

However, some of you have not attended your Industry Credit Group meetings in months (and for others years) and you may feel a bit embarrassed showing up. Others may not be in an Industry Credit Group at all.

As someone who has facilitated meetings longer than many of you have been alive, let me inform you that nothing could be further from the truth. Your contributions and attendance will be welcomed by all, whether it is at a meeting or joining a conference call. By including your trade data and credit knowledge, the other members have more information to make informed credit decisions. The real embarrassment would be you opening an account that the other group members have previously discussed and determined individually to be risky.

There are two ways to increase the value of an Industry Credit Group; bring in new members and bring back current members who have for whatever reason, have gone astray. Either way, EVERYONE WINS.

As we begin a new year, we ask you on behalf of the other members of your group, to commit to attending each meeting/call, to contribute daily through alerts, RFIs and monthly if your group has a report. Take your calendar and mark off the meeting days for the entire year so nothing else can be scheduled during that time period. Prepare the accounts you wish to discuss prior to the meeting and any topic you would like to bring up. Let’s make 2016 the Year of the Group.

Happy New Year!

CMA Chairman’s Blog: ‘Tis the Season for Giving Back: Why You Should Volunteer With CMA, by Michael W. Fenner, CBA

Michael Fenner, CMA Chairman of the Board of Directors
Michael Fenner, CMA Chairman of the Board of Directors

I hope everyone enjoyed their time away from the daily grind and that you were able to be with your family this Thanksgiving season. As I write this blog, I was thinking that we all like to give around the holidays, to our families, friends, the community etc. In 2007, Credit Management Association awarded me with a scholarship to attend the Western Region Credit Conference. I was very grateful for the opportunity as it really helped my career. And for that very reason I wanted to give back to CMA. Ironically, I ran into Michael Mitchell, CMA President and CEO at the airport after that conference and told him I wanted to “give back” to the association and the rest is history. I was nominated to the Board of Directors and I have served on the committees listed below to help make our association better for you.

I wanted to share a few bullet points today so you too can consider ways that you can give back and make your association a stronger, better organization for all of us. Please take a few minutes to read below and if you are interested in helping out just let me know. I would be happy to point you in the right direction. I appreciate your time and consideration.

  • CMA Board of Directors – The board meets five times a year and determines the policies and direction of the Association. The Board is responsible for monitoring progress towards the achievement of the strategic and operating objectives of the Association. This has been a very educational experience as you work with credit managers from different types of companies. It’s both challenging and rewarding as you go through the process.
  • Membership Committee – This team focuses on membership issues such as member benefits, acquisition and retention, as well as member engagement, and member categories. This group is interesting and stimulating, they help members understand the “value” of their memberships.
  • Professional Development – This is the committee that sets the direction of the educational courses, seminars and webinars that CMA offers. As an example, they work on the Spring and Fall CreditScape sessions that feature roundtable experiences taught by veteran credit professionals. These meetings are taught at an advanced and high level. Discussions include business issues, best practices and tips on valuable resources.
  • Honors and Awards Committee – This committee focuses on member recognition, with a primary responsibility of selecting members for CMA’s annual awards as well as nominating members for NACM’s National awards. There is nothing more gratifying than nominating your peers who have worked so hard in the industry.
  • Nominating Committee – This group selects nominees for the Treasurer and other Director positions available for election for the year. This committee assists in the review of candidates, through systems and checklists. Another opportunity to select outstanding peers in the credit community.

What can you do to help your credit association? Please reach out as we are always looking for talented people to be nominated and share their experiences through their leadership and volunteer work.

Please remember we need you to support “your” credit association when you can and as always “thank you” for your support. I encourage you to send in any ideas to improve your credit association. Let me know your thoughts. I’d love to hear your feedback. Thank you for taking time to read my blog.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

The Price is Right for Industry Credit Group Membership, by Larry Convoy

There’s a lot that’s bundled in the $99 a month Industry Credit Group dues that group members pay. But, for sake of argument, let’s pretend for a moment that CMA unbundled those items and that you had to pay for each of those benefits separately.

Many service providers, including CMA, have weighed the advantages of an unbundled price structure versus a bundled one; to charge for each item or service as opposed to a monthly fee. I have devised the following pricelist and an approximate cost for a typical month in most groups to see what that $99 a month really gets you.

INDUSTRY GROUP STATEMENT FOR COMPANY XYZ FOR OCTOBER, 2015

  • Received 10 RFIs in month @ $22.50(cost of average Experian or Dun & Bradstreet, most groups use double that amount)
  • 12 NSF check notifications @ $5 each
  • 4 placed for collection notices @$50 each
  • 1 change of owner announcement -NO CHARGE
  • 1 Chapter 7 bankruptcy alerts @ $500
  • 2 “business is closed” alerts @ $250 each
  • 1 mechanic’s lien filed @ $300
  • 4 clearances at group meeting @ $5 each
  • Educated by group member on various topics-PRICELESS
  • Recommendation NOT TO BUY computer system or software package by member-$10,000
  • Informed of new A/P contact at customer’s or owner’s cell phone #- NO CHARGE

This adds up to $11,805 for one month, considerably higher than the bundled price of $99/month now charged to most groups. This does not include a Past Due list or Meeting Review reports.

While I do not think this will ever become the standard, it does make you realize how cost effective participation in a group is. The more RFIs submitted and alerts posted, the Return on Investment becomes even greater.

With the holidays upon us, make sure you set aside time to attend the meetings and submit your reports. The survival of many businesses will be determined in the next 2 months.

Have a great November,

Larry Convoy

What creates the need for financing international growth, by Brent Hoots

Note: this is one in a series of international blogs to help credit managers learn how to assess risk in foreign countries and expand their potential customer base.

As a consultant, NaviTrade is approached by companies on a regular basis asking for our assistance in developing and implementing financing programs for their international business. Sometimes companies are frustrated about and even confused as to the need for financing. In fact, we often times see the need for foreign receivables financing as a natural outcome of successful international growth strategies that in part define a company headed in the right direction. To gain a better understanding of this issue, it’s productive to consider the many views of key management team members at typical small to medium-sized companies, including the following:

VP of International Sales – often times tasked with growing a business globally, a VP in this position may find several very attractive overseas markets. To succeed in these markets, the best strategies may require relationships with strategic partners in certain markets – often distributors – that can lead the company to successful market penetrations and substantial sales.

What does it take to make a relationship with an overseas distributor work? Many things, of course, including some level of understanding of the financing constraints facing the distributor. Overseas distributors are often thinly capitalized (i.e., they don’t have much money to work with!) and are looking for substantial open account terms to match their cash flow cycle. Distributor cash flow cycle means what? Let’s say the overseas distributor places an order with your company, it takes 30 days to receive the goods, they spend 30 days getting the product out into the market, then they get paid by the retailer 30 days after that – we would call this a 90 day “distributor cash flow cycle” from the point of view of the U.S. company. But wait! Isn’t the 90 day distributor cash flow cycle the distributor’s problem – not ours?! Right?! No – this is very much the U.S. company’s problem too!

If this topic is of interest to you, I invite you to join me for a free 45-minute Webinar on December 2 at 9am PST to delve deeper into this issue, take a further look at the views of the Credit Manager, CFO, and CEO, and investigate how this all relates to and where we ultimately find a financing solution!

Brent Hoots is president of NaviTrade Structured Finance LLC (NaviTrade), a financial advisory and brokerage firm that specializes in helping U.S. and overseas companies and financial institutions finance international transactions, better manage overseas risks and marketing related issues, and achieve their global potential. He can be reached at (720) 841-6371 or by email at bhoots@navitrade.com.

A Comparison of Credit Risk Mitigation Tools, by Buddy Baker

Note: this is one in a series of international blogs to help credit managers learn how to assess risk in foreign countries and expand their potential customer base.

Most CMA members don’t know me. I don’t make it to many CMA activities because I live in Chicago. But about a year ago, I joined CMA as a vendor member who provides credit-related services to CMA members.

I’d like to invite you to a short webinar I’ll be conducting on December 3. I think you’ll find the information to be useful and maybe even compelling. The webinar will be a review of multiple techniques for managing credit risk. Maybe you are familiar with all of them but never compared them side by side. I’ve attached a chart that should give you an idea of what I’ll be talking about.

You can sign up for the webinar here. http://www.anscers.com/upcomingevents.aspx?eventId=1840

Then, in January, I am planning to be in Los Angeles to conduct some classroom-style seminars on these techniques. If the webinar makes you decide you’d like to understand some of these techniques better or get some classroom practice at matching risks with risk-mitigation techniques, I hope you’ll come to one or more of these seminars. In addition to risk mitigation, one will be on structures for arranging financing for your domestic and international sales (much of which is built on the risk mitigation techniques). These seminars are not limited to CMA members, but CMA members will get a discount.

My objective is to provide education to Credit Managers. Information you can use. My experience-35 years of it-is as a banker and a credit insurer. I’m an expert in various techniques for managing credit risk and financing receivables, with particular expertise in export transactions. Please feel free to call me whenever you have a question about letters of credit or credit insurance or foreign exchange contracts.

And I look forward to getting to Los Angeles, and out of Chicago, in January.

Buddy Baker

Buddy Baker is president of Global Trade Risk Management Strategies, LLC, a consulting firm that specializes in providing education content to Credit Managers. Baker has 35 years of experience as a banker and a credit insurer, and is an expert in various techniques for managing credit risk and financing receivables, with particular expertise in export transactions. He can be reached at (847) 830-3038, or by email at buddy.baker@gtrisk.com.

How to Achieve Procurement from Using Foreign Trade Zones, by David Harlow

Note: this is one in a series of international blogs to help credit managers learn how to assess risk in foreign countries and expand their potential customer base.

A Foreign-Trade Zone is a secure, access-restricted, Customs & Border Protection privileged area in or near a U.S. port of entry where merchandise both foreign and domestic may be admitted, stored, exhibited, manipulated, temporarily removed, manufactured, or destroyed duty-free! Duties, certain user fees and taxes are only assessed on products that are transferred out of the FTZ and imported into the United States for consumption. Products that are transferred out of the FTZ and exported abroad are exempt from any duty, user fees or taxes

Benefits:
1. Duty Deferral – Duties are only paid when imported merchandise is entered into the U.S. Customs territory.

2. Duty Avoidance – There are no duties paid on merchandise that is exported from a FTZ, transferred to another zone or destroyed. This eliminates the need to manage costly and time-consuming Duty Drawback programs.

3. Weekly Entry – Customs allow for a weekly entry processing, which benefits importers because the Merchandise Processing Fees are capped at $485 on a weekly basis, versus per shipment basis.

4. Fee Deferral – Harbor Maintenance Fee is paid quarterly and in a single payment.

5. Enhanced Security – By using a FTZ, the “internal controls” requirements of section 404 of the Sarbanes-Oxley Act are met. Participants in the Customs Trade Partnership Against Terrorism (C-TPAT) program are eligible for additional benefits provided by Customs.

6. Expedited Logistics – relocating CHB to your facility and expedite the delivery to your facility without customs clearance. Potential savings is up to two days.

7. Ease of Paperwork – through automation of the FTZ, the paperwork submitted for receiving and the weekly entry program is greatly diminished with all parties and the processes for approval are expedited dramatically.

8. Manipulation – all manipulations are authorized and completed without physical Customs supervision. Goods are allowed to enter an FTZ and have the following manipulations: clean, repair, fix, improve in value, amend, exhibit, pick & pack, and many other functions.

If you’re interested in this topic, I encourage you to join me on December 1, 2015 for a free webinar on how you can use these trade zones to your company’s advantage. Register here: http://www.anscers.com/upcomingevents.aspx?eventId=1843

david harlow

David Harlow represents four of the nine Grantees in Southern California and assists regions, cities, and businesses with the implementation and oversight of the FTZ Program. Additionally, ITC provides services in eight different states while continuing to grow. ITC was founded in 2002 as an International Trade Consulting Firm and a second generation National Corporate Custom House Broker. ITC provides a unique blend of international trade related services to importers, exporters, manufacturers, distributors, public utilities, and local government, focusing on CBP and the Foreign Trade Zone. 

Fraud Tips – Don’t be a target this season, by Michael W. Fenner, CBA

Wow…it’s hard to believe the holidays are just around the corner. We all know this time of the year we need to be more vigilant in regard to protecting our assets. I wanted to take a few minutes and list some bullet points to think about so you can share with your teams. I don’t have all of the answers so feel free to share your experience as well. You know if we close any potential loop holes now we will save our companies some money and hopefully minimize any possible theft this holiday season. Let’s make sure we all review our credit policies with our team members today.

Below are some tips about accepting checks and or credit cards:

  • Know your customer. – Have you dealt with this person before? If not, it might be a sign.
  • Avoid taking credit card payments over the phone from customers you don’t know. – It’s hard to verify the identity of the person on the phone. Have them come in to verify them and swipe the card.
  • The customer won’t show their ID. – Call the company number on the check to verify the person, call the bank to see if the account is open or closed. Chances are something will come out of the additional questions you are asking.
  • Is the driver’s license preprinted on the check or prewritten on the check already? – Still take the time to review and verify the customer’s identification. They could be trying to slip one by you.
  • Is a rental truck picking up the material? – Notify your yard personnel to keep an eye out for customers loading material into rental trucks. This is a very common sign.
  • Are they not from your area? – Is there ID from San Diego but they are purchasing from you in Los Angeles? They may have a job in your area but keep an eye out for this one.
  • How is the customer acting, are they nervous? – Are they avoiding eye contact, are they acting suspicious, being pushy after a very simple request?
  • Does the e-mail address match up with the company name? – Double check to see if the e-mail address matches up with the information on the check and or credit card authorization form.
  • An out of the area phone number. – Do they have an area code that isn’t from your area. Take a second look and confirm.
  • If it doesn’t feel right it probably isn’t. – We all have that gut feeling at times. Have your teams contact your credit department if they are feeling uncomfortable.
  • Did I mention know your customer? – Always make sure you know who you are dealing with.

Fraud can hit us many different ways, but it always bites us. They are always persistent and unyielding and it doesn’t matter where you are from New York to California. At times they are highly organized and very sophisticated. And other times they are by themselves looking for an easy target. Don’t be an easy target. As always keep your eyes and ears open.

Thank you for taking a few minutes out of your busy schedule to read my blog.

Please remember we need you to support “your” credit association when you can and as always “thank you” for your support. I encourage you to send in any ideas to improve your credit association. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

President’s Blog: It’s Time to Start Thinking Globally, By Mike Mitchell, President & CEO

How can you play and get paid in the global marketplace? Over the last two years, CMA has been exploring how member companies can grow export sales using a variety of credit and trade finance resources to mitigate the risk of selling into other countries.

Today, I am attending Discover Global Markets, a two-day export conference hosted by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration (http://export.gov/discoverglobalmarkets). I am looking for information and insights I can bring back to the CMA membership.

In the meantime, we have many other resources that can help you sell into the global marketplace. CMA established a strategic alliance with the U.S. DOC’s Commercial Services because its trade professionals in over 100 U.S. cities and in more than 75 countries help U.S. companies get started in exporting or increase sales to new global markets (http://www.trade.gov/cs). Regional Director Richard Swanson recently participated in a panel discussion on international collections at CMA’s Fall CreditScape Summit, and he has provided CMA members with guidance on how to access U.S. government export resources in many other countries. You can also find all the basics at www.export.gov.

When you conduct international credit investigations, CMA recommends long-time partner Skyminder which offers reliable, up-to date information on millions of public and private companies worldwide. Details on how to find them are here.

CMA has three upcoming webinars before the end of the year that will give you more tools for exporting your products and securing your receivables.

  • December 1, 2015: How to Achieve Procurement Using Foreign Trade Zones (Free Webinar) 9:00 AM PST
  • December 2, 2015: Financing Foreign Receivables (Free Webinar) 9:00 AM PST
  • December 3, 2015: Comparison of Credit Risk Mitigation Tools (Free Webinar) 9:00 AM PST

Details on these can be found at http://www.anscers.com/upcomingevents.aspx

Is your company missing out on the other 95% of the world market? Stay tuned.

Outsourcing Your Order to Cash Functions: Eight Challenges to Consider, by Robert Shultz

This is part 2 of a 2-part series on Order to Cash functions. Part 1 of the series can be seen here.

Part 2

 Outsourcing is not easy. It requires planning and tight partnering between the provider and the client. To be successful critical challenges must be overcome. All the processes related to the outsourced functions must be considered and satisfied.  The quote to cash process must be managed holistically looking at performance measures and Service Level Agreements illustrating joint accountability for the desired outcomes. The impact on your customers should be positive.

Your company may be dependent on the provider’s technology.  Make sure it is robust and secure.  Your users and management should have complete transparency to day to day account management and performance results.  Integration of all documentation with easy access to materials for research, collections and legal purposes should be embedded in the provider’s process.

  1. Requires Significant Pre-Implementation Preparation

Prepare your company for changes with thorough up front planning.  By doing so, as a client you can expect to see the efficiency, support and the hoped for return on the outsource investment.

Prior to engaging an outsource provider it is essential to define the scope of the engagement, expected results and be comfortable with the anticipated return on investment.

This requires input and participation by all internal stakeholders affected by the new arrangement.

  • Metrics: Both parties must agree on specific Service Level Agreement (SLA) metrics. These will be incorporated into the outsource engagement agreement.
  • Communication plan: Require the outsource provider to report to and meet with internal clients routinely.
  • Pre-engagement due diligence: The provider must have a thorough understanding of the client’s policies, processes, customers, pre-engagement performance issues and trends, backlogs, systems, workflows. The due diligence should also include an assessment of the needs and capabilities of stakeholder functions outside the scope of the engagement where there are mutual concerns. Doing this is essential and will definitely keep the noise level down once the change is underway.
  • Provider’s staff and management: Understand the provider’s staff qualifications and management structure, tenure and turnover history.  Nothing is worse than handing over key functions to a third party, particularly in a remote location, when the individuals assigned the work are not trained, do not have the requisite experience and are not managed by someone with experience in a similar engagement.
  1. Potential Loss of Managerial Control

Whether you sign a contract to have another company replace an entire function or department or single task, you are turning the management and control of that function over to another company. It is imperative to set specific expectations for performance and transparancy at the outset of the engagement.  This is how a client manages the provider.

Identify the SLA’s that represent the service levels you are looking for.  Try to integrate linked functions with common targets.  There are lots of possibilities.  For example, Dispute reduction targets could link Sales, Customer Service and Credit.  Other departments like pricing or returns control could share a target for deduction reduction, resolution turnaround and deduction write offs.  Require constant monitoring and periodic reporting of results.

If the outsource provider beats expectations, build an incentive into the agreement, if expectations are missed assess a penalty until performance gets back on track.

Remember, at the end of the day both you and your outsource partner must find the relationship profitable.  A poorly planned implementation with few or inappropriate expectations is likely to be a financial loser for both parties and end poorly.

 

  1. Hidden Costs

Beware of hidden costs as you negotiate the outsource agreement.

  • Extra fees and charges may result from a request by the client not covered in the contract.
  • Consider legal fees and the cost of ongoing liaison and communication with the outsource provider in determining your real costs.
  • Regardless how effective and efficient an outsource provider is, an internal dedicated resource is essential for day to day liaison. This individual will be responsible for coordination between the internal stakeholders, management and the outsource provider. Responsibilities should include: Coordinating inquiries from the outsource provider related to problem transactions, monitoring service level agreement metrics, reviewing performance reports and keeping management informed.

 

  1. Threat to Security and Confidentiality

Evaluate the outsourcing company carefully. Understand how they maintain data integrity and security. What is acceptable down time, recovery time, are they keeping redundant files in a safe location?  You contract should have a penalty clause for any breach in security or confidentiality. If your company is required to comply with Sarbanes Oxley confirm the provider is SAS compliant.

 

  1. Quality Problems

The outsourcing company is motivated by profit. There is nothing wrong with that but this is a key reason to set expectations upfront. As previously stated define SLA’s carefully. Make it financially painful for the provider to miss expectations. The real objective is to reduce provider errors and delays affecting your business. Require the provider to report shortfalls in expected results, the driving reasons and the action plan to get back to acceptable performance. Often the client finds their own internal operation is to blame. Use the provider’s feedback to fix the root cause internally.

Businesses grow, retract, enter new markets and face changing competitive landscapes.  Be comfortable before making a provider choice that the provider will be able to rapidly respond to changes in the business environment.

 

  1. Tied to the Financial Well-Being of the Provider

Since you will be turning over part of the operations of your business to another company, you will now be tied to the financial well-being of that company. Do a thorough risk assessment up front. Make sure you periodically review the outsourcer’s financial stability and standing in the marketplace.

 

  1. Employee Attitude and Morale

The word “outsourcing” can have negative connotations for your internal workforce, especially those left behind. Be sure your key individuals are part of the outsourcing engagement early in the process. They must be kept aware of the engagement’s scope and intent. Open and frequent communication is key.

 

  1. Compare the Service Level and ROI Between Outsourcing and Developing Internal Capability

Before deciding to outsource key functions take a look at what it would take to develop your own internal capability.

  • Is it cost effective to simply automate a process that is currently labor intensive?
  • Would process integration between departments reduce costly delays and exceptions?
  • If there were coherent measurements, performance tracking, accountability and reporting timeliness and transparency, would costs go down and customer service improve?
  • Lastly, what is the value of your company’s “intellectual equity”? By outsourcing entire functions with no one left internally with the knowledge and expertise needed to perform those functions, a client becomes increasingly dependent on the provider.  At some point it becomes an overwhelming and possibly an insurmountable task to bring the functions back in house.  No one is there capable of the handoff.

 

Bottom line, the grass is not always greener…..

 

Robert S. Shultz is a founding partner at Quote to Cash Solutions (Q2C) LLC, a consulting firm that focuses on delivering quality solutions that improve client revenue opportunities, cash flow, operational efficiency and customer retention and satisfaction and when needed, management and staff training. He can be reached at (805) 520-7880. For more information, visit Q2C’s website at www.quotetocash.com.

Outsourcing Your Order to Cash Functions, by Robert Shultz

This is part 1 of a 2-part series on this topic. Read part 2 here.
Part 1: Seven Advantages to Consider

Overview: Many companies consider outsourcing all or part of the order-to-cash process as a cost-effective alternative to retaining internal staff and infrastructure improvements. This is not a decision to be taken lightly. It requires a thorough evaluation of choices.

I like to look at the entire process from beginning to the end. Start with the development of a price and terms quote. Understand how the decision will impact all the steps leading to good funds sitting in your company’s bank account. All the steps in between are interconnected. In short you have to consider the quote to cash process in total. Ensure all the stakeholders are working in concert to provide your company with efficient support and your customers excellent service.

Any decision to outsource should consider the impact on all elements of the quote-to-cash process. The project leader must take in to account how the decision affects the other stakeholders involved. Senior management, sales, customer service, operations, project management, etc. all either feed into the affected processes or are impacted by the performance results. To ensure success, involve these other stakeholders from the beginning. Their perspective and involvement is critical. Remember, customer service considerations should take a priority seat.

There are numerous factors you need to consider when deciding if outsourcing or improvement of internal operations through automation is best for your company. You will notice many of the decision factors go beyond just the potential money savings.

When done for the right reasons and in the right way, outsourcing can, in fact, help your company grow and save money. Just make sure the decision is deliberate and well thought out.

Advantages:

1. Focus On Core Activities
In periods of rapid growth or, as with many companies in recent years, a reduction in business activity, back-office operations must expand or contract as the business changes. If the back office does not keep pace with the business activity, it can consume resources (human and financial) at the expense of the core activities that have made your company successful. Outsourcing functions like order entry, credit control, collections, dispute management and cash administration can provide opportunity. Remaining internal resources can be refocused onto priority business activities without sacrificing quality or service in the back office.

2. Cost And Efficiency Savings
Back-office functions may be complex and require a level of sophistication in both human and system resources. As your company grows and internal operations expand, management may be faced with a choice: make sizable investments to keep up with the growth, or find a third party capable of taking the hand off. Without the needed improvements, the company may not be able to perform at an acceptable level of accuracy or speed at a consistent and reasonable cost.

3. Potential to Reduce Overhead
Overhead costs can easily run higher than expected. If functions can be moved to an alternative location or partnered with an automation provider, there will be a significant cost savings realized on total overhead.

4. Operational Control
Operations that have costs are running out of control are prime candidates for outsourcing. There is often a lack of compliance control, fuzzy objectives and performance tracking in accounts receivable departments at many organizations, and these are situations where an outsource provider may bring more up-to-date and effective skills than are currently available within the struggling company’s staffing budget.

5. Staffing Flexibility
Outsourcing will allow operations that have seasonal, cyclical or special project demands to bring in additional resources when needed. Excess staff can be released when the need diminishes.

6. Continuity & Risk Management
Periods of high employee turnover can add uncertainty and inconsistency to any operation. Outsourcing Q2C functions may provide the continuity needed to reduce the risk of substandard performance.

7. Dedication of Internal Staff to “High Priority” Core Functions
Critical strategic customers need to be adequately supported. Outsourcing low priority functions and, at the same time, lowering cost will enable highly skilled internal staffers to focus on critical priorities and major accounts.

In Part 2 of this series (which will be posted tomorrow), we will examine preparing for an outsource engagement and the challenges outsourcing Q2C can present. You will learn which factors to consider in weighing an internal vs. an outsourced Q2C solution.

Robert S. Shultz is a founding partner at Quote to Cash Solutions (Q2C) LLC, a consulting firm that focuses on delivering quality solutions that improve client revenue opportunities, cash flow, operational efficiency and customer retention and satisfaction and when needed, management and staff training. He can be reached at (805) 520-7880. For more information, visit Q2C’s website at www.quotetocash.com.

President’s Blog: 2016: What’s in your budget?, by Mike Mitchell

All too often our members tell us that they want to take advantage of benefits offered by CMA, but they are not in the budget. For companies on a calendar fiscal year, here’s your opportunity to begin thinking about those budgetworthy benefits for 2016. Even if your next fiscal year extends well into 2016, it’s never too early to start your wish list.

Above all, budget for CMA membership and if your company participates in a credit group, include group membership ($1665 total). Credit groups are still one of the best ways to maximize the value of your CMA membership because the unique combination of industry trade data, insider knowledge about common customers, and industry best practices often pays for your membership fees many times over in helping you grow revenue, reduce bad debt losses, and saves you valuable time in conducting due diligence. One of CMA’s newest groups focuses on developing processes to help the credit department evaluate supplier risk. If your company faces significant exposure from the risk of critical suppliers failing to perform on time (or at all if they go out of business), consider budgeting for membership in the Supplier Risk Credit Group ($1200).

CMA has already scheduled the next CreditScape Summit for March 24-25, 2016, and will soon schedule the Fall 2016 CreditScape, so be thinking about adding one or both events to your budget (CMA members pay $499 per person per event). CreditScape is a unique event focusing on process improvement for the credit department, providing the tools to allow you to act more proactively.

CMA will offer NACM Certification Courses for the CBA and CBF Designations starting in January. These will be offered once a year only, unless there is sufficient participation for additional classes, so if you plan to get certified in 2016 or early 2017, plan to register for the Certification Courses now and budget accordingly ($3000 for all courses per designation per person). Information for all professional development events can be found on CMA’s website and on anscers.com on the Education tab.

Before you budget for your credit information, consider whether you are getting the best value for your budget. Let CMA help you analyze your current credit reporting products– we might be able to save you money by suggesting a more cost-effective reporting strategy (pricing varies by report volume). CMA’s anscersX multi-bureau report combines proprietary scores and data elements from all three major credit bureaus (Dun & Bradstreet, Experian, Equifax) to give you a comprehensive look at the payment history of your customer or prospect ($65 (or less) per report). Budget for some anscersX reports to supplement your existing credit reports.

If you are a construction supplier, consider how using CMA’s Forms Filing Service can save you time and money. With services ranging from preliminary notices to lien warning notices, mechanics liens, bond claims and stop notices, CMA’s Form Filing Services often provide the lowest pricing and best service in the marketplace. You might also be interested in CMA’s new Construction Credit Report, providing title data, public record data, active trade lines, credit analysis and scores, collection agency activity and links to state contractor information, the only all-inclusive report of its type, at $29.95 per report.

Finally, CMA’s collections partner, AG Adjustments, offers third-party collection services at competitive rates on a contingency basis.

We hope this list is helpful as you consider your needs for 2016.

Save the Date: Credit Management Association Announces CreditScape Spring Summit and Annual Meeting

— Expanded Two-Day Education Summit will be held March 24-25, 2016 in Newport Beach–

On the heels of its successful inaugural CreditScape Fall Summit in Las Vegas, Credit Management Association (CMA) has announced plans for an expanded Annual Meeting, which will include two days of focused credit management best practices training and workshops to help increase cash flow while reducing your company’s overall risk.

The CreditScape Spring Summit and Annual Meeting, March 24-25, 2016 at The Island hotel in Newport Beach, will feature two days of workshop training, expert practical and legal advice, and networking with other credit professionals.

“The Fall CreditScape event was born out of feedback from members who asked us for help with their collections processes. Survey results from the recent Fall event show that members appreciated learning from subject matter experts and seasoned credit professionals who shared their experiences through panel discussions and interactive workshops. We plan to take that feedback and build an even better program for the Spring,” said CMA President and CEO Mike Mitchell.

“CMA members are always looking for better ways to manage and maximize recovery of their receivables. We are weighing several options for the overall theme of the event, which the educational content will focus around,” Mitchell added. “And as we did in the Fall, we will incorporate the latest techniques in content delivery for adult learners to create a thought-provoking and practical meeting experience that produces valuable take-aways and sustained value for participants and their credit departments.”

Credit Management Association is currently developing the programming for the event, which is designed to propose best practices and methods to help companies increase their cash flow and reduce losses from their customers. Details about the program will be announced later this Fall.

In addition to the increased educational offerings at CreditScape, the event will also recognize the CMA Mentor of the Year, Student of the Year and Credit Executive of the Year.

The event will be preceded by the Credit Executive Symposium on March 23 at The Island Hotel. The one-day event for senior credit executives of national and global companies, offers facilitated discussions and workshops on the high-level and trending topics in credit management.

CreditScape Summits are offered in the Fall and in the Spring, focusing on different aspects of the Credit Management landscape. It is one in a series of in-person educational opportunities offered by Credit Management Association. To learn more about the other sessions and topics, visit www.creditmanagementassociation.org/events or call 800-541-2622.

The power of “WE” (not just “ME”) submitting your company’s full A/R, by Michael W. Fenner, CBA

Submitting your company’s full A/R has been talked about quite a bit this summer. There is a reason for that…it’s important. I wanted to take a minute to point out the value and personally ask for your support in this request. You know, the more companies that contribute, the more people that will benefit. If you contribute, your company will have an advantage. Besides, with today’s web-based technology, it’s very simple, fast, and secure to do. Let’s all support Credit Management Association and contribute our full A/R’s so we can all make better business decisions.

Below are a few bullet points as to the value of submitting your full A/R:

  • Reference Information – Trade experience will be available to you right away. No need to wait for faxes any longer.
  • Supports NACM and CMA – This contribution will support the National Trade Credit Report (NTCR) as well as members at Credit Management Association.
  • Easy to Contribute – Most of us already submit to our Industry Trade Groups. You can use the same format such as Excel to contribute your full A/R and send it right off to CMA.
  • Informed Decisions – You will be able to approve credit applications in a timely manner with current up-to-date information. This will also help you with updating accounts, when those big orders come in at the 11 hour. This happens to all of us.
  • Supports Well Established Customers – Members will be able to support their good paying customers and everyone will know who is consistently paying on time.
  • No Need to Respond to RFI or Group Lists – This will save time and money as contributors’ information will automatically be added to the Anscers database. This is a nice feature. Additionally, this will also strengthen your Industry Credit Group.
  • Reports Delinquent Customers – Members will know who isn’t paying regularly month in and month out.
  • CMA President Mike Mitchell has offered an incentive – Beginning October 1, members who support the NTCR program with their monthly accounts receivable contributions will get 25 free NTCR reports annually and receive a discounted price of $9.95 per report over and above those 25 free reports. To get complete details please go here.

And, as always, Credit Management Association is here for YOU! Make sure you talk to your leaders to see if you can take advantage of this benefit. You can’t go wrong. Thank you for taking a few minutes out of your busy schedule to read this blog.

Please remember we need you to support “your” credit association when you can and as always “thank you” for your support. I encourage you to send in any ideas to improve your credit association. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

10 Negotiating Tips You Need To Know, by Robert S. Shultz

Negotiation is not a contest to see who can prevail. It is the “art” of getting to the point where two parties can agree on critical concerns. It encompasses employing core negotiation principles, the use of applicable strategies addressing the situation, focus on specific objectives, having a fallback position and, if all else fails, knowing when to walk.

Following are 10 considerations creditors can use to improve negotiation results. This is not complete list by any means. However, these points are critical for a successful negotiation outcome.

1. Don’t alienate the other party: In an effective negotiation, both sides must have the desire to reach a conclusion without alienating the other side. In the end, both sides should be satisfied with the result. If your counterpart seems unwilling to reach a desirable outcome, find points that will gain support and acceptance. Effective negotiation requires knowing how to satisfy a customer’s needs and amicably resolve differences. By being skilled in negotiating you will be able to collect more dollars, improve overall performance, and improve customer satisfaction.

2. Practice effective communication: Successful negotiation involves effective communication between the parties. To eliminate communications roadblocks, consider the following:
• Listen first. Pick up on what is said to clarify or modify your position.
• Find a basis for common understanding.
• Clearly state your case and what you want.
• Recognize the style of the other side and communicate in a fashion they can relate to. Don’t be intimidated or overwhelmed by aggressive behavior coming from the other side. Keep focused on your objectives and remain calm. If things become unprofessional with no change of behavior in sight, be prepared to walk.
• Deal with the decision maker. Invest your time with someone who can make a decision.
• Ask probing questions that cannot be answered with a “Yes” or a “No” and make the other side explain the answer.

3. Avoid elevating issues into a conflict:
• Find common ground: Both parties should have a strong understanding of one another’s needs.
• Break down issues into manageable/understandable pieces: Sometimes an impasse can be avoided by breaking the issues down. Start with what you can agree on. Attack the easiest issues first. You may find when the easy issues are resolved most, if not all, of the big issues have evaporated.
• Build a track record of trust: Once you have agreed on issues where some give and take was possible, a trust develops between the parties

4. Practice the “Four C’s” of negotiating: These points describe an approach. Not everyone you come up against will use this approach.
• Caring: Be sincere. Listen to the other party and be interested in their issues.
• Calm: This is a tactic that will encourage the other side to state their position and objections without undo emotion. When they are excited and you are calm, it tends to bring them down.
• Clear: Confirm the other party heard you and clearly understands your position. To avoid misunderstanding, restate what you hear. Repeat what is said and keep repeating until you get it right. It may take several tries.
• Comprehensive: Prepare yourself as best you can under the circumstances, time constraints and information available. Think about: Possible “What Ifs” and “What Nots.”

5. Prepare yourself in advance of a negotiation:
• Do your homework and learn everything you can about the other side. Try to understand their motives and objectives. Determine what you want to accomplish. In face-to-face meetings, have an agenda handout or an executive summary.
• When the negotiation starts, have all the necessary documentation in front of you. Have a plan for your initial position and your final position.
• Have a primary and secondary goal: A primary goal is a necessary outcome. A secondary goal is what you can accept and still meet your company’s needs.

6. Understand your “Best Alternative to a Negotiated Agreement” (BATNA): This is the course of action you will take if the current negotiations fail and an agreement cannot be reached. This is different than your “walk away” point. Very often if a win-win cannot be achieved, going for a “no deal” could be the best answer. You can’t win every time. There may be business factors that override a negotiated settlement if one cannot be reached.

7. Define the negotiation scope and approach: This will depend on several factors, each of which must be considered as you enter any negotiation with a customer.
• What are the key issues or obstacles that need to be addressed? Is it payment? Does the other party need additional information to meet your request?
• What are your restrictions? (Time, costs, etc.) Are you up against a deadline?
• Is this a major issue or a priority for your company? Should you spend a little or a lot of time dealing with this?
• Can you trade on an issue that you feel has limited importance to win on a major one?

8. Know who you will be negotiating with: What is their negotiating style? Determine how you expect them to approach a negotiation? Work to establish a rapport at the outset of the negotiation. Separate people from the problem. Remember, negotiators are people first. In most supplier/customer negotiations, the negotiator has two basic interests: The issues at hand, and a desire for a continuing relationship between the parties.

9. Understand the business and future relationship potential: Is this customer of strategic importance to your company? Review your company’s historical relationship with this customer. Is the issue at hand an anomaly, or is it a repetitive issue? What is the revenue and profit potential in the future? Is the relationship worth saving?

10. Be culturally sensitive:
• Don’t Apply the Golden Rule: “Do unto others as you would have them do unto you.” Use the “Platinum Rule” – “Do unto others as they would have done unto themselves.”
• Understand what is offensive: You might be comfortable looking someone straight in the eye, introducing yourself with a firm handshake, being direct and open and getting right to business. Other cultures encourage other behaviors.
• Be sensitive to the appropriate sequence of business and negotiation: It is not appropriate in some cultures to first do business and then develop a relationship. You are expected to develop a relationship and then do business. You need to understand what goes first.
• Understand the “real” message: Cultures vary in the way they communicate their message. You must be sensitive to these differences to understand what they are telling you and react effectively.

Effective negotiation is truly a combination of art and science. It takes planning and effort to reach a result acceptable to both parties. In doing so, business between the parties can continue. As a supplier, you can collect more cash and keep more customers.

Robert S. Shultz is a founding partner at Quote to Cash Solutions (Q2C) LLC, a consulting firm that focuses on delivering quality solutions that improve client revenue opportunities, cash flow, operational efficiency and customer retention and satisfaction and when needed, management and staff training. He can be reached at (805) 520-7880. For more information, visit Q2C’s website at www.quotetocash.com.

Suppliers Accepting Credit Card-Present Payments Take Heed To Adopt New Technology By October 1, 2015 Or Bear Risk Of Fraud Loss, By Scott Blakeley

The Wall Street Journal reports that credit card use in the B2B space continues to increase as a preferred payment channel for customers. Suppliers accepting cards in the B2B space commonly receive payment through card not present forms, whether through payment portal, email, fax or over the phone. For those suppliers that accept cards in the cardholder’s presence, card issuers are changing card acceptance rules to give cardholders greater protections from identity theft.

“Chip and pin” or “smart cards” are credit or debit cards that store data on integrated circuits rather than on traditional magnetic stripes. The transition to “chip and pin” or “smart card” technology is now largely underway in the United States. The transition is being assisted by the shift in liability for card-present fraud that will be implemented on October 1, 2015.

Currently, if an in-store transaction is conducted using a card obtained fraudulently, cardholder losses from that transaction lie with the payment processor or issuing bank. From October onwards, that liability will shift to the supplier that has not changed its system to accept chip technology. If a customer uses a chip card, the failure to update the card reader may permit a counterfeit card to be successfully used. In that scenario, the supplier will bear the cost of the fraud. Again, the supplier will only be responsible for the cost of the fraud if the fraudulent transaction is a card-present transaction.

The major benefit of using a “chip and pin” payment card, and what compelled the US to migrate its cardholders to the new generation of cards, is improved security and fraud reduction. Whereas magnetic stripe card transactions rely on the holder’s signature and visual inspection of the card, the use of a PIN and cryptographic algorithms provide authentication of the card to the processing terminal and the card issuer’s host system.

The identity of the cardholder is confirmed by requiring the entry of a personal identification number (PIN) rather than signing a paper receipt. Unlike magnetic-stripe cards, every time a smart card is used for payment, the card chip creates a unique transaction code that cannot be used again. This eliminates the possibility of card duplication fraud as the transaction code becomes obsolete and cannot be used in further transactions.

While much of the rest of the world has already been using “chip and pin” cards for several years, the US is now committing to migrate its credit card use to this more secure format. There is a historical viewpoint regarding the reason for this delay by the US in updating its credit card technology standards. In the past, fraud was much more prominent in markets outside of the US. What has happened, especially over the course of the past few years, is that since other markets have migrated to “chip and pin” cards and become more secure, fraudsters have moved their focus to the US market. Essentially, they came to the US market because they were looking for less secure networks from which to steal fraudulent credit card information.

For suppliers in card-present transactions, the switch to this technology means adding new in-store technology and internal processing systems, and complying with new liability rules. For cardholders, it means activating new cards and learning new payment processes. And for the supplier and cardholder, it means a more secure form of payment by credit card, and fewer opportunities for fraud to occur. As the credit team is responsible for managing risk, including risk of fraud with payment channels, the credit team must prioritize compliance with this new technology within the organization for card-present transactions.
Scott Blakeley is a principal with Blakeley LLP, where he practices creditors’ rights and bankruptcy. His e-mail is: seb@blakeleyllp.com.

What Credit & Collections Professionals Can Learn from Football Coaches, by Mark Wilson

With the NFL season officially underway, let’s take a moment to explore what Accounts Receivable departments can learn from coaches, especially when it comes to the season’s biggest game changer: analytics.

As a credit and collections professional, take a look at the metrics you’re currently tracking. Throughout my years as a consultative resource for AR departments, I’ve found that most companies spend most of their time focusing on DSO and maybe how much they wrote off as uncollectible. Don’t get me wrong, tracking how fast you get paid is important. If collecting money was a game, DSO would be the score. But if that’s all you’re measuring, you’re not properly leading your team.

Let’s think about this from the perspective of a football coach. When evaluating a team’s performance, coaches look at many other stats beyond the final score. Tracking things like rushing yards, turnovers, quarterback ratings, third-down efficiency, help identify areas that need to be improved upon as well as potential opportunities. All of these ultimately feed into the final score and the overall success of the season.

Within accounts receivable, we need to go beyond DSO. Tracking underlying metrics allows companies to evaluate individual performance, uncover potential process improvements, gain valuable insights, and of course leads to an improvement in DSO.

If you’re interested in diving deeper to improve your team’s performance but are unsure of what metrics to track, this AR Analytics Playbook can provide some insight on six simple, yet effective metrics that every financial executive should be tracking. By leveraging these metrics, your company is guaranteed to improve customer relations, reduce administrative costs, and get paid faster.

I encourage you to learn more by downloading the AR Analytics Playbook today.

Mark Wilson, a former CFO, is the President of TermSync, a cloud-based accounts receivable software company owned by Esker, Inc.

We Saw it Coming, by Larry Convoy

Recently, one of my Industry Credit Groups experienced 3 bankruptcies in less than 48 hours. One of these was an East Coast account that only 2 members were selling with minimal exposure so their losses were small. The other 2 were long-established accounts.

Since I always preach that the 1st alert posted should never be the BK notice, I decided to do some research to see if my words had made an impact. Over the last 5 months, the following alerts were posted on one of the BK accounts:

1. 5 months ago: slowing, now 60-90, $32K past due
2. 4 months ago: customer states they are waiting for Bank Loan
3. 3.5 months ago: customer not returning calls, changed to cod
4. 2 months ago: placed for collection, have personnel guarantee
5. This week: company filed chapter 11,

The alerts must have worked because the anscers report over that period of time showed the other suppliers reacting to these postings and dramatically reducing their exposure.

Group members were given advanced warning on the second BK with postings such as a Mechanics Lien filed, shop account closed, contractor removed from job. Again, you could see the exposure trending down over that period as members reacted to the alerts.

Years ago, group members were mailed pink reports every 2 weeks listing the NSF checks and other pertinent news. It seemed efficient then. Today, the group can be notified in seconds of any problem with a customer.

The only flaw in the system is that members must be pro-active. Most groups have a small but dedicated group of individuals that seem to provide 90% of the alerts. To prevent losses, you need every member looking for opportunities to report a change in payment habits. Encourage your group to utilize this service.

Somewhere, there is an alert waiting to be posted that will save your company $$$$ and help you manage risk. Let’s be sure you see it.

Larry Convoy
Lead Group Facilitator

Does your credit department need a Tune-up? By Michael W. Fenner, CBA

As August winds down and your teams are returning from their summer vacations hopefully, things are returning back to normal. This may now give you the opportunity to review the services you currently use in your credit departments today.

As our vehicles need tune-ups so do our credit departments from time to time. As an example, are you taking advantage of your industry credit group (ICG)? Is there not a specific ICG for you and you would like to start one? Is your current collection agency “getting it done for you”? Do you have the need to file preliminary notices in your industry? Would you like to get started and or continue on with your professional credit certification? How about adding an additional credit report to your credit approval process? What can the business insolvency service do for you? Do you even know CMA offers payment services and deduction management? You may be looking for an association to do it all for you, replace an existing service and or supplement the current services you use today. Either way Credit Management Association is here for YOU!

Below is a quick look at what Credit Management Association has to offer:

  • Industry Credit Groups – With 60 current groups’ network and share factual information timely and get responses promptly with other group members so you can make educated decisions with your new accounts and or your current A/R.
  • Business Insolvency – Let CMA help your customers with other alternatives other than filing for bankruptcy with less publicity, cost and time.
  • AGA Collections – AGA offers nationwide service, reasonable rates, excellent communication and they collect the money too.
  • Business Credit Reports – They offer the AnscersX commercial report, NACM national trade report, as well as DNBi, Equifax and Experian. Additionally, they offer consumer reports and international reports as well.
  • Construction Forms Filing – Accurate and cost effective construction forms filing in all 50 states.
  • Education (Professional Development) – quite a few options from the CreditScape fall summit, online courses, live and recorded webinars, and the ability to get your Professional Credit Certification all in one place.
  • Payment Services – Through United TranzActions…check guarantee, ACH processing (including Canada), online bill pay, credit card merchant services, virtual lockbox and more.
  • Deduction Management – With IBA Solutions expertise they will be able to assist you with your deduction and A/R management.

Add the Anscers website to stay on top of all of your services and now have it all. You can’t go wrong. Please take a few minutes to logon to the CMA website to see all that is available to you http://creditmanagementassociation.org/ look under the services tab to get details for the bullet points above.

Please remember we need you to support “your” credit association when you can and as always “thank you” for your support and I encourage you to send in any ideas to improve your credit association. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

Do’s and Don’ts Guidelines of Responding to Credit Inquiries, by Michael Dennis

Michael Dennis
Michael Dennis

Creditors are frequently asked to provide credit references. Doing so correctly protects customer as well as the creditor. The following are some do’s and don’ts guidelines for the exchange of credit information:

  • Don’t share anything except factual information [data you can prove is correct]
  • Never ever discuss your future intentions, and don’t ask about the future intentions of anyone else
  • Don’t ask for advice about how to deal with a customer
  • Never offer advice of another creditor
  • Don’t discuss your terms of sale, or ask other creditors to discuss their terms of sale
  • Never reveal the source of credit information

These guidelines are for the protection of all creditors and should be adhered to at all times.  Are you compliant with these rules?  I welcome your comments.

Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 408-204-0129.

Obtaining Customer Social Security Numbers (a follow up), by Michael Dennis

In the upcoming meeting in September in Las Vegas, I plan to explore why, when and how attendees are using social security numbers they request on their credit applications. My assumption is they use Social Security Numbers (SSNs) to obtain consumer credit reports which become part of the decision process about extending credit B2B to entities such as sole proprietorships and partnerships. But that assumption could be wrong.

Along the same lines, I assume that every CMA member company that obtains SSNs knows about the overlapping state and federal laws that address the duties and obligations of companies that obtain SSNs from applicants. And maybe this assumption is inaccurate.

I also assume that if a creditor company obtains a SSN or a consumer credit report, that there are detailed written policies and procedures about how this information is going to be stored and safeguarded and ultimately destroyed.

In addition, I assume that CMA members understand their legal obligations relating to reporting unauthorized access to this type of information, and that members have budgeted or reserved for [or alternatively purchased some form of insurance to cover] the potentially massive costs associated with a data breach.

What assumptions do you take when asking for SSNs? Or even better, when you’re included as a trade reference, do you provide your personal number to the reporting agent? As always, I welcome your feedback.

Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 408-204-0129.

How Antitrust Laws Affect Your Credit Functions, by Michael C. Dennis

Penalties for violations of applicable federal or state antitrust laws can include fines, imprisonment, and liability for up to triple damages. How do antitrust laws affect day-to-day credit decision making and business activities? To what extent is pricing and payment terms subject to U.S. antitrust laws? Is it a violation of one or more antitrust laws to offer Customer A payment terms of Net 30 days and a direct competitor of Company A payment terms of Net 60 day? Are cash discounts an element of price? In other words, if we offer a 2% early payment discount to Company A, must we offer that same discount to its competitors?

It’s time to do a self quiz. I think the answer to one or more of these questions may surprise you. Did they? As always, I welcome your feedback.

Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 408-204-0129.

What to Do When You’ve Reviewed and Rejected a Request For Open Account Terms, by Michael C. Dennis

Let’s assume you have received and reviewed and rejected a request for open account terms from an applicant company. What would you do if that applicant called and demanded to know the specific reason for your decision? Would you:

  • Ignore the request, or
  • Might you offer a response such as this: “Your company does not meet our credit granting criteria”, or
  • Would you provide a more detailed explanation (and if so what information would you provide)

I think the answer is in part an internal policy issue, and in part a legal question based on relevant federal and state laws. I assume each of us has a process for handling this question from an angry applicant. I would be interested to know your process and your rationale for it.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 408-204-0129.

It’s a Wonderful Credit Group, by Larry Convoy

Some of you remember the great Jimmy Stewart movie, “It’s a Wonderful Life,” in which he envisions what life would have been like if he wasn’t born and its effect on his loved ones. At the conclusion, he is thrilled that it was only a dream and realized how good he actually had it.

Consider what your life would be if Industry Credit Groups did not exist and its effect on your company’s bottom line. You can put any music or special effect to signify that a dream sequence is next.

Without an Industry Credit Group, how would you know?

• If your new customer came to you because of your product and not because everyone else in the industry has taken him legal
• If there was changes in management or key personnel
• If they are ignoring phone calls from other suppliers or passing bad checks
• How high in dollars and far in days are they are extended with others in your industry
• Who controls the checkbook, or who to really contact for payment,
• Recommendations for software, service providers, legal experts
• If they filed BK, had liens placed, or worse, if they are GONE

You can relax. If you are a member of a credit group, you have access to all this information. You can enter alerts and respond to RFIs (or contribute your A/R). You can network with your peers and exchange the latest Best Practices. Hopefully, your management’s support allows attending the meeting/conference call a priority.

Relax, This was just a dream.

Larry Convoy
Credit Management Association
Lead Group Facilitator

Can the Credit Department Reduce (or Withdraw) Open Account Terms?, by Michael C. Dennis

In business-to-business credit granting, can the credit department withdraw or reduce open account terms at any time for any reason or for no reason? I think most people would say ‘Yes’. In my opinion, the answer is ‘Maybe’. For example:

  • You cannot reduce or withdraw open account terms if the decision to do so is based on factors including Race, Religion, Age, or Sexual Orientation.
  • You cannot reduce or eliminate open account terms if there is a law that prevents you from doing.

You might respond that this is not the case in the United States. Assuming that is true, my question is this: Are there laws limiting your right reduce the credit limit in the other countries in which you do business?

If you have a contract with a customer that limits or prevents you from taking unilateral action in connection with lowering the credit limit, then obviously the actions of the credit department in this regard are constrained.

What are your opinions of this subject? As always, I welcome your feedback.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 949-584-9685.

What a Collections Professional Should Know Before Picking Up the Phone, by Michael C. Dennis

Debt collections fall broadly into two categories: Consumer collections, and Commercial collections. Consumer collections involve collection activities between a business and a consumer. Consumer collections are highly regulated. These laws are intended to protect consumers from overly aggressive or deceptive practices used against inexperienced and unsophisticated consumers.

Commercial collection deals with debts owed by one business to another. Commercial collection is largely regulated. Why? Because it is assumed that businesses are sophisticated enough to understand their rights when dealing with a creditor.

The laws, rules and regulations governing credit and collection activities change dramatically based on whether the debtor is (a) a consumer or (b) a customer. In my opinion, the collector must have a thorough understanding of the regulations and laws governing debt collection activities before ever picking up the phone.
Are your activities in full compliance with state and local laws? If you sell internationally, are your collection efforts permissible or unlawful in the countries in which your company sells products? Do you know what laws govern your collection activities? I look forward to your comments.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 949-584-9685.

When To Place Your Collections With a Third-Party Agency,  By Sam Fensterstock

As a 25-year veteran of the Credit and Collections industry and now with a primary focus in third-party collections, one of the most frequent discussions I have recently had with both collection industry peers, clients and prospects is what is the appropriate third-party collection placement strategy for a B2B company?  What constitutes serious delinquency? How long after invoices go past due has the customer reached the “point of no return” and should be placed with an outside agency?  What is the optimal placement policy that ensures the highest possible recoveries?

In a typical credit and collection department, accounts are considered actionably delinquent somewhere between being 30 to 60 days past the due date. In the real world, if an account is a few days late, often your collectors are not going to hassle the customer too much for fear of upsetting your relationship with them. If you have implemented risk-based collections and are using an order-to-cash workflow solution you probably have strategies designed to auto-treat many of these customers.

However, at 30 days past due your collection strategy probably directs your collectors to call the customer and try to collect the receivable. But, most companies will not start really squeezing their accounts, until they are 45-60 days past due. At that time, depending on the organization of the credit and collection department and their resources, delinquent customers are likely to be turned over to the internal collection team who will begin to initiate recovery procedures.

Now let’s look at this from the viewpoint of a typical internal collector who is responsible for managing an account portfolio, all of which are in various stages of delinquency. The collector’s goal is to collect as much as they can and our experience says that accounts that are most current are the ones most likely to pay and will get the primary focus. As noted above, the older an account gets the lower the probability they are going to pay and as accounts age one of two things is going to happen, either they will eventually pay or they won’t. Accounts that don’t pay, as they age, will continue to become harder to collect and given your current collection environment will these severely delinquent customers continue to get the collection focus they need?

If you look at the percentage of a delinquent portfolio recovered by your collectors as a function of days past due, you will most likely see an extremely skewed distribution. When a delinquent customer is initially turned over to the internal collections team, the recoveries during the period until the accounts are 120 days past due will be material. Perhaps 50% of the initial value will be recovered. But, after 120 days almost nothing additional is likely to be collected. And the main reason for this is that given most companies collection resources, collectors are not actively working the older accounts, but focusing instead, on the more current accounts that are the easiest to collect. This practice means that the un-collected delinquent accounts will continue to age and a drag on your balance sheet.

Given this scenario happens so often, why do so many companies wait until an account is 180 days past due or even older before turning it over to a collection agency? It just doesn’t make any sense.

Take in mind that accounts turned over to a collection agency have first been handled by a company’s collection department usually for at least 90 to 120 days – unsuccessfully. But a good collection agency will eventually recover 30%-50% of those receivable.  Why? Because an agency is an expert in handling these types of accounts and they don’t cherry pick based on age or dollar amount, they work them all. That’s why you can expect the types of recovery % mentioned above even on accounts that have been turned over even at 210 days past due. However, if the accounts are turned over sooner say at 90 to 120 days past due, the collection rate may go even higher.  It a proven industry fact, holding on to delinquent receivables for too long will cost your company money.

As a participant at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas, I will address this topic in much more detail. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Sam Fensterstock is senior VP of Business Development for AG Adjustments. He will be participating in a panel discussion on Collections Compliance and Best Practices at the upcoming CreditScape Fall Summit, and can be reached at samf@agaltd.com.

Why It’s Worth Leaving the Office to Attend the CreditScape Fall Summit, by Michael W. Fenner, CBA

As we are all busy at our desks this summer with increased sales, dealing with coverage issues due to family summer vacations, etc., let’s take a minute to think about where we are all at with our current positions. Don’t we all want to stay up-to-date with the latest best practices in collections? Or maybe you have a new employee just starting out in credit who needs to learn the collection basics. How about that one person in your department that’s been around for awhile and needs to brush up on their skills. I might suggest that you and your credit team take advantage of attending the CreditScape Fall Summit, hosted by AG Adjustments and Credit Management Association.

This is something new and different this year. Let’s take a look at some of the items that stood out to me:

  • All Levels of Expertise Welcome – Good for beginners to experts in your department.
  • Roundtable Experience – This will not be a classroom setup as usual; it will be a roundtable interactive workshop (with limited participants) so you all can look each other in the eye and share valuable insights.
  • Focusing on Collections – This Summit will be all about collections. techniques, third-party processes, best practices, fraud prevention, collection results, strategies, international collections to name a few.
  • Convenient Location – This will be at the Tropicana Hotel in Las Vegas, well priced to save on flight and hotel costs.

The event information is as follows:

Date: September 17-18 2015 (from 10:30 am Thursday through 2:00 pm Friday afternoon)…Location: Tropicana Hotel 3801 South Las Vegas Blvd. Las Vegas NV 89109 (discount rates available)…Cost: $495 for CMA members and $595 for non-members… To register go to www.creditscapeconference.com

We all know how it is important to stay up-to-date with our education. And finding the time to go to these events can be hard too. Invest in your team, and challenge them to improve and grow. This program will be packed with information and has many excellent speakers too. I would highly recommend it.

Please take a few minutes to read through the program highlights to answer all of your questions.

Make sure you encourage your teams, support CMA your association, and network with old friends and make some new ones too. Team up with your colleagues and learn together. Then bring back your experiences to incorporate into your jobs. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

The Advantages (and Disadvantages) of Accepting Credit Card Payments, by Scott Blakeley, Esq.

Customers in the B2B space are increasingly using credit cards to pay supplier invoices. The upside for the cardholder and paying customer is the 30 extra days to pay the cardholder statement that includes the supplier’s invoice. Cards also reduce paperwork and allow the customer to eliminate the time and cost of processing A/P checks. The upside for suppliers is that payment by credit card means near immediate remittance, reduced credit approval and collection activities, reduced credit and bankruptcy risk, and new sales channels (attracting customers who otherwise may not qualify for terms). Further, by accepting cards only when the order is placed, the supplier also enjoys increased cash flow, improved DSO and reduced A/R.

Still, there are complications involved with accepting credit cards in the B2B space. One area where suppliers may have particular legal questions surrounding their policy concerning credit cards is in collections, particularly in suppliers using credit cards as a collection strategy on past-due accounts.

As a speaker at the upcoming CreditScape Fall Summit in Las Vegas, I will address the use of credit cards as a supplier collection strategy in scenarios where the customer has failed to pay. I will cover the rules of the supplier accepting credit card payments on past due invoices from a customer who cannot pay. The discussion will also include the possibility of a surcharge rollout, and the legal issues associated with surcharging the credit card using customer, including how handle the 2-4% interchange fee that credit card companies charge their customers.

Join me as we cover this topic in much more detail at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.
Scott Blakeley, Esq., is founder of Blakeley LLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He will be speaking at the upcoming CreditScape Fall Summit, and can be reached at seb@blakeleyllp.com.

To Cash or Not to Cash? How to Handle “Payment-in-Full” Checks, by Christopher Eric Ng, Esq.

What should you do when you receive a check from a customer for an amount less than your total claim, but the check is marked with a “payment in full” or similar restrictive notation? Should you return the check to the debtor? Or can you simply cross out the “payment in full” language, deposit the check and pursue the unpaid balance? And what if you use a lockbox to handle the numerous checks you receive and those checks are deposited before you see them?

The answer to this question depends on what state law applies to your customer’s account. In the vast majority of states, if you are not willing to accept the amount of a “payment in full” check, the only safe action is to return the unnegotiated check. If you have accidentally negotiated a restricted check, many state laws give you a period of time (e.g., 90 days) to return the funds to the debtor to avoid an “accord and satisfaction” (the acceptance of a certain sum as payment for the entire disputed amount) of the claim. Finally, even if you have negotiated a “payment in full” check, you may be able to avoid waiving your right to pursue the balance if the debt was undisputed, or if the debtor did not act in good faith.

Creditors that want to expansively address the problem of inadvertently accepting “payments in full,” resulting in an unintended accord and satisfaction, can create and conspicuously designate a “debt dispute office” in credit agreements and invoices to customers. If such a debt dispute office procedure is appropriately implemented, an accord and satisfaction will not be established unless a person who is charged with the responsibility of dealing with such issues makes a knowing, affirmative decision to accept the partial payment. If such a procedure is not established, creditors should implement an alternative process to identify all partial payments made by a customer that could result in an inadvertent accord and satisfaction within 90 days from the date payment is received.

It goes without saying that it is imperative that you understand the applicable state law, consider including a favorable governing law provision in your credit and sales agreements and consult with an experienced commercial attorney regarding your particular situation. If this topic has piqued your interest and you want more information, please read Christopher Ng’s complete LinkedIn blog post at https://www.linkedin.com/pulse/cash-cashhow-handle-payment-full-check-christopher-ng?

Join me as we cover this topic in much more detail at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Christopher Eric Ng, Esq. is a Partner of Gibbs Giden, Los Angeles, CA, and will be speaking at the upcoming CreditScape Fall Summit. He can be reached at cng@gibbsgiden.com.

International Business — How Understanding Culture Will Help You Get Paid, by Eddy Sumar

When someone signs a contract to do business with your company, you allow them to do so with the expectation that they will pay you. In the U.S., there are laws that help protect your assets to ensure that the contract is enforceable, but what happens when you’re dealing with foreign nations? Are there resources (like the government) that can help when your customer doesn’t pay?

In this global economy, there are ingredients to succeeding in getting paid internationally. One of the key factors that I always recommend to my clients is to make sure you understand the culture of any company you’re selling to overseas. For instance, there are many cultures that have a strong family element to them. In some of those cultures, it is probable that the person who answers the phone is a daughter/son/spouse of the company owner. If that person has a negative experience with you (even if it’s perceived), you may never get to talk to the owner to enforce your contract and get paid.

There are plenty of other resources that can help as well. Join me as we cover this topic in detail at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Eddy A. Sumar is the President & Founder of ERS Consulting Services. He is also the director of education and community outreach for CMA, and will be speaking at the upcoming CreditScape Fall Summit. He can be reached at 909-481-9869 or ealberto@aol.com.

Using Predictive Analysis to Create Collection Management Strategies, by Christopher Rios

Traditionally, debt collection involved little more than picking up the phone and convincing the debtor why they need to pay for the products/services sooner rather than later. Today, credit and collection professionals are being asked to adopt more sophisticated techniques. One of the newer techniques utilizes predictive analytics to create collection management strategies. Predictive analytics permits creditors to identify at-risk A/R and focuses collection efforts on those customers with the greatest propensity for paying slow. This combination of historical AR data and predictive attributes will allow creditor companies to review and optimize their resource allocation, provide improved customer service, and to accelerate cash inflows. By doing so, creditor companies potentially reduce unnecessary costs across the credit to cash cycle and accelerate payments from high risk customers.

Inevitably, even the best collection strategies fall short at times. An organization’s fail-safe shouldn’t be to write off uncollectible receivables against its bad debt provision and move on. What is sometimes overlooked is the need for and the benefit of having a robust third party process for dealing with debtors that cannot or will not pay. Third party strategies should include bankruptcy administration, pre-litigation, litigation and mediation strategies.

Establishing a solid process that provides prescriptive treatment for dealing with non-paying, financially distressed customers will help creditor companies maximize the benefits of the third party services being provided. Ensuring you’re maximizing your return on investment and increasing the chances of recovering unpaid accounts receivable are two benefits of partnering with the right service provider.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas as I lead the discussion on creating a robust third-party collections process. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Christopher Rios is the Group Leader – Finance Operations for Dun & Bradstreet. He will be speaking at the CreditScape Fall Summit, September 17-18, at the Tropicana in Las Vegas.

Phone Power: “The Psychological Advantage” to Improved Collections, by Bart Frankel

In my 20+ year career as a collector, I’ve learned that there are psychological advantages you have collecting your past dues that can separate you from the hundreds of other collectors trying to collect money from a delinquent account. From experience, I’ve developed a six-step process to improve my own collection techniques that does not follow the conventional thinking on collection but allows for “out of the box thinking” and is relevant for all levels of collectors covering from the “rookie collector” to a top collection expert.

Some of those steps involves a “partnership” with a delinquent account to eventually having them paying on time. Through this partnership/six step process, for example, (1) I never ask for money. I make my collection statement and wait for an open-ended statement from the delinquent account. (2) I also ensure professional office conduct before, during and after making the collection phone call.

I’ll be one of the speakers at the upcoming CreditScape Fall Summit, September 17-18, 2015 at the Tropicana in Las Vegas, where I’ll be discussing the full six-step process that has worked for me, and for dozens of other credit managers who I’ve shown the method to.

If you have any question please contact me at 860 668 2297 EST or email me at bnfrankel@cox.net

I look forward to meeting you in Las Vegas.

Bart Frankel, who was Manager of Financial Service for the Pratt & Whitney Division of United Technologies for over 20 years, has been responsible for a $7 billion Order-to-Cash process. He will be speaking at the CreditScape Fall Summit, September 17-18, 2015 at the Tropicana in Las Vegas. For more information on the event, visit www.creditscapeconference.com

Can Anyone’s Signature Make a Credit Application Enforceable?, by Michael C. Dennis

Can anyone sign a contract? Most people agree the answer to this question is No. For example, most people acknowledge that a Minor [someone under 18] cannot sign a valid, enforceable contract. So… who can sign a valid, enforceable contract on behalf of a customer? More specifically, who can sign a valid credit application on behalf of a business?

There are several requirements for creating a valid legal contract. One of the most important to credit professionals involves the idea of contractual authority. To be enforceable, the person signing the credit application must have authority to do so. What constitutes authority to do so? This question can be answered this way: Credit professionals often need to rely on the concept of ‘apparent authority.’ Why? Because creditors don’t know who has actual authority to sign the credit application on behalf of the applicant.

The intent of the legal concept of apparent authority is to protect third parties [such as creditors] who might otherwise incur losses if the signature received did not bind the debtor company. Basically, apparent authority means this: If a reasonable person [such as a creditor] believes the person signing the contract has the authority to do so, that signature is binding on the applicant company.

So, what do I look for? I look for the title of the person signing the application. I expect to see that an Officer or a business owner has signed the credit agreement. Do you agree? Do you disagree? I think this is worth discussing this with your attorney.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas when I moderate the panel discussion on collection compliance and best practices. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 949-584-9685.

 

Discussions You’ll Have at the CreditScape Fall Summit, by Mike Mitchell

At CMA, we are so excited about the CreditScape program we’ve got planned for you, we wanted to give everyone a sneak peak at what you’ll be talking about. All next week, CMA will publish a series of briefs from thought leaders who will be featured at the Summit — Chris Rios, Bart Frankel, Scott Blakeley, Chris Ng, Eddy Sumar, Michael Dennis, and more.

When I spoke with Chris Rios, Director of Finance Operations for Dun & Bradstreet, about the whole collections process, he spoke about the importance of treating collections like sales, because you are “selling” customers on why they should pay their bills. The key to success is building and maintaining good relationships with your customers. He also stresses the importance of being “forward looking” and strategic in your approach to collections – using data and analytics to drive collection effectiveness.

Bart Frankel has been a member favorite with his “Phone Power” Collection Webinars over the years, and we’ve asked him to share the collection techniques he developed for the $7 Billion Order-to-Cash process for the Pratt & Whitney Division of United Technologies. Bart will be the first to tell you that collections starts with the sales call and he stresses the importance of getting the upfront process right the first time so you don’t have so many issues on the back end.

What if you are exporting and trying to collect from customers in foreign countries? Eddy Sumar, CCE, CICE, has plenty to share about his experiences collecting money from all over the globe, and he’ll be the first to tell you, collections starts with an understanding of the 6th C of Credit — Culture.

Join us next week in hearing from these, and our other thought leaders, who will be driving the workshops and discussions that you care about at CreditScape. You can read their contributions on our blog page.

It’s Almost Time for the EMV Liability Shift, Changing the Way Businesses Accept Card Payments

by Matt Fluegge, Vantiv

You may have heard there’s a change coming to the way many businesses accept card payments. The U.S. is in the process of transitioning away from the magnetic stripe cards we’re all familiar with, and moving toward installing small microchips into the cards – also known as chip-and-sign. If you’ve already upgraded your terminals or Point of Sale System to accept these new cards, which are inserted into a slot and not swiped, then you’re ahead of the game. If not or if you’ve never heard about this switch, then you’re not alone – but time is winding down.

It’s called EMV, short for Europay, MasterCard and Visa, the three companies that created the standard. It’s the system the majority of the world uses at their point-of-sale terminals. Chip-enabled credit and debit cards are more secure, by electronically storing data so it’s harder for criminals to steal the payment information and create fraudulent cards. So why the change? For starters, nearly half of all the credit card fraud worldwide occurs in the U.S., even though America accounts for only a quarter of the global card volume. As for why should you make the upgrade, other than helping to ensure that your loyal customer’s financial information is more secure, there’s a legal initiative as well.

Come October 1, 2015, liability for fraudulent transactions will shift to whichever party – the card issuer or the merchant – hasn’t made the switch to EMV. So if your company isn’t accepting EMV payments, your organization will be responsible for the fallout from any fraudulent transactions processed there. The liability shift applies to face-to-face payments and not Card Not Present payments.

There are a few factors to consider and several things for employees to familiarize themselves with before making the move to EMV, as the new terminals are likely to support a broad range of payment methods. This includes contactless EMV, such as a contactless credit card, and NFC mobile applications like Apple Pay and Android Pay. Knowing the difference and how they operate will help answer questions from customers and speed up transactions.

One way to be prepared is to talk to a payments provider about your questions and to discuss your options. Vantiv is an excellent resource to learn more about the liability shift and payment processing solutions tailored to the needs of NACM Members. Vantiv and United TranzActions have been the NACM Affiliates’ endorsed payment processing providers for over 16 years. Contact me at matt.fluegge@vantiv.com for answers to your EMV questions or for help moving to EMV and chip-enabled payments.

 

Matt Fluegge is the Manager of the NACM Credit Card Acceptance Program at Vantiv. He can be reached at matt.fluegge@vantiv.com or 608-834-2539.

Collections in the Digital Age: Technology, Outsourcing, and Compliance, by Eddy Sumar

‘Collections,’ ‘collectors,’ ‘collection agencies,’ ‘collection attorneys’: words that evoke strong emotions, sometimes even terror, in the hearts of uninformed debtors. Robocalls, automatic dialers, dialing for money, calling centers, SMS, texting, e-mailing, invoicing, phone calls, and personal visits—some of the avenues that companies pursue to collect their precious asset known as accounts receivable. When we look at the landscape of debt collection, we can see three things that beckon our attention: technology, outsourcing, and compliance.

These three areas have a great impact on people on all sides, creditors, intermediaries or third parties, and debtors. Let us look at each of these three areas separately.

Technology: Technology is a blessing, but it has side effects. When technology is employed, people lose their jobs. Technology leads to higher productivity at the beginning of the process, but it has long-term negative consequences. Digital technology, machines and robocalls do not satisfy the desires for human interaction. The fact is that technology should enhance the human factor, not diminish it. Technology should help us humans to produce more so we can have more time to interact and build the goodwill and loyalty. So the short-term need is to curb the negative effects of the technological factor in collection.

Outsourcing: Another factor that complicates collection is the outsourcing of debt collection to companies that do not understand the power of customer service and preserving customer and debtor goodwill. The calling-center mentality in collections is unempowered. It follows a certain script and cannot deviate from it. This railroad track mentality usually leads to derailment. The short-term benefits to the bottom-line will ultimately lead to long-term consequences that both eat the top-line and erode the bottom-line.

Compliance: As highlighted in the recent reports from the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB), consumers are being hounded by unethical collectors and unscrupulous collection agencies. These dial for money at all cost, intimidating the debtors with lawsuits and other methods that convey the thought of threatening their livelihood and dignity. To them, it is the money that counts, not the individual. To them, the debtor is totally at fault and they approach the debtor in a manner not fit for human dignity. The result is that the reputation of collectors and the agencies they work for are negatively affected. They become something to fear and avoid. The good news is: the collection industry is still filled with good law-abiding collectors. But unfortunately, it’s the bad apple that corrupts the whole bunch; the little poison that makes the refreshing glass of water on a sweltering day undrinkable. With technology the offense could easily be amplified. Bad collectors tend to hide behind their technological gadgets and screens, thinking that they can never be found in cyberspace. This new digital landscape allows bad collectors to abuse debtors, hurling at them every insult, thinking that the path of offense leads to collection success.

All of the above issues highlight the significance of compliance, which is compliance with existing codes and regulations, but above all compliance with the codes of human decency.

So, how can a company thrive in an environment of constant technological change? How can a company outsource its collection function without affecting the long-term profitability? How can a company be compliant?

The answers lie in a simple acronym: COLLECTOR.

The word ‘COLLECTOR’ embodies certain key qualities that need to be present whether a company pursues internal or external collection. If these qualities are pursued, then compliance issues will disappear. And if a company outsources to a third party to pursue its collection function, then the third party should have strong ethical standards that highlight the human factor. Here is the acronym:

C: Compassion, Connection, Communication, Courtesy, Customer-centric, Common sense

O: Options, Overcoming obstacles, Open-minded

L: Listen! Listen! Listen!

L: Learn! Legally-minded

E: Empathy, Education, Experience, Expertise, Excellence

C: Collaboration, Cooperation, Compliance

T: Teamwork, Targets, Timelines

O: Organization

R: Respect, Resolution, Results, Regulation

The above acronym highlights the human dimension of collection, not the technological and digital. It starts with the ‘C’ of compassion. Yes, collectors should show compassion to the debtor, especially in consumer transactions. Collectors need to connect in order to collect. Making that connection by building rapport is vital. Two-way open communication hallmarked by courtesy is paramount. Furthermore, a customer-centric approach is crucial in every collection call. I believe that collectors should always put on the customer service hat when they engage in collecting a debt. Simply put, it is common sense that should rule in collection.

Next, we see the ‘O,’ that opens the doors to options and alternatives. Collection is not a black and white approach. It should not be either / or. Collectors should work with the debtors to find the options and overcome the obstacles. Collectors should be open-minded throughout the collection process.

The first ‘L’ underlines the significance of listening. The key function for a collector should be to listen—listen to the debtor, listen to the debtor, listen to the debtor, listen to common sense. It is through listening that collectors move to the second ‘L.’

The second ‘L’ is a natural by-product of listening. When collectors listen, they learn, they go beneath the surface to see the unseen and the hidden. When they listen, they find the options that are practical and relevant. And yes, collectors should be legally-minded. They need to know the law, abide by the law and respect the law. Listening leads to the next letter ‘E.’

The ‘E’ reminds us of empathy. And empathy will make the collector’s job more exciting. Empathy humanizes the process; it allows the collector to walk in the debtor’s shoes—to feel, see, and experience the world from the debtor’s perspective and through the debtor’s eyes. Empathy leads to education that equips the collector with the experience that builds the expertise needed to show excellence in handling the collection process.

The next letter ‘C’ puts the spotlight on collaboration and cooperation. I read a quote that says: “If you want to be incrementally better: Be competitive. If you want to be exponentially better: Be cooperative.” So, for collectors to be better, to feel better, and for debtors to be better and feel better, they all need to cooperate and collaborate. Collaboration that reflects all of the previous ingredients will lead to compliance. Ethical and moral collectors that embody humanity and exercise their function with integrity and dignity cannot help but be compliant.

Now, the ‘T’ introduces teamwork that adds the flavor of joint effort and togetherness. When teams come together, they have a goal, a target to achieve. And with targets comes timelines. Thus, the collection process has an objective to collect in a timely manner to ensure the timely cashflow of the creditor while helping the debtor to be released on a timely manner from the burden of debt.

For collectors to really be successful they need the ‘O’ of organization. Organization allows the collector to handle the workflow with ease and proficiency. Organization allows the collector to become efficient and effective.

The final letter ‘R’ reiterates the importance of the human factor. Respect is a human need and collectors should show it at every step in the collection process. In addition to respect, collectors should never forget that collection is about resolution, resolving the issues, dissolving impasses and finding the options that lead to results. All should be done with dignity and decency under the vigilant eye of the law and regulations.

Just imagine collectors who exemplify the above! Collections, collectors will become words that elicit admiration and appreciation.

The human approach in collections will yield greater results than the hard-nosed and hardliner approach. Good, ethical, and law-abiding collectors are guides. They guide their debtors through the collection process leading them to win-win solutions. They steer them in the direction of resolution keeping the goals in sight, while showing understanding and empathy, maintaining initiative, and demonstrating high integrity and strong discipline. They allow themselves to be educated by the process and by the debtor in order to reach the destination without victims and injury.

From the above, we can see that collection is a multi-disciplinary process combining among many things a human approach that reflects knowledge of psychology, anthropology, sociology, negotiation, time management, organizational techniques and a host of functional skills needed in the collection field. To collect is not just about the moment, it is about the future. Though the digital age is here collection will always be a human function.
Eddy A. Sumar is the President & Founder of ERS Consulting Services. He is also the director of education and community outreach for CMA, and will be speaking at the upcoming CreditScape Fall Summit. He can be reached at 909-481-9869 or ealberto@aol.com. 

The Power of Friendliness in Business Communication

By Marcel Wiedenbrugge

It must have been about 13 years ago that I was spending a long weekend with my scuba diving buddies. I remember one evening, I had a discussion about the stupidity of many people working in customer service and how they annoyed me. “Every time I explain something to them, it seems as if they do not want to understand what the issue is…it drives me crazy, etc, etc”.

While I was ranting, one of my friends interrupted my heated monologue and said: “I don’t agree with your approach.” His comment triggered my curiosity, so I asked him: “What approach would you suggest then?”

So he told his story that he worked as a project engineer in the chemical industry, when he was responsible for the construction of large chemical plants. Part of his responsibilities involved managing foreign personnel. Unfortunately, his instructions were apparently not always thoroughly understood. That led to mistakes, and to co-workers who seemed quite consistently not willing to learn from their mistakes. This annoyed him so much that it started to impact his mood and health.

One day he told his wife about it and they started to think and talk how he could solve this problem. He told me that took him three months to come up with an answer. By now, I was really drawn into this story, so I asked: “Well, what was your solution?” His answer was: “Friendliness.”

He continued: “From that moment on, I decided to apply friendliness in every situation I encounter in both my professional and private life. The results where astonishing. Not only did I achieve much better results, but this had a great positive impact on my mood, and my health. Even better, I have found that people almost in any situation are willing to walk the extra mile to help me.”

I was amazed by his story. I thought about it for the rest of the weekend. Somehow, it all made sense. So I said to myself: “Let’s give ‘friendliness’ a try for one week. If it works, I will continue to use it.”

After one week, I was amazed by the results of being consistently friendly. Both colleagues and customers were much more willing to collaborate. Calls did not escalate, and my mood was improving as well. From that moment, I decided to use friendliness as a default professional approach and I have never regretted doing so.

As an author of the book “Happy Customers Faster Cash,” friendliness is one of the 33 suggestions we offer, so I’d like to quote from it:
“Once you choose to make friendliness your default attitude, in daily practice you will notice that friendliness:

  • is actually the best ‘weapon ‘ to win almost any argument
  • is by far the best attitude to keep and maintain good customer relationships
  • will help you to feel better about yourself, your work and doing so will keep you more in control in almost any situation
  • will contribute to a good working environment with your colleagues and being friendly isn’t hard to learn to do, although it should be a part of you or your character and come from within. Friendliness can’t be faked and if you do try to ‘fake it’ people will notice.

We can conclude that friendliness as a default attitude benefits you as a person, your team, your performance, your customers and your organization.”

As the saying goes, the best advice is for free. Usually that is not the case, but here I would definitely recommend all of you with “frustration/anger” issues, to try consistent friendliness just for one week. You have nothing to lose and so much to gain.

Marcel is the co-author of “Happy Customers, Faster Cash” USA Edition, available at amazon.com.

Because “That’s the Way We Always Did It” Doesn’t Cut it Anymore, by Larry Convoy

Larry Convoy, lead group facilitator
Larry Convoy, lead group facilitator

To change successful formulas or brands takes courage. Sometimes it works (Datsun becoming Nissan), sometimes it doesn’t (remember the “New Coca Cola”?). But in this current environment, where you can close or lose a multi-million dollar deal by touching an app on your phone, being passive will leave you behind the crowd.

For that reason, CMA is taking an aggressive approach with its new CREDITSCAPE Summit. CreditScape is unlike any other education activity CMA has ever offered. For one, the topics were created from feedback direct from CMA members about items they need to know. It focuses on only one topic (collections), and covers it thoroughly. If your idea of an educational event is to sit and passively watch a PowerPoint presentation given by someone pushing a product or book, this is NOT for you.

CreditScape will present collection options, not by a vendor pushing their services, but by credit managers who are actually using them so you can hear about their experiences. It will allow you to break into small groups and brainstorm various scenarios and hopefully come up with better ways to run your collection department.
CMA is offering workshops, role playing, a collaborative approach to learning instead of the standard classroom style for the credit and collection manager and their staff.

The event takes place September 17-18 is the Tropicana Hotel in Las Vegas.

Brainstorm with your peers, hear their procedures, tell them yours and then divide into smaller groups and address the issues presented. Leave Las Vegas with some solutions to your collection issues and real-world case studies, ones that you can implement immediately.

All credit professionals are encouraged to look over the agenda for the conference and decide if you’re ready to learn the latest in collections by being a participant, not a spectator.

You can register now at www.creditscapeconference.com

I hope to see you in Las Vegas.

Larry Convoy
Lead Group Facilitator
Credit Management Association

Should Your Company Outsource its Credit and Collection Functions?, by Michael C. Dennis

Michael C. Dennis

Many companies are interested in concentrating on core competencies and looking for ways to outsource so-called “non-core functions” including certain credit and collection functions. The simple truth is that any function or department or position is a candidate for outsourcing if the third-party service provider can convince the company that:

1. The work can be outsourced safely,
2. The outsourced work will be done promptly, and done well,
3. The service provider has adequate resources and sufficient experience to perform the work,
4. The cost to outsource the work is ‘reasonable’ compared to the cost to the company of continuing to do the work internally.

Third-party service providers are getting better at addressing each of these four concerns. Some service providers do an exceptionally good job of marketing these services to companies.

In my opinion, the key questions is this: What role should the credit manager play in any discussion about outsourcing certain functions in credit and collection such as cash application, deduction management, or day-to-day debt collection activities.

I think the credit manager needs to be an active participant in evaluating the outsourcing option. Creditor companies who outsource cash application or even debt collection tend to want to perform these processes in house:

• Establishing credit limits,
• Evaluating new accounts,
• Performing pending order review and approval
• Contributing to analysis and reporting in the following areas: cash flow, working capital, risk assessment and customer portfolio optimization (risk/reward analysis) including software solutions.

What is clear to me is that the company will be better off if the credit manager is a willing participant in the decision-making process as it relates to outsourcing some or even all of the credit and collection related activities.

By the way, this is one of the topics that will be covered at the upcoming CreditScape Fall Summit in Las Vegas, Sept. 17-18. For more information on that, visit www.creditscapeconference.com

Does your company outsource its credit and collection functions? What criteria did you use to make that decision? As always, I welcome your feedback.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com He can be contacted at 949-584-9685.

Should a Credit Manager Request Personal Social Security Numbers?, by Michael C. Dennis

Michael C. Dennis

In a recent post on LinkedIn, a question was asked about If, When and Why B2B creditors such as CMA members request or require Social Security Numbers from credit applicants. (https://www.linkedin.com/grp/post/2412088-6014193760244690945?trk=groups-post-b-title) At the time, I posted two responses in which I posed questions for CMA members in connection with the laws governing the use and the protection of SS numbers.

As I read through the other comments, I saw that several credit managers did routinely ask for them, while others were vehemently opposed to doing so.

Now that some time has gone by, I would like to offer the following additional comments for members who obtain SS numbers from applicant companies:

• Create strong policies and procedures about If, When, Why and Which applicants will be asked to provide their Social Security Number.
• Make sure your attorney has reviewed these policies and procedures and has confirmed that your actions are lawful under applicable federal and state laws.
• Publish these policies and procedures, and then enforce them.
• Create a robust mechanism to ensure there is limited access to customer SS numbers and related information.
• Assign one or a limited number of employees the task of safekeeping and safeguarding SS numbers.
• Be sure there are consequences for employees if policies, procedures or safeguards are ignored for any reason.
• Understand the potential costs of a data breach involving personal information including but not limited to SS numbers.
• Understand the disclosure requirements and the remediation obligations and out-of-pocket costs in the event of a data breach.
• Make sure you have a compelling business reason to obtain SS numbers and consumer credit reports.

Where do you stand on this issue? As always, I welcome your feedback.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com.  He can be contacted at 949-584-9685.

CMA Chairman’s Blog: Why I Chose to Pursue Professional Credit Certification, by Michael W. Fenner, CBA

Michael Fenner, CMA Chairman of the Board of Directors
Michael Fenner, CMA Chairman of the Board of Directors

Are you looking for a way to be more successful and become more knowledgeable? Have you ever thought about making yourself more valuable at your current job or expand your career opportunities? Would you like to have a level of respect among your colleagues? How about being the best you can be at your current position? For me, my CBA designation helped with all of the above.

First, let’s take a look at the different professional credit certification levels:

The National Association of Credit Management’s (NACM) levels of certification are as follows:

  • Certified Credit and Risk Analyst (CCRA) – For analysis and interpretation of financial statements.
  • Credit Business Associate (CBA) – This includes three credit courses basic financial accounting, business credit principles and introduction to financial statement analysis.
  • Credit Business Fellow (CBF) – The lessons include business law and credit law.
  • Certified Credit Executive (CCE) – You must be proficient at accounting, finance, domestic and international credit concepts, management and law.

Once I made the decision to get my designation, everything else fell into place. Some of my questions were: Where can I get more information? Should I do the classes online or should I do them in a classroom setting? How much does it cost and where do I apply?

I chose to take all my courses in a class room setting and do the Credit Administration Program (CAP). I then networked and studied with a friend. My CBA designation has given me tremendous confidence to do my job and more credibility to my position and credit department.

We all want to grow and continually improve our abilities. The program is definitely worth it and I would highly recommend it.

I won’t be able to answer all of your questions in this blog so make sure you head over to the NACM website for complete information. CMA will be offering the CBA program again in the Fall. Stay tuned to CreditManagementAssociation.org as dates will be released soon.

As we all know, there are no degrees in the credit field, so a professional credit certification is definitely the way to go. Team up with some of your colleagues and learn together. Have fun with it! Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

Having a Bad Day, by Michael C. Dennis

Michael C. Dennis

A bad debt can ruin a good day. A bad debt is any debt that cannot be collected. Bad debt write-offs are a cost of doing business on open account terms. No matter how carefully the credit department reviews existing customers and new applicants, such losses are inevitable. Bad debt losses are a cost of doing business on open account terms.

When a bad debt loss occurs, you can either lament your losses or learn from them. I encourage you to consider all of the ideas below when such losses occur:

  1. Learn a lesson. Use this opportunity to reflect on what just happened. What could you have done differently? Even if the answer is that the credit department did ‘almost everything’ right, there is still room for improvement. Your goal is to take something positive away from the event, ideally so you can keep it from happening again in exactly the same way in the future.
  2. Keep things in perspective. Even if this is the biggest loss of the year, remember that some level of bad debt write offs are inevitable. Why? Because there is some level of risk in every open account sale. This includes sales to your largest and most creditworthy customers… not to mention the customers you recognize and self-identify as marginal credit risks.
  3. Every bad debt is an opportunity. Write-offs are opportunities to change, to improve and to refine your department’s policies and procedures. Each refinement brings you closer to the optimum internal credit management process intended to properly manage or balance risk and reward.
  4. Seek guidance from management. Use a bad debt as an opportunity to ask for comments, advice and guidance from your manager or senior management. Doing so is not a sign of weakness. It is an indication of maturity, and a great way to make certain that your ‘appetite’ for credit risk is consistent with your company’s taste for risk.
  5. Take responsibility. If you are the department manager, you are responsible when losses occur. This is true even if you personally didn’t take part in the decision-making process. Please don’t try to blame your subordinates. Instead, take the hit squarely in front of your manager and then move on.

I am convinced there are lessons to be learned from every bad debt write off. Among the most common mistakes uncovered are:

  • Information in the credit file was out of date
  • Financial analysis was not done or done poorly
  • The customer was allowed to exceed the credit limit
  • Orders were released while the account was past due
  • The credit manager was not told soon enough to make a difference
  • The collector did not focus enough time and attention on the account
  • The creditor company failed to place the account for collection quickly enough

Each of these mistakes has something in common. That common theme is that if the collection team is provided with clear guidelines and work instructions, fewer mistakes will be made and losses will be reduced

When [not if] bad debt losses happen, don’t lose faith in yourself or in the policies and procedures you have in place. If you ever fall into the trap of believing that what you do doesn’t matter, that idea can become a self-fulfilling prophesy. You will never be able to control all of the external forces that result in bad debts, but you can control what you do and how you respond.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com  He can be contacted at 949-584-9685.

12 Tips to Becoming a Better Business to Business Credit Risk Manager, by Michael C. Dennis

Michael C. Dennis

Even the most experienced credit professional can become a better risk manager. From the novice to the professional, learning new skills is crucial to ensuring that the risks of late payment or customer bankruptcy are mitigated. These simple tips are worth considering:

  1. Expect to Find Something Negative in each Customer Financial Statement You See
    Perform every review as though you expect to find something wrong/problematic. Doing so ensures a more thorough analysis, and may prevent overlooking a problem. If you don’t find one, check your work!
  2. Learn to Listen to What Your Collectors Tell You
    Let your collectors tell you what they think about their customers. Listening to them helps you be a better credit manager.
  3. Review Your Credit Policy Periodically
    When explaining difficult concepts internally, refer back to the written credit policy.
  4. Understand Various Risk Mitigation Strategies
    Credit pros need to have more than a basic understanding about a variety of different risk mitigation strategies, including ( but not limited to) the use of guarantees, letters of credit, the use of collateral or security and credit insurance.
  5. Make Every Phone Call a Learning Experience
    It is crucial to make every discussion with a delinquent debtor a learning experience. Learning what does and does not work well for you over time is an important learning process.
  6. Always Be Aware of What Your Collection Results are Telling You
    One of the primary measurements of your overall effectiveness is reflected in the Accounts Receivable aging report. To be a better manager, you need to know what your aging report is telling you.
  7. Ask for Help
    Never be ashamed to ask for help. Pride has probably cost more CM their jobs than any other factor. If you are not sure, seek help.
  8. Shorten Turnaround Time
    Take every opportunity to try to determine how to shorten turnaround time on decisions and actions taken by the credit team.
  9. Slow Down If You Feel Rushed
    Rushing will cause you to make mistakes. If you begin to feel rushed [example, by the salesperson] stop. Slow down, walk away, consider or reconsider your position.
  10. Precision is Critical
    To be a better CM, you want the actions taken by the Credit Department to be exactly as you expect it to be; not approximately what you expect to happen. Therefore, it is crucial to make sure that your standards are not declining over time.
  11. Continuously Refine
    Make changes in your department by making multiple minor tweaks rather than one big change, and by giving members of the department numerous small nudges as opposed to one big push in the right direction.
  12. Ask Questions
    It is impossible for even the best credit professional to know everything. Things happen from time to time that you don’t understand. If something makes you uneasy or looks unfamiliar, look it up or ask about it.

What would you add to this list? I welcome your feedback.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. He can be contacted at 949-584-9685.

Chairman’s Blog: What’s Your Personality Style (and How it Can Help Relationships)? By Michael W. Fenner, CBA

After having dialogue with a customer, have you ever thought, “Wow…wasn’t that a great conversation?” Have you ever hung up the phone and said, “She was so nice.” And maybe you have said, “We really, really get along.” Or on the contrary, how many times have you said, “What did I say to irritate that customer?” Have you ever thought, “Why were they so upset?” Did you ever get off a call and say, “What just happened?” It’s happened to all of us. For me, when it does, I try to figure out a way to manage it.

Once I understand personality styles (and am able to conform to that customer’s style), I have been able to improve my relationships and enhance all conversations.

Here are the four personality styles:

  • Analytical – They think it through, they are detail oriented and love spreadsheets.
  • Amiable – They have “feelings” they are very low key and have good friendships.
  • Driver – They tell it like it is, it’s their way or the highway and they are in charge.
  • Expressive – They just want to have fun, talk about what happened last weekend and you always know where the next party is.

Here are several steps I went through that helped me have better conversations.

First, I figured out my own “personality style.” Once I did that it made the next steps easier. Take a look at the styles above and ask yourself “what’s your style?”

Second, take a minute before you make your next phone call and/or before you go in to visit your next customer and figure out what their personality style is.

Third, conform to their style. Yes, imitate it. It’s that simple. If an analytical person wants detail, give it to them in a spreadsheet or aging etc. Make sure you slow down and be very mellow with an amiable person (don’t make them mad). For the expressive person, have fun with them talk through everything they want to then get to your point and exit. With the driver, make sure you are as tough with him as he will be with you…he will think it was a great conversation.

I’m sure the times you got along with someone you conformed to their style and you didn’t even know it. And the times you didn’t get along, guess what…you probably didn’t conform to their style.

So what’s your style? Think about it on your next few phone calls and customer visits. See if it makes a difference or better conversation. Let me know your thoughts. Have fun with it. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

The Importance of Conducting Credit Investigations on Existing Accounts

Source: NACM’s Principles of Business Credit
Credit investigations on a customer don’t end once an application is approved and an account is established. Every company’s credit policy should include procedures for updating customer credit applications periodically, keeping in mind that certain specific events should trigger an immediate reevaluation.

When to Investigate an Account

It is recommended that credit applications be updated whenever there is a change in the credit grantor’s policies or credit terms or at certain timeframes such as annually or every three or five years. In the process of verifying information, the credit professional should take the opportunity to review the contents of the file and archive or destroy outdated or irrelevant materials. This will prevent duplication and oversight and make it easier to find items when they are needed.

The credit professional should begin an update whenever any of the following events occur:

• An account that usually purchases small amounts suddenly starts to place large orders
• A prompt payer suddenly begins to pay slowly
• A lot of inquiries suddenly come in about an account
• A change in ownership or legal business structure of an account

It is not necessary, legally or ethically, to obtain a customer’s authorization to order a commercial/business credit report. No personal or private information about the individual owners or principals of the business entity exists on a commercial credit report that would create a violation of privacy.

Methods of Contact

All too often a good account is not commended for the manner in which it has conducted its affairs. Credit correspondence should not be limited to collection letters, but should also include all facets that will build a solid customer relationship.

Business finances can change greatly from one period to the next so financial statements covering the year, or even a shorter periods, are very important. A request can point out that it is routine for all customers and that the current statements are used to continue or expand the customer’s credit line

If the seller firm makes it a practice to notify customers of their credit limits, the revision of a limit offers an opportunity to express the seller’s position to the customer. With a marginal account, particularly, notification may be important. It is always a pleasant task to advise a customer that its line has been increased. To be most effective, it should emphasize that the increased credit line is a direct result of the customer’s payment performance and financial growth.

More difficult is the letter to a customer advising of a downward revision, also known as an adverse action. When an adverse action is made “the creditor must notify the applicant either orally or in writing within a reasonable time of the adverse action taken.”

There are three kinds of actions affecting existing accounts that qualify as adverse:

• Refusal to increase credit on an existing account
• Reduction of credit availability on an existing account
• Termination of credit on an existing account

It is best to state the facts in a logical, friendly manner, with sufficient explanation so the customer will understand the reasons for the action. If possible, the letter should close on a hopeful note that the circumstances causing the downward revision will soon be remedied and again evaluated for reconsideration.

Through frequent calls on customers, salespeople may receive early news of changes in sales trends, collections or movement of inventory. When changes are promptly reported, the credit department can be alerted to investigate further.

Sources of Information

The sources of information for updating a credit file are the same ones used for opening a new account. In addition, it may be useful to search the Internet to check a customer’s website to determine what the customer is saying about its business. By using search engines such as Google, Ask.com or Yahoo, an alert credit department can immediately access articles or news items about a customer/company.

Business Credit Principles is one of the courses required to be considered for CBA designation. For more information about courses such as this one, visit www.creditmanagementassociation.org/events/

Why Out-of-Court Insolvency Pays Off, by Molly Froschauer

When facing a company showing signs of distress, we often hear credit managers afraid of the “big B,” bankruptcy. Well, while closing the doors of a company is never a pleasant thing, there might be another way to shut down without the many legal pitfalls for creditors in bankruptcy. The legal world fully embraces any sort of out-of-court resolution, with mediation and arbitration being considered preferable to courtroom solutions. In the business world, contracts often have an arbitration decision or disputes are resolved in mediation. Employing any alternative dispute resolution has many advantages, and mirror those provided by the business insolvency services at CMA.

Handling issues out of court is less expensive, less time-consuming, and considerably more private. The same can be said about the assignment (“ABC”) process, but ABCs are still a relatively little-known alternative to business bankruptcies. Normally, a business that has decided to close its doors would consult with an attorney to either wind down operations with legal advice from corporate counsel, or, it would file a Chapter 7.

The decision to file the Chapter 7 is complicated and should be taken with care and advice of counsel. However, if attaining finality for the closure of the business is the goal, an out-of-court option is available. Assignments for the benefit of creditors have all of the same advantages of alternative dispute resolution but in a bankruptcy context. For example, instead of obtaining judge approval to dispose of assets, CMA, as assignee can handle immediately. Also, as actions are not handled on a public docket, it’s a less visible process. As assignment can be done very quickly as well, creating a feeling of closure for everyone involved.

Alternatives to bankruptcy offer the same benefits as those in litigation and should be an important part of the legal landscape in the future. It’s important, when winding down, to know all options. Every situation is treated differently and the team at CMA can be very flexible with the specifics of any business. The easiest way to determine whether the alternatives discussed here are right for you is to call CMA. We appreciate the uniqueness of each business and are happy to discuss the particularities in detail.

Molly Froschauer is CMA’s Insolvency Services Manager. A bankruptcy attorney licensed to practice in California, she can be reached at 818-972-5315.

Puppets and Puppeteers, by Michael C. Dennis

Michael C. Dennis

Collectors often make the mistake of talking to “Puppets,” those who are not authorized to make decisions, and are surprised and disappointed when a Puppeteer working at the customer company overrides, overrules or ignores the payment commitment provided by their Puppet.

In a credit manager’s world where the norm is to deal with “puppets,” how do you determine whether you’re working with a Puppet or a Puppeteer? In my opinion, the solution is relatively simple. To the extent that the person you normally interact with in the customer’s accounts payable is able to keep their commitments, they are Puppeteers. If the debtor company does not honor the commitments you receive, this is a clear indication that your contact is not ‘pulling the strings.’

When this happens, the obvious solution is to make sure that in the future you speaking to and receive commitments from a Puppeteer, not a Puppet.

Food for thought: One of the key “unwritten” benefits of being in an Industry Credit Group is that your peers may be able to reveal the name of the “Puppeteer” to you. How do you reach the “Puppeteer?” I welcome your feedback.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. He can be contacted at 949-584-9685.

Let’s adopt the Postman’s credo; neither rain nor sleet…, by Larry Convoy

Larry Convoy, lead group facilitator
Larry Convoy, lead group facilitator

I have often wondered how industry groups are able to hold meetings in the winter in the Middle and Northeast parts of the country. Last month, I experienced this when one of my National groups met in Nashville. The temperature went from a high of 18* to a low of -3* with the wind-chill and ice making it much worse. Even under these conditions we had 7 out of 11 members attend. We would have had 9 at the meeting but extremely dangerous road conditions prevented the members from Kentucky and Alabama from driving there.

I bring this up because every month I received emails from members informing me that they will not be able to make a local meeting and conference call for reasons that most would consider trivial. The excuses given that amazes me most was for the conference call. What could be easier to attend, you do not even have to stand up. Yet, statistics show that less than 50% of the members are on the call. Can a group meeting be made any easier?

Let’s compare the time, cost and effort required between the National, Local and Conference Call

  • Time- 2 ½ days vs 2 hours vs 1 hour
  • Cost- $500-$750 vs luncheon fee vs $0
  • Temp- 18* vs Calif/Nevada temp vs your office temp.

Groups only work when everyone participates and contributes. Your company has made a commitment and as its representative, it is your responsibility to fulfill it.

And to those 7 brave souls who agreed with my recommendation to meet in Nashville in February, my sincerest apologies.

I Love My Credit Industry Group, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

Last week someone asked me why my company joined CMA. I did not have to think long about why we became a member of CMA, it is all about the access to resources. The number 1 reason we joined was the electrical credit industry group. I have been a group member for over 15 years. The other credit professionals in the group at that time were wonderful, excellent credit managers in their own right, that group made me want to get involved.

I learn so much from participating in the group. I can ask questions and not feel uncomfortable. I am exposed to best practices that I can bring back and implement immediately. I developed friendships with people who understood what I face every day. A commitment of two hours every month helps me become a better credit manager, helps my company protect their assets and allows me to contribute to the growth of the credit profession.

Every month I have my credit industry group meeting on my calendar. It is not something I can afford to miss. I make the time to attend, it’s important to me, my company and the other group members. Contribution to and participation in the group is the key to a successful experience. My contribution is submitting our aging report every month so that the group has access to the most current data available. My participation is coming prepared to talk about new ideas, give insight on processes, and discuss upcoming educational opportunities.

One of the most significant parts of the group is the submission of aging information. The aging goes into the CMA database for access on anscers and in group reports. The contribution of your data is so very important, as it makes the meetings so much more valuable to deal with real-world problems. If you are not submitting your data today, please find a way to do it. There are contacts at CMA that can assist. Talk to your IT person to find an easy and simple way to download the data.

I love my credit industry group. I respect the credit managers that are a part of my group. I hope you find the same enjoyment with your group. If you are not part of an industry credit group today, ask why not. Contact CMA to find a group or even better, create a group for your specific industry needs. Please let me know if I can answer any questions about CMA’s credit industry groups.

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

Top regulatory priorities for the commercial lenders

Tony Hadley of Experian
Tony Hadley of Experian

by Tony Hadley

Senior Vice President, Government Affairs and Public Policy, Experian

 

In many cases, business lenders often rely on the commercial credit of the enterprise coupled with the personal credit of the business owner when making lending decisions. This is especially true for sole proprietorships and partnerships. To that end, regulatory action and public policy initiatives aimed at consumer credit often times can have a direct impact on commercial lenders. This blog takes a look at some of the top regulatory priorities for business lenders within the credit ecosystem.

Ensuring the accuracy of credit data
Over the past two years, the Consumer Financial Protection Bureau (CFPB) has taken several actions to make clear that it believes data furnishers — including lenders — are responsible for ensuring the accuracy of the credit data that they report to credit reporting agencies (CRAs).

The CFPB issued two bulletins — in September 2013 and February 2014 — reminding data furnishers of their responsibilities under the Fair Credit Reporting Act (FCRA) and the need to properly conduct investigations when a consumer disputes an inaccuracy.

The CFPB backed up these bulletins with an August 2014 enforcement action against a lender that it said failed to fix flaws in its software system that were causing it to report inaccurate credit data to the CRAs.

Debt collection practices remain in the spotlight
Another top focus of regulators that may overlap with small business lending is increased scrutiny of the debt collection market.

Within the collections industry, the CFPB has focused on problems related to how information about a debt is transferred from a first party to an outside agency or debt buyer, as well as the standards and timing of when a collections item goes onto a consumer’s credit report. To that end, in December 2014 the CFPB announced that it was requesting the national credit bureaus to provide regular accuracy reports that highlight key risk areas, including disputes, for consumers. The CFPB will use these reports to help prioritize their work on accuracy metrics, including: furnishers and industries with the most overall disputes; and furnishers with high disputes relative to their industry peers.

The CFPB also released an Advanced Notice of Proposed Rulemaking (ANPR) in November 2013, covering a wide array of complex issues within the debt collection market. It’s expected that they will release the first version of its proposed rule for the collection market in late 2015 – early 2016.
Policies boosting financial inclusion are also critical for business lending

Commercial lenders should also pay attention to efforts by policymakers to improve financial access for the more than 60 million American consumers that either have a thin credit history or no credit data at all. In the case of an entrepreneur, a thin or no hit credit file would make it much more difficult to access affordable capital.

One way to improve the ability for unbanked individuals to access affordable credit is through the reporting of on-time payments made to utility, telecommunication and rental companies by consumers — often referred to as “alternative credit data.” While they have long made pricing decisions based upon the full-file credit data furnished by creditors, historically telecom and utility companies have only provided negative data — i.e. late payments or if an account is in collection.

Including both positive and negative data from these sources will enable tens of millions of thin-file consumers — and small business owners — with a proven record of meeting financial obligations to access fair and affordable credit. The CFPB weighed in on the importance of including alternative data in a 2013 report on financial empowerment. Bipartisan legislation has been introduced the past two sessions of Congress that would clarify federal law to encourage utilities and telecom providers to report positive credit data to the nation’s credit bureaus.

Coming soon: CFPB data collection on women and minority owned businesses
Small business lenders are also keeping a close eye on the development of the new data collection requirements under the Dodd-Frank Act. Despite the CFPB being primarily focused on consumer lending, the agency was tasked with implementing a provision of the Dodd-Frank Act that required lenders to ask small business applicants if the business was women or minority-owned.

The problem is that this question is currently prohibited under Equal Credit Opportunity Act (ECOA), as a creditor cannot inquiry about the race, color, religion, ethnicity or sex of an applicant. The CFPB will ultimately have to provide guidance to help resolve the conflict between these two laws.

While this new sweeping data collection mandate will not become effective until the CFPB adopts the necessary regulations, it’s easy to see how this could ultimately impact small business lenders.

As many have said before, small businesses are the lifeblood of our economy, but they need funds to grow. We’ll want to keep a close eye on each of these initiatives, as the regulatory impact can be huge for small business lenders, and the ability for small businesses to access capital.

Tony Hadley is Senior Vice President of Government Affairs and Public Policy for Experian. He leads the corporation’s legislative, regulatory and policy programs relating to consumer reporting, consumer finance, direct and digital marketing, e-commerce, financial education and data protection. Hadley leads Experian’s legislative and regulatory efforts with a number of trade groups and alliances, including the American Financial Services Association, the Direct Marketing Association, the Consumer Data Industry Association, the U.S. Chamber of Commerce and the Interactive Advertising Bureau. Hadley is Chairman of the National Business Coalition on E-commerce and Privacy. For information about reports available from Experian, contact Terry Campos at 818-972-5361.

You May Not Know, CMA Has a Solution For That

CMA Has Solutions

Recently, a friend of mine told me that he joined a well-known national association. When I asked him why he joined, he told me he was really only interested in one of the benefits they offered, and that he would probably never explore the other benefits because that one thing was valuable enough to him to justify membership.

After having this discussion with him, I realized that some CMA members may think the same about its programs and services: they join for the Industry Credit Groups but are unaware about (and don’t explore) the other benefits that can help manage risk. Here is a quick look at some additional benefits that you may not know about that are included with your membership:

Credit Reporting: CMA is a reseller of reports from the major credit bureaus (Equifax, DNB, Experian), NACM, plus the hybrid anscersX multibureau report. Let CMA be your first call when you’re looking for customer information; report rates through CMA are often less expensive. Plus, members receive several free reports from NACM, which is included with their annual membership.

RFIs: CMA offers the ability to submit an RFI (Request For Information) on specific accounts from other members who may have experience with those accounts. The system is fully automated and available online in an as-needed basis.

Professional Development Programs: CMA offers dozens of webinars, seminars, in-person networking opportunities and more to help you stay current in the quick-evolving credit management profession.

Construction Forms Filing: If your company has the need to file preliminary notices and mechanics liens in the United States and Guam, our staff offers everything you need, including a free lien provisions guide.

Business Insolvency Services: What options do you have if one of your customers threatens to file for bankruptcy? What if your company suddenly faces financial distress? CMA’s Adjustment Bureau is the largest entity in the United States specializing in neutral administration of out-of-court workouts and liquidations of insolvent businesses.

– Collections Services: CMA has partnered with AG Adjustments to handle all of your collections needs. All placements can be viewed on CMA’s interactive web site, www.anscers.com.

– Transactions processing: If your company offers Electronic Funds Transfer, Online Bill Pay, Credit Card Services , Fifth-Third Check Guarantee Services can probably help you get a better rate than you’re already receiving.

– And more!

With many benefits that you may not have already been aware of, if you’re in the credit management profession (or if you may need help with determining the riskiness of a potential customer), CMA should be your first call at 800-541-2622. CMA is known for its top-notch industry credit groups, but the association offers many more benefits besides them. CMA probably already has a program or service that can provide information to help answer your credit questions.

What is your biggest need in credit management today? I welcome your feedback.

…And Seated to my Right…, by Larry Convoy

Larry Convoy, lead group facilitator
Larry Convoy, lead group facilitator

Recently, I discovered that a longtime CMA and group member had played college basketball not far from where I went to school.  A few years ago, I found out that gentleman who sat next to me at a group meeting was a decorated hero from the Korean War.  Unfortunately, both discoveries were a result of reading their obituaries.

Today, with Facebook and Twitter posting everyone’s daily activities, likes and dislikes out there for all to see, I am still amazed at how little I know about some people that I have had lunch with every month for decades at the group meetings. On Tuesday, I discovered that a member had attended the same concert I went to on Friday at Staples Center, the night before in Fresno. Our conversations will now extend past contributing and attending when I call her.

You already share a profession with the people sitting at your niche group meeting. The possibilities are unlimited for other things in common; schools attended, companies worked for, favorite teams, hobbies, vacation spots.

My goal has always been to get more information and participation from the members of groups in an effort to get critical mass. Groups do not have to be just alerts and past dues. For those who insist that we stay focused on Business, consider that forging these relationships might result in some advanced warnings about a problem account.

Take a few minutes at your next group meeting, put down the aging report and find out what movie the person on your right thinks will win the Oscar, or how they got in credit.

Years from now, I don’t want you to read that we were both diehard Yankee fans.

Finding Hidden Gems in Your Organization, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

The role of credit is ever changing.   What credit professionals handle on a daily, weekly, monthly basis is challenging and can sometimes feel overwhelming.  The requests from your customers, internally and externally, require you to reprioritize at any minute of the day.  What happens when the requests outweigh the resources available?  How do you handle the workload?  What steps have you taken to help balance your day?

I recognize that every company is different, what is a priority at one may not be a priority at another.  As the workload changes, have you taken a moment to rank your tasks by importance?  Are there tasks that you do as a matter of course “it’s always been done this way”, that are no longer really required.  Have you asked those who you are supporting, if the action is still necessary?  Eliminating redundant or outdated activities will easily add time to your day.

A challenge that I face with regularity is keeping up with technology.  Our customers ask us to support any number of different platforms for billing services and customer research.  Having the time and knowledge to provide excellent customer satisfaction is important, so I engage weekly with our IT group.  They have strong technical skills and have helped us out of a bind in a number of cases.  They too lack resources but I have found a good relationship has been mutually beneficial.

Sometimes there are those special projects that seem to come out of nowhere.  What about those projects that have been on your to-do list since last summer?  I have found resources outside the credit department to be extremely helpful depending on the project.  I have engaged sales support and front office staff to assist in getting the job done.  They welcome the new experience and opportunity to be involved.  They become part of the credit department extended family.  Who knows, they might bloom into the newest credit team member.

Streamlining your main activities and prioritizing; partnering with other departments; and developing resources outside of your specific team will help in balancing the ebbs and flows of the credit dept.  Can you too find hidden gems in your organization?

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

Plan, Plan, Plan — It is a Small Business Essential, by Karin L. Schultz

financial_plan
Plan Plan Plan

In a recent survey of entrepreneurs that were about to start a business or had been in business for less than a year, we recently uncovered the areas that business owners explored to finance their business. When asked about how they financed their businesses or how they planned their financing, some revealing answers came to light.

A pattern started to emerge — these entrepreneurs, initially, fully expected to be self-financing in the start-up period. They used available savings and other ‘cash’ resources such as pension funds, and access to capital through facilities such as second mortgages on their own homes, etc.

Once that capital was exhausted, which in many cases was quicker than they had expected, they invariably turned to family and friends. Some reported that their group of friends dwindled very rapidly when asked for financial assistance. Once again, though, the inflow of funding was limited and only sustained them for a few more months.

What the surveyed group showed was a lack of detailed financial planning. Most assumed that if they could ‘sell’ their product or service they would easily survive and grow on the cash flow that those sales generated. They rarely recognized the fact that growth would always demand more capital. It is a fundamental cycle — the more a business grows, the more capital that is needed, and the more capital injected into a business, the more the business grows.

The group members turned to their banks for assistance when family and friends had made their last contributions, and growth demanded more capital. As most stated “Going to the bank was the obvious thing to do — banks are there to finance business.” And then the shock set in — the banks turned down their applications for a myriad of reasons: because their business was too young, it lacked a solid balance sheet, there was insufficient cash flow to support debt service, the bank didn’t finance that ‘type’ of business, and so on.

What could they do next? For some, they indicated that it would be the end of the road. For others, they had too much at stake to quit so the search for that illusive working capital continued.

Options the entrepreneur group discussed for locating additional capital ranged from ‘angel investors’ to ‘equipment sale and lease back,’ from ‘venture capitalists’ to ‘factors and discounters,’ etc.

The bottom line clearly showed that the lack of planning was a serious setback in building a viable business. Even a modest business plan usually talks more about marketing than finance.

It is essential that small business owners do their research before they become desperate. Businesses do not usually fail because of a lack of finance — they fail because the owner neglected to investigate and obtain the appropriate financing at the appropriate time.

Chuck and Karin Schultz are principals of The Interface Financial Group (IFG)’s Las Vegas office. The company is a leading alternative funding source for small business. IFG has provided short-term working capital funding in the form of a unique Invoice Discounting service since 1972. For more information, contact Charles and Karin Schultz, 702-636-8644 or visit www.ifgnetwork.com/cmaca/

Apple Pay And Its Implications As A Payment Channel For Customers To Pay Vendors’ Invoices In The B2B Space, By Scott Blakeley, Esq.

Scott Blakeley, esq.

By Scott Blakeley, Esq.
Blakeley & Blakeley, LLP

Apple has made a media splash with its announcement of Apple Pay, the latest foray of a tech company entering the mobile card payment space. While the B2B space has been slow to embrace electronic payment channel alternatives, especially those designed for smart phones and tablets, these alternatives are thriving in the B2C space. In another article “Payment Channel Alternative (Traditional and Emerging) For The Customer (And The Credit Team’s Preferences),” Lyle Wallis (VP Research, CRF) and I considered the topic of mobile payments. Apple Pay advances this payment form. But does Apple Pay provide insight for the credit team in the B2B space of what the payment channel may look like in the near future?

The Mobile Wallet: A B2B Payment Channel in the Near Term?

Electronic payments, especially in mobile form, are showing to be a most efficient and cost effective payment channel. Banks have invested in mobile options, which allow consumers to deposit checks, view balances and make transfers between accounts, all from their smart phone or tablet. Javelin Strategy and Research estimates that the average cost for a mobile banking transaction (deposit or transfer) is 50% cheaper than a desktop computer transaction and 90% cheaper than an ATM transaction. It costs J.P. Morgan Chase $0.03 to process a customer’s mobile check deposit, versus $0.65 where the customer physically deposits a paper check.

The mobile wallet has arrived. A mobile wallet can be peer-to-peer, consumer-to-business, or both. To use a mobile wallet, the consumer registers a new account with a provider and then connects that mobile wallet to their existing debit card and bank account. Once money is loaded onto the digital wallet, it can be sent to other peers and/or businesses also on the mobile wallet network. Then, should they desire, the consumer may “cash out” all or a certain percentage of their mobile wallet, and the funds are automatically routed back to the original bank account.

Consumers may choose a variety of mobile wallets: Google, Amazon, PayPal, Square, Venmo, and now Apple. Apple announced that its new iPhone 6 and digital watch give users the ability to pay for products and services just by tapping the device to payment terminals using Apple Pay. The service is a take-off of the Google Wallet, which has been available on Android phones since 2011. The mobile payment system uses a technology known as Near Filed Communication (NFC), which transmits a radio signal between the device (smartphone in this instance) and a receiver, when the two are fractions of an inch apart or touching.

Apple Pay, Data Breach and Card Security: Applications to the B2B Space?

The headlines regarding the Home Depot, Target Stores and Neiman Marcus data breaches have affected hundreds of millions of their customers. Vendors rolling out card payment programs in the B2B space are reminded to consider a cardholder’s privacy rights when they store the cardholder’s card information electronically. Apple recognizes the significance of cardholder privacy and intends to distinguish itself through greater card security. Major payment networks and banks have all been working on a system that allows customers to make a payment without handing over any personal details, using a kind of digital token that can be used only once. Apple Pay is the first program to use the tokenization system on a widespread basis. With each Apple Pay transaction, a user’s credit card number won’t pass through the system, just a scrambled, one-time code that can’t be used in any future transaction.

If a retailer’s systems are hacked, Apple Pay customers’ personal information is not compromised. The service also requires a thumbprint scan for each transaction, meaning that only the phone’s owner can use it to make purchases–a stolen smartphone cannot be used for fraudulent purchases. The devices’ operating software iOS 8 will also encrypt more of the user’s personal data (photos, messages, email, contacts, call history, iTunes content), where previous versions of iOS only encrypted a device’s email. These added security features are important and one of the reasons that Apple Pay has won over credit card companies and retailers. The iPhone 6 and the Apple Watch will use Apple Pay at merchant locations that have purchased the hardware that can read the wireless signal from Apple’s devices. Because merchants are already under pressure to upgrade their POS systems to accept EMV, a new card technology to reduce fraud, there is thus greater opportunity to add-on the NFC technology at the same time. Upgrades to POS systems have been mandated by the credit card companies and must be in place by late 2015 else the merchant will be liable for fraudulent credit card use.

Both Visa and MasterCard are on board with Apple Pay, and Apple is not charging them for allowing their products on Apple phones. Banks have agreed to accept lower fees from Apple than what they usually accept on credit card transactions, with their hope that cardholders will opt to use the technology in place of cash and other payment methods, thereby driving up the total number of transactions. Safer credit card transactions will lower the instance of fraud and thereby reduce card fees for everyone.

Apple Pay and B2B Implications

Can mobile solutions accommodate transactions in the B2B space? Mobile payment technologies have focused on the consumer sector. However, given the push for electronic payment alternatives in the B2B space, developers are pursuing B2B mobile payment technologies. Will businesses move to this payment channel, given the transactional efficiency and low processing costs of mobile payments? According to the AFP, only 11% of US companies surveyed are using mobile payment technologies.

Apple Pay is presently geared toward brick and mortar stores. Online application for card-not-present transactions is a key for the B2B space. The single use nature of Apple Pay technology (digital token) rules out use for multiple transactions (the credit team storing a card on file).

Applications will be developed that provide for Apple Pay technology to be used to pay vendor invoices in the near term.

 

Scott Blakeley, Esq., is a founder of Blakeley & Blakeley LLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He can be reached at his email address.

President’s Post: Trends in Credit Management, by Mike Mitchell

CMA President Mike Mitchell
CMA President Mike Mitchell

Happy New Year!

With gas prices down and holiday sales up over last year, 2015 has already been off to a great start.

At CMA, we are working on exciting new initiatives that will make it an even happier 2015. I recently attended a credit reporting summit hosted by one of CMA’s partners, Experian, and heard about 11 trends in credit management that the Credit Research Foundation has identified for 2015.

• Cash Flow – Cash is King
• Integration with ERP/CRM Platforms
• Credit Cards
• Shared Services Environments
• Credit Scoring/Portfolio Management
• Risk-Based Collection Activity
• Reporting – Business Intelligence
• Blended Scores and the FCRA Hurdle
• Sales/Credit Partnership
• Supplier Credit Evaluations
• Emerging global markets

In order to best meet the needs of the credit managers, CMA is offering programs to address several of these trends.

Sales/Credit Partnership – Gear Up for Profit: Linking Sales and Credit Cycles to Grow Profit

CMA is offering a first-of-its-kind workshop that addresses the challenging dynamic between Credit and Sales, for the first time inviting leaders from the Credit and Sales teams to participate in this ground-breaking approach to exploring how the Credit and Sales teams can work together for better profitability.

Supplier Credit Evaluations – Supplier Risk Credit Group

CMA is launching a new credit group that will focus exclusively on evaluating Supplier Credit Risk. We see an emerging trend in companies tasking the credit department with evaluating the risk and cost of business disruption caused by the failure of key suppliers. CMA plans to support this new functional competency by creating a special credit group that focuses on expanding the credit department’s risk management role to include key suppliers as well as key customers. CMA invites you to attend a complimentary organizational meeting to explore and finalize the benefits and features of a Supplier Risk Credit Group – January 28, 2015, 10:00 am – Noon. Email Larry Convoy for details at lconvoy@emailcma.org.

Emerging global markets – The Global Trade Credit Consortium

CMA is building a unique network of top resource providers for international trade and credit practices, with the goal of helping companies sell internationally by making critical trade and credit resources more accessible, responsive, and accountable. International credit consultant and co-founder Eddy Sumar, MBA, CCE, CICP will leverage the Global Trade Credit Consortium to provide professional guidance to help navigate the complex process of exporting. For more information, visit the GTCC website at http://www.globalcreditconsortium.com.

Which trends are you most concerned with in your business for 2015? I’d love to get your feedback on how CMA can deliver services that will make 2015 the best year yet!

How Can You Give Back to the Association, and Get Something in Return?, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

I find that the more you give the more you get back.  Sometimes it’s obvious, sometimes it’s in smaller increments.  In the credit world however, sometimes it can be hard to give.  You never know if your customer will send the payment your way, if the sales rep will get that RA or credit issued.  If you give too much, will you be able to meet your objectives?  Well, I have found a way to give back to CMA and its members that actually helps me to be more comfortable with my credit decisions.

Anixter has been a long-standing member with CMA.  We had always participated in the credit industry groups, submitting accounts for discussion and being involved.  In the last 5 years or so, we started to submit our aging too.  It was a great decision!  We are able to have our data available monthly for the members to pull electronically.  Having fresh data is so important in making an informed decision.

I download a report the first week of the month and submit it to the CMA data group.  They do all the rest.  They make sure the data gets into the anscers system quickly.  All members who pull a credit report from CMA have the immediate data at their finger tips.  If someone pulls an RFI, they will see the trade line from that month.  It is great!

I am making a call to action for all CMA members in 2015!  Start the New Year off by giving back to the association: submit your aging!  It is simple to submit the report in an Excel, CSV or tab delimited form. Simply send it via email at lwong@emailcma.org.   When you give to CMA, you will reap the rewards tenfold.  You will be able to make a solid credit decision and you will be helping other credit professionals too!

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com.

 

CMA Salutes Its Staff for Milestone Service

As the year draws to a close, it’s time to celebrate some of the notable accomplishments that happened in 2014, as the association staff looks forward to serving your risk management needs in 2015. Among those activities, several members of CMA’s own staff celebrated milestone anniversaries in 2014, and we ask that you join with us and help us appreciate these individuals who work tirelessly to help your businesses. Several of those staff members were recognized at CMA’s annual holiday luncheon in Burbank (see the photo gallery below).

On behalf of our membership body, we wish to extend sincere thanks to Jean Capitanelli (5 years), Scott McLaughlin (5 years), Daphne Masin (5 years),  Amber Jackson  (10 years), Laura Rothman (25 years), Jose Felix ( 25 years), Michael Hansen (25 years), Charles Klaus (25 years) and Cheryl Lloyd (50 years), along with the rest of the staff.

Thanks again to all you do for the membership, and we look forward to many more great years to come.

Senior Staff Accountant Cheryl Lloyd Celebrates 50 years with CMA
Senior Staff Accountant Cheryl Lloyd Celebrates 50 years with CMA
Resident IT expert Michael Hansen Celebrates 25 years with CMA
Michael Hansen Celebrates 25 years with CMA
Sales Manager Laura Rothman Celebrates 25 years with CMA
Laura Rothman Celebrates 25 years with CMA
Jose Felix Celebrates 25 years with CMA
Jose Felix Celebrates 25 years with CMA
Daphne Masin celebrates 5 years with CMA
Daphne Masin celebrates 5 years with CMA

Chuck Klaus celebrates 25 years with CMA
Chuck Klaus celebrates 25 years with CMA


I Like Playing Texas Hold-Em. I Must Be A Credit Manager, by Guy Nishida

I Like Playing Texas Hold-Em.  I Must Be A Credit Manager
I Like Playing Texas Hold-Em. I Must Be A Credit Manager

I find many similarities between playing winning poker and being a successful Credit Manager.   I believe there are definitely transferable skills. Deciding whether or not to play a hand of cards is part gambling and part investing – – identical ingredients in deciding whether or not to extend credit.  Both require one to make decisions based on incomplete information.  You have not seen all the cards yet and you do not know the cards the other player holds.  In both cases you must make an educated guess and calculate the potential profit both in the short-term and the long-term against the risk.

You sometimes have hard information and sometimes you can glean facts and make suppositions based on your customer’s responses, attitude, posture – – his “tells.” “Tells” is poker jargon for spoken words as well as signs and mannerisms a player exhibits, intentionally to mislead or unconsciously because he is unaware his actions are reflexive of the stress level.  Criminal investigators seek “tells” to judge whether a suspect is lying or not.

During a poker hand, I look at my opponent’s eyes when he speaks.  Is he turning away, looking down, are his eyelids fluttering? Are veins in his neck pumping more visibly?  Is he relaxed or is his breathing shallow?  Is he feigning being relaxed?  Is he initiating what some players call self-soothing motions?  Often when a player is lying or nervous, he will rub his hands or face, wet his lips or make other movements to calm himself.  Is his delivery, inflection and tone identical when he is relating how his last golf outing went and later when affirming his ability to pay timely?  Are his actions consistent with the facts at hand?  Is he too defensive; too arrogant?  You may need to quickly shift gears and surprise a customer with a hardball question after some initial innocuous chit chat.  Does he suddenly become nervous and more deliberate in his response?

A credit manager should develop his own set of “tells” to measure the truth level of the conversations he holds with accounts.  In this regard, when experts encourage credit managers to visit customers on their home turf, it can be argued that you are not only looking for signs of distress or profitability by viewing the brick and mortar facility; you are seeking “tells” from the management, purchasing & accounting personnel thru their verbiage and mannerisms.  In poker you are not always simply playing your hand.  You are also playing the player.  In Credit you are not only viewing reports and references.  You are also measuring those responsible to pay you.

We often worry about whether our hand has “showdown value” and can beat a bluff or whether our opponent holds a stronger or weaker hand.  We wonder if the potential profit outweighs the possible value range of our opponent’s hand.  Instead of considering the real odds that our opponent has a hand that has us beat; we worry more that he does have this hand.  Because of this natural tendency, we often give up on our own strong cards.  In like manner, as Credit Managers we should focus as much on the strength of what we offer the customer and less on any perceived threat that the customer will go elsewhere or will cancel an order.  Assuming your company is offering a superior product at a competitive price, a fair credit limit and reasonable terms cannot be a deal-breaker.  When your customer has a history of tardy payments you should not consider your situation unique.  Most probably, he is paying your competitors in the same manner.  Any posturing to the contrary is not based on fact and is nothing more than a poker bluff.

As mentioned, you are playing against the opponent as much as you are calculating odds and ROI.  Because credit decisions are often equal parts art to science, we also judge the credit-worthiness of an account on the integrity and honesty of our contacts and not solely on the record of the company.  But you must judge them thru clear glasses.  Their credit rating cannot be increased simply because the salesman has gone golfing with the customer or because he attended their child’s birthday party.  Poker players often bet for a reason – – they want your money in the pot or they want you to release your hand because they are fearful you have them beat.  Likewise, sometimes a customer’s display of affluence and their liberal entertaining budget are innocent but other times they are investing time and money as a bluff to get the credit and cooperation they need but don’t deserve.

Like the betting pattern of an opponent in a poker game, you must ask yourself if the history and actions of the customer seeking credit are consistent with the story they created.  In the case of poker players, even when their betting pattern suggests they have a strong hand let it be known that they constantly lie.  Braggadocio is part of the game of poker.  Business customers often mimic this gaming tactic.  You must decide how often you can be wrong by “calling the bet” or “calling their bluff” and still keep your employer more profitable than he would have been had you not made the call.  And you must decide how often you will not extend credit thereby mucking” your hand – – possibly losing the sale because the risk is too great.  In poker we say that you must learn to “read” your opponent.

Poker players often make what is called a “feeler” bet.  They are attempting to gain insight into their opponent’s strength or weakness by their reaction to this bet.  It might be less than what they wish to bet but it is designed to be just enough to extract useful information.  In like manner Credit managers may not extend the full credit requested at the onset.  Credit managers often extend a token credit limit or make other compromises to accounts as a means of controlling the exposure while allowing the creditor to create a payment record with them.  The “feeler” credit limit is designed to measure the customer’s ability to manage their cash flow needs on an on-going basis.  It can reveal whether they have hot and cold cash months or a stable operation.  I won’t comment on the benefits of these tactics since they have been known to result in false “reads”.  In credit that might mean that the customer pays the initial small invoices in a timely manner but once they begin to place the large orders, you find the payments drag or cease.  From that standpoint, time is your ally in deciding whether more or less credit is justified as the relationship evolves.  You can control the size of the pot, the amount of your company’s exposure by the betting size or the amount of credit approved.  In poker this is called “pot control”.

Poker has a dictionary of unique terminology.  There are a number of concepts which are labeled “implied odds”, “pot odds”, value betting, “equity” among others and they all relate to measuring the intangible future benefits of remaining in the hand.  Poker players use the phrase “pick your spots”.  Loosely defined, it means that you play a hand when you are strong or your opponent is weak.  You continue when the sum total of conditions are favorable.  In today’s economy, Credit must pick and choose not only when to approve credit but for how much.  When we calculate whether or not to extend credit, we often use similar game theories/concepts in our decision-making process.  I think I speak for all Credit professionals when I state that salespersons are notorious for over-valuing a customer’s prospects for growing business/profits, the profit margin, the number of turns or potential for entrée into other aspects of their business.  Pragmatic poker players would be hard-pressed to over-value their hand and bet on completing the inside straight.  Likewise, Credit must not over-value the rosy outlook salespersons would use to calculate credit-worthiness.  The future benefits must bear some resemblance to fact.

In today’s problematic economic recovery, there is heightened pressure on salespersons to grow sales. At the same time, we are in a climate of new businesses that are undercapitalized and recovering businesses that have eaten thru cash reserves during the recession. Contrarian conditions yet credit is needed.  While the temptation is great, Credit must adhere to the poker concepts of measuring the benefits and the logic of carefully picking the spots where you will invest your company’s money.  For the younger generation of poker players who are perhaps less intuitive but more learned in poker theory, it is all about the numbers – – what we would call metrics.  We measure the risk-level utilizing tools and formulas internally-derived or generated in conjunction with outside credit services.  In this respect Credit is quickly becoming more science and less art.  But unlike poker players and credit card companies who are only working the percentages, Credit may lose sight of the importance of personal relationship-building.  We’ll leave the value of that objective for another day.

By the way, allow me to soothe the credit professional’s fears that he will extend too much credit or will lose a customer or sale because he gave too little credit. Know that poker players have a name for this.  It is called “variance”.  In poker lingo, this word explains the natural phenomenon of sometimes losing over the short or long-term even though you are playing your best.  You cannot completely control the outcome of any poker session nor any credit decision. A credit professional can only make the best decisions possible given the information gathered and intuition they have cultivated over years of experience.  Sometimes the results of your decision will not be gratifying to you or your company.   And the fallout will occur when you least expect it.  Although you cannot control variance, over time, your smart decisions will result in company profits and any uneven variance will balance.

There is a solid reason why businesses create a reserve for bad debt and why our world is replete with bankruptcy attorneys.  Bad things happen to bad customers as well as good-intentioned customers.  There is an old saw that says if you don’t have bad debt; you have likely been too strict on credit.  While you may negate bad debt, would your losses have been greater or less than the profitable business you left on the table?  You cannot always wait to be dealt a pair of aces to play a hand, the proverbial “pocket rockets”.  Rarely will you sign on the customer with perfect credit who has never paid anyone beyond terms.  What a successful poker player does and what you must do is to re-visit the decisions that haunt you and analyze them.  Did you misplay the hand; did you misread any signs or metrics?  Consult with your peers and learn from your mistakes.

In poker as in Credit, you can conduct yourself using many different styles and will necessarily mollify or heighten your basic personality traits.  Some poker players are passive, some aggressive, with many variations and combinations of all behavior patterns.  You’ll have to decide what style is most comfortable for you in the credit realm and what style works best given the myriad circumstances all credit professionals encounter.  Bear in mind that you must be capable of mixing your style to suit the circumstance.  There will be occasions where it is incumbent upon you to leave your comfort zone in your mental battles with the customer or prospect.  However, like poker players it is abundantly clear that being a passive credit professional will reap the least efficiency and least benefits. Be strong, and as they say in the poker world, “Get those cards in the air!”

Guy Nishida is the senior credit manager for E.T. Horn Company, a specialty ingredient and chemical distributor based in La Mirada, CA. He can be reached at 714.562.7679, or gnishida@ethorn.com

 

2014 – the Year in Review

2014 has been a very productive year for us at Credit Management Association. While the year will be remembered in pop culture history for its massive data breaches and Kim Kardashian “breaking the internet,” CMA has continued to help businesses minimize risk, as it has since it was founded in 1883. Additionally, it has enhanced some of its services to make them even more valuable to members. Here are a few of those new upgrades:

  • CMA launched a new anscersX multibureau report that incorporates the data from the top three reporting bureaus in a concise, easy to read report, to allow credit managers to make informed decisions. Details: www.anscers.com.
  • CMA upgraded its Construction Forms Filing Services (CFFS). Serving as a point of reference for those who supply materials or labor to construction projects, the new functionality equips companies with the tools to protect their lien rights under the law. Among the enhancements: CMA’s Lien Provision Assistance Guide provides a summary of the provisions to meet individual state statutes in all fifty states to assist any company working public, private or federal construction projects by identifying each state and the time requirements for each form in that state depending on the type of project. Other upgrades included an enhanced reminder system and incorporating the Lien Provision Assistance Guide with the CFFS service module on www.anscers.com.
  • CMA and the International Trade Administration (ITA) of the U.S. Department of Commerce (DOC) have agreed on a “U.S. Trade and Investment Expansion Partnership” that will help credit and risk management professionals gain access to educational resources needed to expand their businesses nationally and globally. The agreement will continue to promote international trade to CMA’s members by increasing awareness of the economic benefits of exporting, and educating them on trade activities as a job creation and growth strategy.
  • Speaking of education, CMA has successfully administered more than 50 webinars, in-person seminars and events allowing CMA members to stay current in the ever-changing credit management profession. For a list of upcoming educational programming, visit www.creditmanagementassociation.org/events.
  • CMA enhanced its communications with members by creating Quick News, its bi-weekly newsletter. The newsletter focuses on the latest happenings from the credit management industry, as well as news from CMA. CMA has also had a bigger presence than ever on LinkedIn and Facebook.
  • CMA members have continued to understand the value of submitting their A/R data to CMA and NACM.  Members who contribute continue to save time by never having to answer an RFI nor fill out a past due or meeting review report. They create an industry-specific data bank for their niche markets, reducing their dollar commitment to third-party reporting agencies. Though CMA has a large number of members who participate, CMA welcomes every company to add their data to the pool. For more information, contact Lisa Wong at (951) 672-0581.
  • Another successful Annual Meeting and Western Region Credit Conference were completed, with some of the best attendance figures in both events’ histories.

2014 was a great year for Credit Management Association, but we’re looking forward to an even better 2015. As a valued customer of CMA, we appreciate your business and look forward to continuing on as your association. Have a Happy New Year!

How Small Businesses Can Cope With the Year-End Cash Crunch, by Chuck Schultz

There is no time more stressful for small business owners than the end of the year. This period of juggling numbers, sorting out income and finding the most efficient tax breaks can confuse anyone. To avoid the cash crunch, many of today’s businesses are turning to invoice discounting services for some much-needed help.

Here are five tax-saving tips to help small business owners and entrepreneurs deal with the year-end cash crunch:

1.  Purchase necessary equipment and technology. If you have any plans for purchasing equipment or computers in the next year, making those purchases this calendar year will allow your business to write off the taxes against this year’s income. The majority of small businesses can deduct equipment purchases with the option of an immediate write-off or one spread out over years.

2.  Start up, or contribute to, your retirement plan. Payments made to your business’s existing retirement plan before the end of the year can reduce your income for the year. If you do not have a retirement plan set up for you or your employees, consider starting one. There are many options available, including a 401(k) and a SEP-IRA, depending on what best fits your business.

3.  Delay or defer income. Any income a company receives during early January instead of late December can cut your tax bill. Income received in early January will not be taxed until the following April. If lower income tax rates are predicted for the new year, delayed income makes a lot of financial sense for many business owners.

4.  Increase expenses. Similar to delaying income, increasing expenses at the end of the year can reduce income and maximize your tax deductions for the year. If there is an upcoming need for goods or services, anything from phone plans to office supplies, purchase them now.

5.  Use an invoice discounting service. Many small business owners regularly use an invoice discounting service to maximize their year-end cash position. A strong cash position is a universal must for all businesses.
Chuck and Karin Schultz are principals of The Interface Financial Group (IFG)’s Las Vegas office. The company is a leading alternative funding source for small business. IFG has provided short-term working capital funding in the form of a unique Invoice Discounting service since 1972. For more information, contact Charles and Karin Schultz, 702-636-8644 or visit http://www.ifgnetwork.com/cmaca/

Not The Top Ten List You Want To Be On, by Larry Convoy

With due respect to David Letterman and Sports Center’s nightly “Top 10” lists, there are some lists that you would be better off not being on.  One that directly affects you and your company is “The Top 20 Creditors in a Bankruptcy Case,” a document that is easily obtainable by accessing Pacer. No company likes to see their losses published for all to see.

CMA Industry Group Leader Larry Convoy
CMA Industry Group Leader Larry Convoy

However, this document of doom will now be turned into an excellent prospect list for any industry credit group (ICG). Whenever you post an alert of a Chapter 11 in your industry, CMA will run a list of the top 20 creditors. These companies could be competitors of yours, or they are at least selling into the same market as you and have just taken what could be a major hit. A phone call from a group member informing them about the group, and mentioning that the group was aware of the problem and therefore had minimal exposure, could get the group a new member very easily.

Therefore, effective with the next Chapter 11 alert posted on anscers, the ICG department will forward this list of names to the group chairmen and group facilitator. There will probably be some banks, factors or lending companies that would not fit but you should be able to identify some HOT prospects. Tell them that the best way to avoid the next BK is through membership in your credit group.

Thank you for your support throughout 2014, and we wish you and your family a Happy and Healthy Holiday Season and a Prosperous 2015.

Larry Convoy
Lead Group Facilitator
lconvoy@emailcma.org

To Ship to Not to Ship – Should a Credit Manager Be Santa Claus or the Grinch?, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

It’s December, the last month of the fiscal calendar for most companies.  There is a lot of pressure to make sure your results are strong.  The sales team wants to have as many orders as possible go out the door. You need to have as much money as possible come in but your customers are having cash flow concerns, and it’s not making your job any easier. What is a credit manager to do?

It might be easy to just say ship the material and say “Happy Holidays.”  It will help increase sales and will make your past due percentage smaller and possibly improve your DSO.  The orders will help your customer complete the job they are trying to finish before the holidays.  Your sales manager will be happy as that will increase their bonus payout for the month, no coal in their stocking this year.  You can collect those funds in January.  However, is this really in the best interest of the company?  Are there other options that might secure the order, entice your customer to pay you sooner or can you just bring in the cash?

In my credit experience, I have worked with a lot of contractors.  We ask questions about the order and find out if this is material that is being used to improve a particular piece of property, if it is we will ask for a job sheet.   With that information, we create a job account to secure our transactions either through lien or bond rights.  There is a level of comfort when we have a job account: we know that if there is a payment issue, we can reach out to the owner or the general contractor for their assistance.  If I am questioning if an order can go out the door, I will always ask, “Can we secure it?”

All credit professionals are trying to be paid before other suppliers.  Providing excellent customer service helps as the customer is more willing to pay you first but that may not get the job done.  Have you ever tried to offer a one-time discount for a large payment?  Have you asked the customer if they can dip into their line of credit?  In the construction industry, you can ask for a joint pay agreement, when they get paid by their customer, you’ll get paid at the same time via a two-party check.  We are all leery about accepting a credit card payment, but is that an option you can offer?  Being creative is a key asset to success in credit. Find a way to get the order out the door and to collect the funds.

Your goal within the credit department is to maximize sales by managing risk and minimizing write offs.  This is the same throughout the year but even more important at the end of the year.  So how do you make that decision to ship or not to ship?  Are you going to be Santa or the Grinch?  My suggestion, pull out your red bag of tools & tricks and surprise the sales team, your boss and your customer and show them that Santa does really exist and find a way to accept the order and get paid.

I wish you all the very best during the holiday season.  If you have any questions or comments, please reach out to me.

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

Offshore Suppliers Beware of the Insolvent U.S. Customer and the Terms of Sale: What the World Imports Bankruptcy Case Teaches the Credit Team, by Scott Blakeley, Esq.

Scott Blakeley, esq.

The global supply chain is an often written topic in the press. Recent public company chapter 11 filings (usually Delaware or the Southern District of New York) highlight the global network of suppliers reflected in debtors’ lists of 20 or 30 largest unsecured creditors. This list often consists of offshore creditors from around the globe, whether Asia, Europe or South America.

Offshore suppliers who ship goods to the U.S. on credit should be wary of insolvent, or potentially insolvent, customers. Although U.S. Bankruptcy Code section §503(b)(9) provides that suppliers of goods are entitled to an administrative expense claim for the invoice value of the goods received by the customer within 20 days prior to their filing, an issue arises as to when the goods are received.

For many offshore suppliers, it is advantageous to ship goods to a U.S. customer “Free on Board port of origin” (“FOB”) as it places risk of loss during transportation on the customer. However, shipping goods FOB would also mean that the goods are technically received by the customer on the date of shipment. For many offshore shipments, this would mean that the shipment may have been received prior to the 20 day period of the customer’s bankruptcy filing, even if the goods were actually in the customer’s possession within the 20 day period.

The recent decision in In re World Imports, Ltd2, however, takes the §503(b)(9) priority claim protection away from the offshore supplier. There, the Bankruptcy Court held that an offshore supplier who provided goods to a U.S. debtor within 20 days of the bankruptcy was not entitled to a priority claim under Bankruptcy Code §503(b)(9) because the goods were “received by the debtor” at the time they were placed on the vessel at the port overseas more than 20 days before the debtor’s bankruptcy filing, even though the debtor took physical possession of the goods within the 20 day period.

The ruling of World Imports is a red flag for offshore suppliers and their global supply chain selling to U.S. customers on credit who are insolvent as they may not have a priority claim, leaving them with a non-priority claim, which translates to no distribution on the invoices. To avoid this harsh result, we consider ways the foreign supplier can reduce this payment risk.

The World Imports Court Ruling
In World Imports, a Chinese supplier had shipped goods to the Debtor within 20 days of the bankruptcy filing, and claimed that such prepetition delivery entitled them to an administrative priority claim pursuant to §503(b)(9). The supplier asserted that because §503(b)(9) does not define “receipt,” the Uniform Commercial Code should apply, which defines “receipt” as occurring when the buyer takes physical possession of the goods, which occurred within the 20 days required by §503(b)(9).

However, the debtor argued that given this was a contract for the international sale of goods the UCC was preempted by the federal CISG treaty. Under this treaty, Free On Board (“FOB”) delivery provides that the customer’s “receipt” occurs not when the customer takes physical possession, but when the vendor delivers the goods to the agreed upon carrier.

The bankruptcy court found that the contract was governed by the CISG. The court noted that the parties did not opt out of the CISG and concluded the delivery occurred outside of the 20 day window and barred the offshore supplier from administrative priority under § 503(b)(9). The World Imports only applies to international contracts between countries that have adopted the CISG treaty. The CISG has been ratified by 80 countries, including: Argentina, Australia, Bahrain, Belgium, Brazil, Canada, China, Columbia, France, Germany, Italy, Japan, Korea, Mexico, Netherlands, Russia, Singapore, Spain, Switzerland, Turkey, the United States, and Venezuela.

The Creditor Waterfall in Chapter 11
Suppliers selling on credit to an insolvent customer know well that when the customer files chapter 11, the value of the prepetition invoices that are very old, say 100 days, will typically bring but a few cents on the dollar, often years after the filing. The reason is the creditor waterfall or priority scheme of creditors. Secured creditors are entitled to be paid first from the collateral in which they have a security interest. After secured creditors, administrative or priority creditors are next in line. Each of these creditor classes are entitled to be paid in full prior to a junior class of creditor. Last in line of the creditor class is suppliers that have provided trade credit. Even though these suppliers may have undisputed invoices entitling them to payment, the problem is that they are at the bottom of the creditor waterfall and they face a shortfall. Thus, the World Imports case is significant as the §503(b)(9) claims are often paid in full.

The Credit Team Reducing the Risk of Being Ensnared in an In re World Imports Setting
So what steps can the offshore supplier take to reduce the payment risk that World Imports creates when that customer is insolvent? One step is for the supplier to opt out of the CISG’s application. Another option is moving the customer to CIA. However, the supplier may lose the business if terms are cut off. A supplier may also require the customer to post a letter of credit at the time it delivers the goods to the carrier, which insures that payment is made to the supplier at the time the “risk of loss” shifts to the customer. With a drawdown of an L/C, the supplier is protected from preference as the payment comes from a third party, the issuing bank of the L/C, and not payment from the debtor.

Key Concepts & Terms

§503(b)(9) of the Bankruptcy Code – provides that suppliers of goods are entitled to an administrative expense claim for the invoice value of the goods received by the customer within 20 days prior to their filing

FOB Origin – The acronym for Free on Board. A shipment for which the seller is responsible for transportation and shipping costs to the point where the goods are delivered to and loaded onto a carrier.

CISG: The Convention on Contracts for the International Sale of Goods. This international treaty has been signed by most industrialized nations and many that are not. Its provisions govern the formation and subsequent rights and obligations of the parties to international contracts, meaning those entered by parties in different countries, both of which countries are signatories to the convention. The list of countries changes almost every year. Current status of accession of a particular country to this convention can be checked, for prospective sales and international law concerns, at the CISG database.
Scott Blakeley, Esq., is a founder of Blakeley & Blakeley LLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He can be reached at seb@blakeleyllp.com.

Gearing up for 2015: New Opportunities to Manage Risk, by Larry Convoy

CMA Industry Group Leader Larry Convoy
CMA Industry Group Leader Larry Convoy

November is a month to give thanks. One of the benefits of working in the Industry Credit Group department that I’m thankful for is the ability to help companies minimize their risk in new industries. In fact, many ideas and leads for new groups come from members who have changed jobs, know the benefits of belonging to a trade group and want to join or start a new one in their new industry. To meet this demand, here are several new groups that are in the works for 2015.

The most ambitious and challenging is Supply Chain Risk Management Credit Group.

One troubled customer can cost your company dollars;
One troubled vendor can cost you your Company.

Scheduled to hold its first meeting in January, CMA has engaged two supply chain experts to oversee the development of this group. Whether your vendors are domestic or international, whether you have a Vendor Analysis program in place or not, this group will provide you with the resources to properly assess and monitor the risks facing your company and add a skill to enhance your position in the organization.

Other new groups in development also include the following:

1. Court Reporting Credit Group
2. Transportation and Freight Service
3. National and International Hay
4. Spanish-speaking Food Manufacturers
5. Southern Calif. HVAC and Plumbing

If you’re in these industries or know of other companies that would fit into these groups, please let us know. Feel free to contact me should you be interested in starting a new group, or joining an existing one.

Have a great Thanksgiving!

Sincerely,
Larry Convoy
Lead Group Facilitator
lconvoy@emailcma.org
818-972-5323

WRCC – CreditScape – An Excellent Opportunity to Learn and Network, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

As you probably already know, I am a big proponent of continuing education, which is why I attended the CreditScape – Western Region Credit Conference,  held at the Palms Hotel in Las Vegas last month. As someone who has participated in many seminars and events, this was one of the better programs I’ve attended.  I was impressed with the many first-time attendees attending.  I thought the conference overall was excellent. The speakers and topics were varied and well presented.  I learned about a lot, I met many new people and was able to connect with others who I had lost touch with.  There were so many different topics and I would like to share my thoughts on a few of the sessions I attended and look forward to your feedback and comments.

The Opening Keynote Speaker this year was Steve Zipkoff.  He energetically shared with us how to deliver customer delight in many aspects of our professional and personal lives.  I now know the 6 tools that I started implementing right away.  The one that hits home the most is to be a “fixer” not a finger pointer.  We all should be looking for solutions to resolve the cause and change it verses putting a band aid on the problem.  You can either fix the issue the right way or you will be fixing it again and again.  It is important to practice continuous improvement and be able to adapt quickly.  Steve expressed to everyone to behave like you own the business which is something I’ve believed for a long time.

I attended Rudet Fountain’s session on the changes in payment processing.  Does everyone understand how electronic payments are processed and what is changing?  If you attended this session, you would now.  B2B payment processes continue to change and improve but at what cost to your company?  How are banks standardizing communication formats so that data can be transmitted more easily?  What about credit card payments, I know my company gets requests daily to use a credit card to pay but are we ensuring our fee structure is the best it can be?  Is our processing at a Level 3 standard which could save my company a lot of money?  What about the new chip we are starting to see on credit cards – anyone know what that is for?  It is for fraud protection; which there are new rules for that and those need to be in place by Oct 2015.  Boy, lots to think about just from this session alone.

The Credit View was a fun session filed with excellent pointers and insight to other credit professionals’ struggles and achievements.  The panelist shared with the attendees how they broke into the credit field, how they work with the sales team and how they integrate with upper management.  The session was a takeoff from the TV show “The View”.  There was some banter and good opinions shared.  I was particularly impressed with the ladies on this panel, excellent role models for women in the credit profession, definitely making sure I am connected with all through LinkedIn or Facebook !

The Closing Speaker was one of my favorites, I am sure that cannot be said about many other economists but Chris Kuehl has a great way to share information and keep it light hearted and entertaining.  Chris is NACM’s chief economist and especially enjoys presenting to credit managers across the US.  Have you completed the Credit Manager’s Index with NACM, if you have, Chris is the one who is analyzing the data and telling other economy professionals what is happening in the business world.  He let us know that during an election year, things will be crazy that the economy has not taken off as well as everyone had hoped and an “Ebola czar” is not really needed.  Chris publishes a regular brief on changes and updates to the economy, I am definitely getting on his email list.

Overall, the WRCC was a great opportunity to learn.  There was also great network events too, “Fly Me to the Moon” was well attended and a super fun dance night!  I really encourage all credit professionals to mark their calendar and not miss the next conference, you will not be disappointed.  For those who haven’t seen them, photos from the event have been posted on CMA’s Facebook page.

I truly hope that the first-time attendees this year return for years to come and that training stays a key attribute for all credit professionals. What about you, did you attend (or wish you had attended)? Please post your comments and insight below.

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

It’s a Goal, by Michael C. Dennis

In today’s metrics-driven business world, just as sales managers are accountable for their monthly quotas, credit departments need to have goals.  Credit managers should select goals for the credit department that are simple to measure and report, as well as easy to gather consistently and frequently.  Goals should focus on quality rather than on quantity, and on performance, not on effort alone.  The scorecards used to measure the performance of individuals within the department should be auditable.

The scorecard used to measure the credit department as a whole needs to be published regularly.  It needs to be accurate, transparent, and repeatable. Even with goals and metrics and scorecards in place, the credit department must continue to focus on aligning its activities to the company’s priorities to demonstrate its ongoing value to the business.

Credit managers, do you publish your goals as well as your results?  Should you?  As always, I welcome your feedback.

Michael Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

What’s the Bad News?, by Michael C. Dennis

Credit managers manage risk. Therefore, I think credit managers need to actively seek out “bad news” from their collectors. Small problems can be used as opportunities for credit administrators and collectors to learn more about how to manage risk and collect past due balances more effectively and more efficiently. It’s clear that credit administrators are far more likely to report good news than bad, but that tendency is exacerbated when managers tend to either (a) shoot the messenger, or (b) ignore bad news or (c) cannot offer advice and guidance about how to address and resolve the problem.

One resource that CMA members have to help them seek out this “bad news” is the Industry Credit groups which are intended to help companies in the same vertical market get the most complete picture available about their customers.

Actively seek out bad news and use the information as an opportunity to learn, and to train others, and to improve processes and procedures.

Have you used CMA’s Industry Credit Groups? Did they help? As always, I welcome your feedback.

Michael Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. He can be contacted at 949-584-9685.

“WE PAY TRIBUTE TO …,” by Larry Convoy

CMA Industry Group Leader Larry Convoy
CMA Lead Groups Facilitator Larry Convoy

Having recently watched Major League Baseball and its fans pay tribute to one of its greatest players, leaders, and ambassadors, the retiring Derek Jeter, it made me realize that we have industry credit group members that have displayed the same loyalty and longevity and should be recognized for their achievements. Here are just a few that come to mind:

  • Candy Royster of Oceanic has served as an officer of the Underwater Sports group multiple times and never misses the opportunity to share information with fellow group members, as she’s done so for over 2 decades.
  • It is difficult to determine if Linda McCarty is employed by Florexpo or CMA by the way she supports, encourages others, promotes the group and simply over many years has exhibited a positive attitude for all involved in the National Wholesale Floral group.
  • There are not many titles that Sandy McConnell of Charleston Auto Parts has not held in her years of involvement in the Las Vegas Materialmens group and CMA boards. She has played a major role in the growth and success of CMA in the Desert.

When constructing this newsletter, I asked our group secretaries for recommendations of individuals who satisfied the “Jeteresque” qualifications, hoping I could get a few names. What I received were over 30 nominees of members who have exhibited the same professionalism, loyalty and integrity as the Yankee shortstop. I wish I had the space to list them all and to express our appreciation for all that they do for the Credit Profession.

Now our challenge is to find suitable replacements for these individuals as they transition over the next few years into a well-deserved retirement. CMA is happy to be working with UCLA Extension in developing the next generation of Credit Professionals through the Credit Analysis and Management Course. This program may become the “Minor Leagues” for upcoming credit people and keep the profession and groups well stocked with quality people for years to come.

For more information on the UCLA program, visit www.uclaextension.edu/credit.

Have a great October!

Sincerely,

Larry Convoy
Lead Group Facilitator
lconvoy@emailcma.org

The Year End is Coming – What is the Credit Professional To Do?, by Melissa Kobus, CCE

As a credit manager, I am not sure there is any time of the year that is “slow” for me, especially not year-end.  There is always an account that needs attention, money needing to be collected, training that needs to occur, etc.  However, as we roll into the last quarter of the year, I will take a few moments to identify some action items to ensure that we will meet our goals for the year.

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

I know that 80% of our receivables base is made up of 20% of our customers.  I will review these accounts for any special items that could delay our payments coming in as they need to.  I will check with the sales team to see if their purchases will be ramping up for the end of the year so that the credit limit is in place.  I might make a customer visit to strengthen the relationship with my Company, expressing my appreciation for their continued support and to verify payment expectations for the year end.

It is house-cleaning time, or better yet account-cleaning time, my team and I will spend some time to ensure that our account disputes are being resolved for the year end.  We will scrub and clear as many disputes as we possibly can.  We will engage the sales team early in the quarter to give them plenty of time to address the issue.  I might even pull one credit analyst to spearhead this activity, and let them focus on only this activity.

I also take time throughout the last quarter to remind my team how important they are to me.  They have worked hard all year and I am asking them to make the push to close the year strong.  I want to keep them motivated and happy; I might take them out to lunch, for a cocktail after hours, or maybe let them leave an hour early on a Friday to miss the traffic.  I appreciate their efforts and recognize that as a team we are successful.  The recognition really is all year long but the last quarter can be more stressful than the others.

The year end is coming, sooner than we all probably would like.  It is a good time to reflect on areas of opportunity, and lead the team to the finish line!  What are some of the opportunities you look to as the end of the year approaches?

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

Understanding your Customers, by Michael C. Dennis

Michael C. DennisHow many different types of customers do you have? The way I see it, the credit department has at least three customers:  (1) The Sales Department, (2) their Company’s Senior Management, and (3) The Customer.  Business gurus may differ in opinions and approaches to customer focus and customer orientation, but these truths about customers are timeless:

  • Customers have choices.
  • Customers have expectations.
  • Customers have influence.
  • When your customer has a request or a problem, they expect your response to be timely.
  • Customers expect to interact with knowledgeable and professional credit team members, and that the information they receive will be accurate and helpful.

Do you know what your Customers want?  Do you provide everything they need?  Can you provide better or faster service to your internal customers [meaning to Sales and Senior Management]?  If so, when will you start doing so?  And is there any reason you cannot start today?

As always, I welcome your feedback as well as your questions, comments and constructive criticism.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

UCLA Extension Launches Credit Analysis and Management Course, by Mike Mitchell, CAE

CMA President Mike Mitchell
CMA President Mike Mitchell

I have long wondered why institutions of higher learning have not offered courses in business credit. When I was pursuing my graduate degree in business administration, I don’t recall that credit ever came up as part of the course curriculum. I began working for CMA shortly after I completed my degree, and this is where I learned that business credit is really what makes the U.S. economy as unique, competitive, and robust as it is.

NACM does a great job of supporting professional development and recognizing credit professionals through its Professional Certification Program, but that only touches practicing credit professionals. What about the many more college graduates and job seekers who don’t know that credit jobs exist? How do we reach out to those people who are pre-career or looking to change direction and let them know about credit as a career? What about small business owners who don’t have the staff to delegate credit decisions?

A few years ago, CMA was invited to participate in the development of a credit analysis and management certificate program at the University of California Los Angeles (UCLA) Extension to expose an entirely new audience to credit as a career. The program is intended for the credit community in banking and finance, trade credit management and small business owners. Roger L. Torneden, Ph.D., CFP®, the Director of Business, Management and Legal Programs at UCLA Extension, actually worked as a credit manager at JC Penney. He saw the same opportunity as we did to reach people working outside of credit.

CMA is committed to bringing qualified credit management professionals to member companies, and programs like this one at UCLA Extension is a great way to do that, specifically when CMA- and NACM-member companies are looking to fill internships or entry-level positions that require specific skill sets in credit management.

Many students have already successfully completed the coursework, and CMA continues to help UCLA Extension promote this great program. With training from UCLA and professional networking and services from CMA, our collaboration could seed the next generation of credit managers and expand the NACM brand.

For more information, visit www.uclaextension.edu/credit.

“Which is the Greater Return On Investment,” by Larry Convoy

Over the years, I have attended dozens of trade shows in my role of Industry Group Secretary for CMA.  My travels have taken me to Orlando, New Orleans, Atlanta, San Francisco and Dallas, cities where food, travel and accommodations can be quite costly.

What always surprised me was the ratio of salespeople to credit people that the companies brought to these shows. In some instances the ratio was 6 to 1, but in many cases, there was no one from the credit department there. The sales team, all in matching shirts, wined and dined customers present and future, many of the company names I recognized from past-due reports and alerts.  Four nights’ hotel, meals, and transportation costs, what was the cost and what was the Return on this Investment?

I am reminded of this every time I ask if members will be attending CreditScape, the Western Region Credit Conference in Las Vegas from Oct. 15th -17th. The stock answer I get is “management does not see the value or we are not budgeted for it.” Take a look at 4 of the 18 breakout sessions offered and convince me that the ROI is equal to if not greater than the above scenario:

• How to Analyze Customer Liquidity
• How to Secure Transactions in Mexico and Latin America
• New Rules, Developments and Trends in Credit Laws
• What the Recent Data Security Breaches of Major Retailers Means to Vendors

Financial Strength, International credit, credit laws and security, are topics that will increase and protect the bottom line for many years. In addition, vendors displaying the latest in resources and technology make this a conference that senior management should insist their credit people attend.

It is time to change this ratio around not only at trade shows but in the opportunities available to credit managers to keep abreast of the latest developments in their profession.
Attending the Western Region Credit conference would be a wise investment for any company.

We’ve even written a letter that you can give to your boss to help convince them of the value of this conference. You can get it here: http://creditmanagementassociation.org/events/creditscape-conference/western-region-credit-conference-letter-to-your-boss/

For more information or to register, go to www.creditscapeconference.com or contact Jodi Owens at 888-887-7913 x221
Have a great September, and I hope to see you there.
Sincerely,

Larry Convoy
Supervisor-Industry Credit Groups
lconvoy@emailcma.org
818-972-5323

Senior Accountant Cheryl Lloyd Celebrates 50th Year With CMA

Congratulations to CMA senior accountant Cheryl Lloyd, who on Monday celebrated her 50th anniversary with Credit Management Association.

Lloyd, who began working at the CMA headquarters (then located in the Koreatown area of Los Angeles) on Sept. 8, 1964, started as an Industry Credit Group clerk, moved over to maintaining membership records, then to accounting in 1983, where she has been ever since.

“Throughout my time here, some things have changed and others haven’t. When I started at CMA, the groups were different because we didn’t have computers. We had to do our work on a typewriter. We copied our reports and group information on a Xerox machine and passed them around the office to share data amongst our staff. Computers have made my life (and job) much easier. On the other hand, the Group meetings themselves were about the same. Group members discussed information on their delinquent accounts in meetings and lunches back then, and still continue to do that,” Lloyd said.

Having only worked part-time jobs prior to coming to work at CMA, Lloyd says that some of her most fond memories have come from the family atmosphere that’s been cultivated while working at CMA. “I’ve appreciated the support over the years that I’ve received from my co-workers. We have shared life and work experiences, and many of them have become as close as family,” she said, adding that she met her husband Ed while he was running the mailroom for CMA from 1976-1992.

The CMA staff participated in a surprise celebration of Lloyd’s amazing feat last Friday, and we’re happy to report that Lloyd has shown no signs of slowing down.

cheryl lloyd

The Power of Data and the Credit Manager, By Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

I was thinking about the amount of data that is available to today’s credit manager. Historical data and current facts are keys in making a decision to continue to support a customer.  It is quite amazing how much information is right at my fingertips.   Reviewing financials, a customers’ average day to pay and understanding their current needs is only part of my decision process.  It is important to have data from other sources too.

So who or what are those other sources?

First, I would highly recommend that you belong to an Industry Credit Group, such as any of the 60+ industry-specific ones that Credit Management Association (CMA) offers.  An Industry Credit Group is a connection that a credit professional should not live without.  It is a source to share data and experiences that are real-time, current and factual about customer trends, from people who share the same customer base that your company does.  It is a professional group that allows for networking and a great source of training.  Connect to find an industry group in your area.  I’ve professionally been a CMA Industry Credit Group member for 17 years.

Another source of data is credit reports.  There are many different kinds of credit reports available, including D&B’s business information report, Experian’s business report and Equifax’s small business report, and users of these reports know that each has its pros and cons, and the information can vary between bureaus. It is really up to the credit manager to determine which credit report best suits the needs of their business.  The data needs to be current and obviously accurate.  The report needs to be easy to obtain and cost effective.

The Big 3 bureaus have their reports, but have you looked at your local NACM affiliate for additional report options?  There are great reports that can be obtained there too!  Your local NACM affiliate can provide an NACM National Trade Report that has collected data from all members across the country.  I am also proud to announce that CMA has recently rolled out its own multibureau anscersX Report.  This report pulls data from all 3 bureaus and can be customized to include the data you need in one report.

The data in credit reports is very powerful.    A credit manager needs to know how the customer will pay in the future based on past trends.  Having the ability to pull a report that has the payment experience from the last month is a tremendous help.  I can’t imagine being able to do my job without access to data. How about you?  Do you find it easy to access data on your customers?  Does it help you make quick decisions with ease?  What other tools are you using?
Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

The Value of Networking, by Michael C. Dennis

Consider this example. Two credit managers, both with similar resumes, are vying for the same position within a company. Who gets the job, since both candidates (at least on paper) are so similar? The answer is easy: the one whose resume was hand-delivered to the boss’ desk by their contact, who works at the company.

Some individuals prefer to let their work speak for itself, and they trust others to recognize their worth.  This sounds good in theory, but falls short in practice.  In a difficult economy, one of your goals should be to increase your visibility through networking.  Gone are the days when you’d apply to a blind ad in the newspaper and then get the job. With trade associations and social media set up to help you be a better networker, now more than ever there are numerous ways in which the credit pros can increase their visibility.  Here are some ideas for doing so:

  • Participate in one or more industry credit groups
  • Volunteer for leadership positions inside and outside of your company
  • Be the first, not the last person to volunteer for special assignments at work
  • Always attend optional company-sponsored events
  • Attend trade shows and industry functions, such as the CMA Annual Meeting or Western Region Credit Conference, and participate in the receptions and networking activities
  • Build up your LinkedIn profile and participate in LinkedIn groups specific to your area of expertise, such as the Credit Management Association LinkedIn group
  • Become a powerful resource for the members of your expanding network by positioning yourself as a thought leader

Do not assume that hard work alone will get you noticed.  The value of networking is more important than ever. Make networking a part of your routine.

What are your most valuable networking activities, and why? As always, I welcome your feedback.

Michael Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

Announcing the New anscersX Report that combines key data from D&B, Experian and Equifax into one Business Credit Report

The anscersX multi-bureau trade credit report combines key factors from the three largest trade credit reporting agencies (D&B, Experian and Equifax), giving credit managers the most complete payment story available. “We spent time reviewing all the elements on each provider’s business credit report to determine what would give anscersX clients the best insight into their customers’ credit worthiness,” says Robert Shultz, Managing Partner of Trade Information Exchange. “By using an anscersX Report, you have covered the necessary bases at a much better cost and a tremendous time savings.   The anscersX Report provides a quick review of the information needed for most trade credit decisions.”

Credit Management Association® and Trade Information Exchange are proud to announce that they have produced the anscersX Report, a single report that contains all the key elements about your customers’ paying habits needed to make most credit decisions.
Credit Management Association® and Trade Information Exchange are proud to announce that they have produced the anscersX Report, a single report that contains all the key elements about your customers’ paying habits needed to make most credit decisions.

The report, which is available now at www.anscers.com, ranges in price from $29.95 to $64.95, depending on the number of reporting agencies the user requests. Users control which reporting agencies are accessed for the report.

“The anscersX report offers some real advantages to anyone making a credit evaluation,” said CMA president Mike Mitchell. “Single-source Business Credit Reports are made up of accounts receivable data that has been contributed by companies, public record data and scores generated from the combination of this data. Since most companies that contribute accounts receivable data only send it to one provider (D&B, Experian or Equifax), using one report may only provide a piece of the payment habit story.”

The anscersX Reports are available through CMA’s web-based platform anscers.com. “The anscersX Report is a significant proprietary credit offering to our customers,” says Teresa Campos, CMA’s Credit Information Services Manager. “A key feature is the summary section that displays scores from all three providers, plus other key data. This makes the anscersX Report easy to read and comprehend so users can make faster credit decisions. There are other advantages as well. This is a web-accessed report that can easily be ordered and received at the user’s workstation in seconds, all at a low cost. There are no minimum purchase or contract requirements. The users order what they want, when they need it and only pay for the reported results,” she added.

Several CMA Members have already used the anscersX Report and have had positive experiences with it. “We got an answer in minutes as opposed to calling all the trade references on the credit application,” said Mary Donaldson, Office Manager, Worthen Equipment Inc. Grating Pacific Inc.’s Stacy Henry added: “The enhanced anscersX Report is very intuitive and easy to read. The “Summary” section at the top of the report included all the information I needed to make my decision whether to extend credit. That saved me a lot of time.”

To learn more about the program, visit www.anscers.com or call 800-541-2622.

Keeping Up With the Information Age, by Larry Convoy

Take a look around your office at all the new gadgets you have to assist you in your job that were not available 5, 10, 20 or 30 years ago.  Five years ago, there were no tablet PCs portable enough to carry in your pocket capable of holding the contents of your entire desktop computer. Ten years ago, your mobile phone’s purpose was to dial out and receive incoming phone calls (not to mention they were a lot heavier), now it is a mini computer allowing you to run your business and play Candy Crush while posting status updates on Facebook. Twenty years ago, email began replacing faxes and 30 years ago faxes replaced waiting for snail mail to arrive. You had to go to the library to look up information, and you could afford to wait days to get it. Today, no so much.

Within this timeframe, industry credit groups have changed as well. Thirty + years ago, these groups were 95% male and the liquor bill was double the food tab. Now they are predominately female and iced tea is the drink of preference. All of these changes have provided today’s credit manager with better tools to make decisions, monitor those decisions and react immediately and appropriately.

Why then, has the credit group meeting gone virtually unchanged for the 3 decades I have been attending? My theory is that the system of exchanging up-to-the-minute credit experiences within your industry, sharing Best Practices and networking with your peers provides more valuable data than any technological advances that have been developed to date.

At a June meeting, a member’s inquiry about a new credit application resulted in two responses of pending litigation. In  30 seconds, her work on this file was done, NO credit report ordered, NO references sent, No phone calls made. Clear half a dozen accounts and the hour-long meeting has saved you 8 hours of investigating and updating.

So the next time you scan a file from your IPAD, download it to your IPHONE and email it to your attorney for suit, consider whether this all could have been avoided had you attended your industry group meeting?

Some things just cannot be improved on.

Have a great August
Sincerely,

Larry Convoy
Supervisor-Industry Credit Groups
lconvoy@emailcma.org
818-972-5323

What Motivates The Credit Professional?, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

Credit professionals are a great group of people. They are hard workers. They are multi-taskers. They are consensus builders. They are goal focused. They are risk managers. But, what keeps them engaged and involved?

Motivation is defined as the reason one has for acting or behaving in a particular way.  So what motivates the credit professional to continue to perform and strive to be successful? This is a question I think about often. I manage a team of 10 credit professionals and each one is motivated differently. We have department goals and objectives and that influences their actions however it is more than that. Some are motivated by the bonus plan we provide. Some are motivated by the opportunity to learn more about our customers and our business process.   Some simply enjoy the challenge of getting the task completed, the account approved, the cash in the door, etc.

Will a challenging bonus program motivate you to be more successful? Our bonus plan is specific to cash results, past due balances and timely accounts reviews. In the past, it has also included turn-around time on applications, order releases and customer visits. A friend of mine once said, what gets measured gets done and that is what stays with me when I create a bonus plan.

Will the opportunity to learn more motivate you? Mastering a new task will keep you engaged. You should challenge yourself by learning a new “thing” every month. There are a lot of ways to find that new “thing”, webinars or classes, cross-training within and outside the credit dept, what about volunteering?

Will more engagement and influence in business decisions motivate you? The credit department has a unique role within the company; they interact with almost every dept. The credit professional can influence change, can offer insight to how a process works, and can help to make your business more successful. Think big, get involved, and challenge the barriers.

Everyone is motivated differently; I encourage you to think about what motivates you and make sure you strive to keep yourself challenged every day.

Have a great month!

 

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

What’s on Your Tool Belt?, by Michael C. Dennis

Michael C. DennisWhen I earned my MBA, I learned new skills and added them to my tool belt. Then, I got my first job as a collector and found I needed an entirely different set of tools. CMA offers a variety of educational options that will provide you with some new tools…new ways to think about how you might solve a problem or approach your work differently. When you attend a webinar/seminar/class, think about how you can apply that knowledge to address real-world problems. I am convinced that the ability to effectively apply skills and capabilities (tools) to address new challenges is critical to your success in any job.

Also, for those of you looking for employment, my experience both as a job candidate and as the hiring manager has been that the applicant who can successfully describe how their current talents can be applied to the new task, challenge or position automatically becomes worthy of further consideration.

What’s the biggest factor you consider when hiring a potential new employee, or the one you think was the biggest factor in you getting hired in your job? I welcome your feedback.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. He can be contacted at 949-584-9685.

If It Ain’t Broke, Fix It Anyway, by Michael C. Dennis

With the so-called “information age,” the business landscape is very different than it was 10-15 years ago. Lots of things are happening faster than ever before: speed to market, speed at which your customers demand information about your product, venues of where your products are sold, decreased budgets (read: do more with less resources) and more data than ever before now available about your customers, and that just scratches the surface.

The conventional wisdom is not to change anything until you are forced to do so, but sustained competitiveness can only come from improved productivity. Improving productivity requires change. Unfortunately, no matter how good or how well-reasoned or how well-documented a proposed change might be, some people on your team will resist it anyway.

In this changed world, it’s necessary to completely evaluate everything you’re doing as a company and be ready to answer the WHY question: “WHY are you doing this task, and how does it add to the whole project?” If you cannot answer the question, it’s time to let go of that project in favor of one that does have an answer. “We’ve done it this way since before I was here” no longer is a good enough answer.

As a manager, lead by example. Change is not easy, but when your staff sees the benefits firsthand of process evaluation, though it may be hard for them to adapt, this evaluation process will (slowly) find its way into your corporate culture. Remember, it’s all about working smarter, not harder.

Have you had any experience in your organization with process changes? We’d love to hear your stories.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. He can be contacted at 949-584-9685.

Growing Your Knowledge Base, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

More than 15 years ago, I decided to invest in my future (and my company’s as well) by taking the first steps into gaining my professional designation, signing up for NACM’s Business Credit Principles class. It was a great class.  I had a wonderful instructor who brought a lot of different experiences to us.  One of my fellow industry credit group members held the class in their conference room.  There were 8 students and we all passed.  This class started me on my path to my CCE.

This class also helped me build a network of contacts that I still keep in touch with today.  Every course that I have participated in has other credit professionals just like me who are willing to share.  They may not be in my industry, they may be new or very experienced but we all have one thing in common, we all have the common goal of building a better credit world.

During my service on the CMA Board, I have not been shy about expressing my strong support of the education arm of CMA and NACM.   I believe every credit professional benefits from learning.  Whether it is a seminar, webinar or a certification class, every member should further their education, especially considering how fast the credit world is changing.

Why have you not taken advantage of the NACM / CMA Education?  Did you know that it only takes 3 classes and passing one test to achieve your Credit Business Associate (CBA)?  It is easy, there is a button for that, right?  You need to dedicate time, it is a commitment but the rewards are endless.  As a credit manager with direct reports, I have encouraged my team to get their designations, and I prefer to hire credit managers who have theirs over ones who don’t.

I encourage you to take that first step on the road of growth, the road of certification, become a CBA or take that next seminar or webinar.  I am confident you will not be disappointed with the outcome.

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

 

Credit Manager Lessons Learned from Watching the World Cup, by Michael C. Dennis

Like many people, I’ve been watching the World Cup soccer matches (time permitting). For whatever reason, I’ve been trying to draw insights from the competitions that are applicable to the workplace. Here are a few I’ve come up with:

  1. It pays to be a winner
  2. Teamwork is critical to your success…
  3. …So is having a good game plan
  4. Don’t become overly reliant on your star performers
  5. Even the most unlikely members of the team can become superstars
  6. Inappropriate behavior can result in red cards [or pink slips]
  7. We have to think more globally
  8. The best teams have the best coaches
  9. Winning is always a team effort
  10. Sometimes, it pays to be aggressive

In sport or at work, there are many things you can accomplish if you remember this: everyone on the team has the same GOOOOOOOOOOOOOOOAL.

How do you choose to manage your team? As always, I welcome your feedback.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

“Dedicated to Those Dedicated,” by Larry Convoy

At CMA, we are of the mindset that the more effort and information our members put in, the more they will benefit. Regardless, it never ceases to amaze me as to how committed certain members of industry credit groups are.  Below are some examples of credit people making the extra effort.

We have group members like Kevin who flies the company plane from Palm Springs to Fresno for an hour and half meeting. Patti takes the train from San Diego once a month to attend her group’s meeting. Marcie drives from Northern Cal to Bakersfield because she knows the value.

The effort is not just showing up for the group meeting on meeting day. Raj scans web sites daily for industry related news that he can share with his group. TJ has trained his staff to enter alerts as part of their credit duties resulting in 20-30 vital pieces of information per month. Anne reminds her group of conference calls and due dates and looks out for the best travel rates for National meetings.

We have members like Mary Lynn who allows her group to use her company’s facility for meetings; when some companies will not allow competitors on their grounds. There is Linda, who organized a telephone campaign to personally contact members not attending or contributing. Ron brings several employees from his department to every meeting and credit professional event to expose them to the benefits of Industry groups.

To the people mentioned above, we thank you. From your dedication, the rest of the members of the group benefit as well.

Are you participating with the industry credit groups? If you are, you probably know that over the past 12 months, more than 26,000 RFIs were submitted, with more than 14,000 of them being RFIs for new applications. If you’re not participating, what are you waiting for? Contact me and I can get you started.

 
Sincerely,

Larry Convoy
Supervisor-Industry Credit Groups
lconvoy@emailcma.org

Maximizing Your Ability to Collect, by Sam Fensterstock

One of the most frequently asked questions AGA gets from our clients is “how do we capitalize on our ability to collect from our customers?” Our answer is always the same: to be successful in maximizing your cash flow and reducing write-offs you must have three critical policies in place:

1. A Defined Credit Policy – While most companies have defined policies for best practices when it comes to employment, security and many other facets of their business, many companies we speak to do not have a clear policy when it comes to granting and reviewing credit . If you want to get paid after you have delivered your goods or services, you need to made good credit decisions when you decide to engage your customer. If you have not, your chances of collecting, if there is a problem in the future will decrease significantly. What your credit policy should be? Well, that is something that is hard to answer because it needs to be industry and company specific. However, best practices say it should be based on factors such as company risk tolerance, industry standards, gross profit margins and your internal risk assessment capabilities. The bottom line, a good credit policy will help you minimize your risk while maximizing your profitability. The acquisition of all pertinent information about a company such as a fully executed credit application (with verbiage that allows you to add interest and collection fees), financial statements, industry credit reports, trade data as well as a personal guarantee with home address and cell phone information should be a rule of thumb to most credit grantors.

2. A Defined Collection Policy – Just like with your credit policy, your collection policy should be specifically defined, documented and if possible, best practices recommends the use of an order to cash technology solution to help automate part of the collection process. No matter how your credit & collection department is set up, a pre-determined collection strategy that triggers a set of calls and e-mails with specific grace periods based on promises to pay should be deployed. To maximize collection results, the ratio of customers to collectors must also be taken into consideration, given your technology environment. If you’re in a fully automated collections environment you may be able to do more with less, compared to a manual collection process where you may need more collectors to handle the same amount of customers. As we all know, the sale is not complete until the money is in the bank and a defined collection policy will help ensure that your DSO and write offs are in line with company expectations and industry standards.

3. Having Defined Collection Placement Policy and a Strategic Collection Outsourcing Partner – No matter what kind of credit and collection policies you have in place and even if you have state of the art order to cash technology solution deployed, at some point, some customer will ignore all of your all internal collection efforts and not pay you. This is when we believe you should engage with an outside 3rd party collection outsourcing provider. Determining the “point of no return” with your customers is critical. Your collection placement policy should be specifically defined, as it has a direct correlation to your collection outsourcing partner’s ability to successfully recover what you’re owed. Remember, the older a receivable gets the harder it is to collect, so if you want to maximize cash flow from your aged receivables, you don’t need to “beat your customer to death”, just place them in a timely manner and let your partner do their work and you will see more cash come through the door. A proactive and professional approach will also assist in the possible re-acquisition of your customer.

Also, when choosing a collection outsource partner there are several things you should consider such as;
• Is the agency certified by the International Association of Commercial Collectors?
• Is the agency certified by the Commercial Law League of America?
• Does the agency have appropriate bond and liability coverage?
• Does the agency have web based reporting tools that provide you recovery analytics and 100% visibility into their collection efforts?
• Does the agency have the technology capabilities to integrate with your order to cash platform for automated placements?
• Does the agency provide a competitive rate for their services?
• Does the agency have a good reputation in the market?
• How many years has the agency been in business?
• Can the agency provide multiple references of companies who have been customers for more than 5 years?

Choosing the right outsourcing partner is critical in helping maximize the recovery of lost funds. Why is this so? It’s simple, if your company is earning a net profit of 5% and you write off $25,000 you will need and additional $500,000 in sales to offset the loss. In the long run, the success of your collection outsourcing partner can have a tremendous impact on your bottom line.

Sam Fensterstock is Senior Vice President, Business Development,  for AGA, a leading commercial collection agency based in Melville, NY. He can be reached at (631) 425-8800 or samf@agaltd.com.

Don’t Tell Me That, by Michael C. Dennis

I recently overheard a collector say this: “I am under a lot of pressure to collect the past-due balance as soon as possible.”  Upon hearing this, the customer could be forgiven for assuming they’re in a strong bargaining position. When a debtor thinks they are in the “driver’s seat,” it is more difficult for the collector to negotiate a favorable outcome.  I think a much better statement would be: “Your account is seriously past due. We need to reach agreement today about when, meaning how quickly, this past due balance will be cleared.”

I believe the “I’m under a lot of pressure” approach may be an attempt to get the debtor to either feel a shared responsibility with the collector for the status of the account, or that this is an “easy” way for the collector to approach their debtor.   But it’s doubtful that a debtor will feel a personal obligation to help the collector.  The debtor probably realizes that it’s likely this is how the collector approaches every slow pay customer.  As a result, this ‘hoping for help’ approach to collections is likely largely ineffective.

How do you approach customers? As always, I welcome your feedback.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

In the Dark, by Michael C. Dennis

Your company’s pricing is predicated on certain assumptions about risk mitigation, payment delinquencies and bad debt write offs. Even with customer financial statements in hand, the credit decision can be complicated and the answer may be unclear. Without customer financial statements, you are truly in the dark about the amount of credit risk you are accepting.

We all recognize how limited a credit evaluation must necessarily be without customer financial statements to evaluate.  I am not suggesting that you should never make decisions in the absence of customer financial statements. Instead, I’m suggesting that if you must go into the dark, do so with your eyes wide open.

CMA offers some tools that can help “shed some light” on that amount of risk.  By utilizing the reporting services that CMA offers, such as those by D&B, Experian and Equifax, plus its own anscersX reports, anscers RFI service, and industry credit groups, you will get a more complete picture of the factors that could affect the amount of risk your company would want to take on.

I never like to fly blind. How about you?

As always, I welcome your feedback.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

How More Data Can Help You Save Time and Money, by Larry Convoy

I don’t know about you, but I’m all about doing things as efficiently as possible.  Efficiency saves me time and money, and allows me to get more things accomplished. Sometimes I have to do an extra step or two at the beginning in order to implement the efficiency, but when I do, I know I’ll reap the benefits in the long run.

At this month’s group meetings, all members will be asked to fill out a short survey expressing their company’s position on contributing their AR to the CMA and NACM data bank.  The survey should take less than 2 minutes to complete, and your answers could provide an opportunity to save time and money.

When I first started working at CMA, a time when Ronald Reagan was President and the Clippers were actually the worst basketball team in LA, there were 2 options for contributing data. The first was a tape with rigid guidelines that had to be in one format. The second was OCR, drawing little circles in boxes to indicate what the balance, aging and terms were. Neither were user friendly, and it was difficult to get companies to provide a second submission. The incentives were not very appealing either.

Today, you can conduct business from your cell phone, the Kings are going for their second Stanley Cup and contributing AR can be done from virtually any computer system.  The benefits have improved as well: you will save time by never having to answer an RFI nor fill out a past due or meeting review report. You will save money by having an industry-specific data bank at your disposal 24/7, reducing your dollar commitment to third-party reporting agencies.

What we used as our sales pitch in the early ‘80s still applies, “To get information, you have to give information.”  It has just been made easier and more beneficial to you and your company.

Encourage your management to get on board.

Sincerely,

Larry Convoy
Supervisor-Industry Credit Groups
lconvoy@emailcma.org
818-972-5323

Chair’s Message: How to Spot Fraud, by Melissa Kobus

In today’s connected world, fraud is an epidemic that can hurt any company, big or small, and it’s becoming more common.

In my company, we recently were hit with some large fraud both with “phony” PO’s and stolen credit cards.  As credit managers, make sure that you are diligent about watching for the red flags so that we can stop these before we take a hit.  If something does not smell right, look right, etc. – ASK your credit analyst and investigate further.

Please pay attention to the following details when accepting orders (on terms or credit cards):

  • No contact except via email
  • Phone number is from outside the area or linked to Magic Jack phone
  • Urgency of getting a quote or in shipping material (must have it air freight today)
  • Email address is outside the normal address (gmail and yahoo too)
  • Reluctance to complete online forms
  • Typos and misprints on pre-printed information
  • Material type and quantity is out of the ordinary (hard drives, projectors, testers, etc)
  • Material has a high copper content and seems out of the ordinary for a credit card purchase
  • Shipment going to a different location or a location outside of their territory  (Use google earth to research ship-to address)
  • Shipment made close to a border town
  • Credit card number and name does not match the way the account is setup

Our best defense against fraud is a strong front line, so please make sure to keep your eyes open and ask questions, make phone calls, do the research.  We can continue to stop these thieves from hitting your company.

It is important to make sure everyone on your team gets this information.

What measures are your companies taking to prevent fraud? We welcome your feedback.

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

My Favorite (Hidden) Advantage to Joining an Industry Credit Group, by Michael C. Dennis

There are many benefits associated with joining an industry credit group. In my opinion, one of the best reasons to do so is to make certain that your company’s tolerance for credit risk is similar to other companies selling to common customers.

I am all in favor of leading rather than following, and I fully support the idea that credit decisions need to be made independently and in a manner that does not violate antitrust rules. However, I assume and expect that I will benefit from knowing how other creditor companies have assessed the risk associated with extending credit to a common customer.

I think the opportunity to understand how other creditors evaluate/ assess credit risk is probably the most under-appreciated benefit of credit group membership.

Credit Management Association offers more than 40 industry credit reporting groups. In my career, I’ve been in several groups.  As a result of what I have learned from others, I’ve saved my employer tens of thousands of dollars over the years. How have credit groups helped your company? I welcome your feedback.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

The True Cost of Hiring Good Credit Professionals, by Michael C. Dennis

A friend of mine was told by a headhunter that she was overqualified for a position.  What does it mean?  Usually, it is code for: (a) you are too expensive or (b) you are too old.  If we give the hiring company the benefit of the doubt, we are left only with (a).

In my experience as a consultant, many companies fail to understand the potential costs of a bad hiring decision in credit management, which include but are not limited to:

•         Higher bad debt write offs [not risk averse enough]
•         Missed sales opportunities [too risk averse]
•         Higher DSO and A/R carrying costs [inadequate follow up, or poor negotiating skills]
•         Damaged goodwill [with customers, and internal customers such as Sales]

There is an old saying:  If you think it is expensive to hire a credit professional, wait until you hire an amateur.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

Make it a Good One!, by Michael C. Dennis

Sometimes brevity is best.

Most accounts payable clerks receive more voice mail messages than they can (or are willing to) respond to.  When making a call, if you must leave a message, make it a good one!   Your message should be clear and unambiguous.  You should indicate that your message is urgent.  Be sure to say that it is essential that they respond immediately to your important message.

Your time is valuable. So is that of your customers and co-workers. Keep that in mind.

What are your best tips to get your messages heard and responded to?

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

It’s Frustrating, by Michael C. Dennis

Credit managers, are you involuntarily contributing to this situation by lack of communication?

With some customers, getting the purchase order is a long process that involves significant work by your salesperson.  It is easy to understand how frustrating it may be if at the end of a long process it turns out that the company is not creditworthy.  There is no simple solution to this problem, but the credit department can help by working with sales as early in the process as possible and by evaluating the creditworthiness of the company and sharing information and insights with sales.

I know some of you will agree that is not always possible to offer a definitive answer about a potential customer’s creditworthiness until you have completed your review process.  However, the fact that you provide any guidance to your sales department in advance is better than sitting on your hands and waiting for these orders to be submitted.

I choose to work with my sales team to help alleviate frustration. How about you?

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

What’s in a Job Title, by Michael C. Dennis

A friend of mine recently added something new to the signature line on her emails.  They now read:  Dana Keating, LCP.  You know how some people [including me] are afraid to ask questions for fear of showing weakness and ignorance.  Well, I finally asked about her new LCP designation.  Dana told me I am also entitled to use it, and to “tell a friend.”  LCP is the acronym for: Lowly Credit Professional.

So my friends, please consider yourself told.

What’s in your job title?

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

Don’t Delay Dealing Decisively, by Michael C. Dennis

I was just re-reading my recent blog post about career limiting mistakes, and thought I’d add this insight that applies to anyone who is a manager.

Don’t delay difficult discussions with your subordinates relating to performance or behavior problems. Doing so tends to de-motivate and demoralize other members of your team who are usually watching carefully, and will be quick to note when such a problem is not managed effectively. Managers can lose the respect and confidence of other direct reports if they delay dealing decisively with problematic employees.

In this case, I’ve used alliteration to make a point: if one bad apple can ruin the whole bunch, don’t let that bad apple be you.

What trait do you believe makes the most ineffective manager? I welcome your feedback.

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

AVOID CAREER LIMITING MISTAKES by Michael C. Dennis

I was recently thinking about the lessons I’ve learned in my experience as a credit manager, and I thought I’d share them with you. This is the advice I’d give to both a new and veteran credit manager.

You can avoid many mistakes by following these guidelines:

  • Admit when you make errors, correct them as quickly as possible, and learn from them.
  • Always complete assignments on time.
  • Arrive early for meetings, or at the very least be on time.
  • Don’t be a know-it-all.
  • Don’t embarrass your manager in meetings or in writing, and never go behind your manager’s back.
  • Focus on adding value.  Doing only what is required is rarely a good long-term job strategy.
  • If you disagree with your boss, before sharing your POV, ask if they want your opinion.  If the answer is No, follow the instructions you received doing so is illegal, immoral, improper or potentially harmful to you or others.
  • Invest in your continuing professional education.
  • Keep your commitments.
  • Know how much authority and autonomy you have.
  • Make sure your communications are clear and concise.
  • Never complain about your manager at work.
  • Recognize the importance of adapting to and adopting the cultural norms in your workplace.
  • Remember that what others say is not always what they mean. For example, and depending on who is saying it, the phrase: “Please try to complete this assignment as soon as possible” may actually mean “Do it now!”
  • Shore up weaknesses before they hurt your future prospects, or your reputation.  For example, consider whether your presentation or public speaking skills need improvement.

You’ve heard my list. What would you add?

Michael is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals.  He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events.  He can be contacted at 949-584-9685.

My Favorite Payment Excuses, by Michael C. Dennis

My Favorite Payment Excuses

The check signer is:
…sick
…dead
…retired
…suspended
…on vacation
…on maternity leave
…not taking calls from creditors
…away from his/ her/ its desk…

or
…Dying or Lying

Payment is:
…in the mail
…lost in the mail
…going to be mailed
…Gone with the wind

In order to issue payment to you, I need:
…an RMA
…an original invoice
…an account statement
…a signed original invoice
…our purchase order itself
…copy of our purchase order
…a credit for xx% of the invoice amount
…A Miracle

What are your favorite excuses?

Michael is a consultant, and the author of “Credit and Collection Forms and Procedures Manual”

Big or Small?, by Michael C. Dennis

Many companies have faced the question of whether to centralize or decentralize the credit function.   It is a complicated decision.

Here are my thoughts:

  • The trends is overwhelmingly toward centralization.
  • Centralization has the advantage of helping to create an environment in which consistent credit decisions can be made.
  • Centralization enables rapid exchange of information among members of the credit and collection team.
  • Centralization often results in job loss among credit professionals, and
  • Improvements in software hardware make centralization of the credit function easier and more effective every day.

Some companies are now considering or have opted for regionalized credit and collection operations to ensure that the credit team is more closely aligned with customers and with their sales department.

Michael is a consultant, and the author of “Credit and Collection Forms and Procedures Manual”

Annoying Your Customers – Michael Dennis, CBF

Some words that are commonly used by collectors annoy customers. Here are a few examples: ‘Fair’, ‘Reasonable’, ‘Honest’, ‘Rational.’ In the relevant context, a collector might say:

  • We need a fair and reasonable commitment for payment.
  • I want an honest answer.
  • Please provide a rational explanation for the deduction.

Implicit in the collector’s use of these words is the suggestion that the debtor is not fair, not reasonable, not honest and not rational. What’s my advice? Choose your words carefully because more carefully chosen words will open up the conversation, create a dialogue and help you uncover the reasons behind the payment delay. Annoying words, while they may sound reasonable to you, tend to limit your conversations, put customer in defense mode, and make problem resolution less likely.

Alternative phrases you could use:

  • We need to reach a commitment for payment, today.
  • Is there anything more you can tell me about this (transaction, invoice, statement, check) that could help us resolve this problem?
  • There is an unauthorized deduction on the account. I would like to know the reason for it so we can address this deduction, and prevent similar problems in the future.
Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

What other phrases or words trigger unproductive responses? Please share them with readers below.

Author Michael C. Dennis. Michael is a consultant and the author of the Encyclopedia of Credit, a free, fast online resource: www.encyclopediaofcredit.com

 

Said and Done – Michael Dennis, CBF

In the Drivers Seat
In the Drivers Seat

When it’s all said and done, Collectors either want a commitment for payment, or to gather new information to understand why their customer cannot issue payment.  Once a sale is made on open account terms, the debtor is in a very real sense in the driver’s seat.  Why?  Because they have your product and your money.  They decide if and when and how much you will be paid.

Collectors can influence their actions, many time spur payment, but cannot control their actions.  In other words, collectors cannot make customers issue payment, but they can react appropriately to the collection problems encountered. How?  Perhaps by reducing their credit limit.  Possibly, by withdrawing the open account terms.  Maybe by halting any orders in production for that customer.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

What you decide to do should be based on what the debtor says and does.

By Michael C. Dennis. Michael is a consultant and the author of the Encyclopedia of Credit, a free, fast online resource: www.encyclopediaofcredit.com

Exports Fuel Business Growth – Michael Dennis, CBF

EXPORTS-ship
Exports

Exports account for a significant portion of sales for many U.S. based companies. The ability to compete successfully in the global marketplace has become a necessity. So has the need for the credit function to think, act and manage credit risk globally. The procedure for making an export credit decision includes some of the same steps as are used in making domestic open account credit decisions.

In addition to the traditional five Cs of credit analysis, other elements of export credit decision-making include: Country risk; Foreign exchange risk; and the Risk of being misunderstood. Here is an example: If a foreign country refuses to allow companies located there to make payments in US dollars to foreign suppliers, you will likely not receive timely payment irrespective of how creditworthy your foreign customer may be.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Each of these three export related risks can seriously affect when or if you receive payment. Understanding and managing these three risks is at least as important as evaluating the five Cs.

By Michael C. Dennis. Michael is a consultant and the author of the Encyclopedia of Credit, a free, fast online resource: www.encyclopediaofcredit.com

Reactive Downsizing Has Limited Upside

Caution Downsizing
Caution Downsizing

The economy has many companies evaluating downsizing the credit function. Employers rationalize this by defining credit and collections as either (a) a cost center or (b) as a “non core business function.” Since account receivable is often a company’s largest Current Asset, concerns about staff reductions in credit and collections are well-founded.

Downsizing affects effectiveness. Even with careful re-allocation of resources, it may simply not be possible to do the work necessary to control delinquencies and manage credit risk effectively. Some employers are so focused on cost cutting that they are willing

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

to overlook the increased risks associated with reactive rather than proactive credit risk management.

Maybe your company has already downsized. If so, what was the result?

Time For A Change? – Michael Dennis, CBF

Charles Darwin, photographed by Julia Margaret...
Charles Darwin, photographed by Julia Margaret Cameron (Photo credit: Wikipedia)

Charles Darwin theorized that success went to individuals best able to adapt to change, not necessarily to the strongest or the smartest or the fastest.  Changes are most likely to affect, most dramatically, individuals who are the least able to adapt effectively to them.  What’s my advice?  The next time you consider pushing back or dragging your feet in response to a change…. Don’t.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

By Michael C. Dennis.  Michael has authored more than 1,000 essays on the Encyclopedia of Credit.  Please visit:  www.encyclopediaofcredit.com

 

Enhanced by Zemanta

Who Approved That? – Michael Dennis, CBF

Who Approved That?This is a question often asked in relation to the write off of unearned cash discounts.  The people with the authority to approve writing off an unearned discount, or alternatively not charging back unearned cash discounts, often have a vested interest in making the unearned discount disappear.

For example, the salesperson wants a positive working relationship with their customer and may believe charging back unearned discounts is unnecessary.  The Cash Application person certainly knows that it is more work to write off a cash discount than to charge it back.  The Collector assigned to the account knows how difficult it will be to convince the customer to repay an unearned discount if it is charged back.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

I don’t think the solution is to require management approval to write off unearned discounts – either before or after the fact.  That would be slow and cumbersome.  In my opinion, the best solution is to create a policy for use in cash application that addresses when discounts must be charged back as unearned.

Do you have a current policy for handling unearned discounts ?

By Michael C. Dennis.  Michael has authored more than 1,000 essays on the Encyclopedia of Credit.  Please visit:  www.encyclopediaofcredit.com

Experience is Overrated – Michael Dennis, CBF

Repetitive Tasks
Repetitive Tasks

Looking back, I believe that one of the mistakes I made when interviewing for collectors was to focus too much attention on experience and talent, and not enough on other attributes of candidates including: trainability, enthusiasm and work ethic.

Why? Because I equated ‘more experienced’ with ‘better at their job.’ I don’t think I am alone in making this mistake.

More experience is not always better. Five years of collection experience can be either: (a) 5 years of constant learning involving new and progressively more challenging assignments in business debt collection, or (b) One year of experience involving mind-numbingly boring, repetitive, unchallenging work repeated 5 times.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Please consider this suggestion: The next time you are hiring, think about these factors at least as much as you consider an applicant’s related work experience: Attitude, Aptitude, Enthusiasm, Personality and Work Ethic. This is what I plan to do.

What are your thoughts?

Michael C. Dennis is a key contributor to the Encyclopedia of Credit, a free, online resource for Credit and Collection professionals: www.encyclopediaofcredit.com

With Apologies to Poe – Michael Dennis, CBF

Once upon a mid-day dreary,
While I labored bored and weary,
Came a knock upon my door,
Came salesman to implore,
Using words I’d heard before,
Ship the Orders, nothing more.

Pleased I was not by his tapping,
Wakened me from almost napping,
With a comment I abhor:
Ship the Product, nothing more.

To the salesman this I said,
The only words they fear or dread,
Ship the order I can do,
But mark these words I say to you,
Lest they pay and right on time,
In payment get you not one dime.

Standing at my office door,
Face a mask of hate and more,
Said the salesman in reply,
Angry or about to cry,
Perhaps you should consider longer,
Else my statement should be stronger,
I do think this deserve repeating,
While my heart is still a-beating,
Your action’s not what I would take,
Decision’s yours not mine to make.

Your answer now please be amending,
On your words I am depending,
The debtor’s fine, I know they’ll pay,
Late not sooner, that’s their way,
So my friend I do implore,
Ship the Orders, nothing more.

If I ship them at this time,
Paid us this month not one dime,
Higher slow pay I’d be fearing,
With lame excuses I’d be hearing,
From you and them now that’s my fear,
So please come in and listen clear,
You have an option from my end,
If payment now this debtor send,
then ship to them I will again.

Twas a time with payments turning,
Orders too were then a-churning,
Happy was my job back then,
Wish do I those times again.

Of hearing me he gave no token,
Heard no words that I had spoken,
So answered him I did once more,
And just to get him out my door,
When will things be like before?
My answer friend is Nevermore.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Happy Halloween!

 

So What? – Michael Dennis, CBF

So What?
So What?

I recently received an email from an old friend who just completed a long-term temp assignment asking if I knew of any temp or permanent positions.  Naturally, Ann included her resume.  I reviewed that resume, and provided these comments:

  1.  A three page resume is too long
  2. The resume includes too much information in too much detail
  3. The resume is long on listing job duties, but short on describing your accomplishments

An applicant typically has less than a minute to convince the screener that their resume should be forwarded to a decision maker.  A three page resume is too long to review in 60 seconds.  Therefore, the goal is a resume of two pages or less.

The resume included information about every job since 1984. I don’t think anyone cares that she was a credit administrator for the XYZ Corporation from 1984 to 1988.  Fifteen years of employment history is usually adequate.

Ann’s resume included details such as this:  I reduced the over 90 day balance from 5.31% to 2.19% within the first 6 months.  I think this is much too detailed.  I rewrote it to read:  Within 6 months, I increased the percent current from 89% to 97% by conducting one-on-one aging account reviews & training sessions with each collector each month.

Please stop telling potential employers what your job duties are or were.  Instead, describe your accomplishments.  Here is an example from Ann’s resume: I performed reviews of the files of every active customer focusing on risk management.  My response was:  So What?   This rewrite focuses on what Ann accomplished:  By ensuring appropriate safeguards were in place, I reduced bad debts from more than $800,000 in 2011 to less than $200,000 in 2012.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

So what does your resume look like?  If you want my candid [and brutally honest comments], send your resume in confidence to:  mcdennis13@yahoo.com

‘Tis The Season – Michael Dennis, CBF

'Tis The Season
‘Tis The Season

For some reason, post-audit claims always seem to arrive in bunches. I just received two post-audit claims in less than 30 days. I know from experience that post-audit claims are time consuming and can be costly IF your company cannot provide the necessary documentation. Post audit claims typically involve a claim that a customer:

  • Overpaid invoices, and/or
  • Did not receive credits owed, and/or
  • Never used credits issued to them

If you have the support of your senior management, it is not as hard as you think to turn the tables. With management’s support you can and should:

  • Refuse to deal directly with the post audit firm.
  • Immediately reject the auditor’s deadline (which is always too short anyway).
  • Tell your customer how long you need to review the post audit claims.
  • Inform your customer in writing that any deduction taken by them prior to you completing your analysis will result in an immediate credit hold.
  • Prepare a specific, detailed, and comprehensive list of the documents that you require from your customer in order to begin your analysis, and
  • Reject certain types of claims immediately. For example, if you are asked for proof of delivery but the time frame for obtaining a POD from the freight carrier has already passed, that claim should be rejected = thrown out.
Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

I have been told these ideas are “too confrontational” and that is why it is so important that you have your management’s support in dealing with these post-audit organizations.

These are my suggestions. What has worked best for you in the past?

By: Michael C. Dennis. Michael is the co-author of the Encyclopedia of Credit. Please visit www.encyclopediaofcredit.com

Personal Pet Peeves – Michael Dennis, CBF

Pet Peeves
Pet Peeves

These are a few of my (least) favorite things:

  • Too many meetings lasting too long with too many attendees talking too long about too many things that are not relevant to the meeting agenda
  • Along the same lines, attendees who prolong meetings by asking one or a series of inane questions
  •  Anyone who tells me there is “no region like this region” or “no customer like this customer” or “no request for an exception to your standard policies and procedures like this request”
  • Other departments that are willing to save time by doing their work in such a way that it wastes our department’s time having to clean up their mistakes. Hint:  Order entry
  • Anyone who does not spend most of their time on issues that have the highest impact
  • Along the same lines, anyone who allows their inbound email to dictate their work and their priorities
  • Credit decision-making by committee.  Hint:  Eventually, one person is ultimately responsible for each decision, and if for whatever reason two or more people are assigned to make a credit decision, in reality, neither one is responsible for that decision or its outcome
  • Credit department members who are supposed to be responsible for specific decisions or specific activities but are not held accountable.  Hint:  The credit manager is ultimately responsible for whatever happens in the department, but individuals delegated certain tasks must be made accountable for their successful completion.
  • Double negatives in business correspondence or conversations.  Example:  I cannot say that I do not disagree with your comments.
  • Also, any correspondence in which the sender does not know the difference between its or it’s and between they’re, their, and there.  And also, any use of Emoticons in business correspondence
  • People who don’t cover their mouths when they sneeze
  • Also, people who do cover their mouths when they sneeze… with their hand or their hands
  • And people who treat their pets better than they treat most people… as well as people who treat their kids like pets
Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

What are your Personal Pet Peeves?

By: Michael C. Dennis. Michael is the co-author of the Encyclopedia of Credit. Please visit www.encyclopediaofcredit.com

The Law Of Diminishing Returns – Michael Dennis, CBF

Diminishing Returns
Diminishing Returns

One aspect or application of the Law of Diminishing Returns states that there is a break-even-point at which the cost of additional resources [including time and energy and effort] does not match the benefits associated with the application of these resources.   This is true in manufacturing, as well as in credit and collections.  At a recent credit group meeting, I took an informal poll over lunch and found that no one at a table of 12 worked less than 50 hours a week and the majority worked 55 hours or more.  Every one at that table agreed that they wanted were trying to demonstrate their commitment to the success of their employer, and not one credit manager wanted to be labeled a clock watcher. Next, I asked:  How many of you work more hours than your peers and your manager?  The answer was almost everyone.

Here are some indications that you ether you have passed the break-even-point:

·         You are working more than 50 hours a week

·         Your spouse, or children, or co-workers or manager consider you to be a workaholic

·         At least once a week, you return to the office less than 12 hours after you left the previous day

·         You start reviewing your messages and emails before arriving at the office

·         You work weekends more than once a month

·         You gather more information than is necessary to make the credit decision based on the rationale that More is Better

·         When performing financial analysis, you calculate more financial ratios than you actually need or use to in the decision-making process

·         When internal customers request an explanation, you provide a lengthy narrative attempting to answer questions that have not been asked which may or may not be relevant to the internal customer

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Please visit the Encyclopedia of Credit at www.encyclopediaofcredit.com for time management and time saving strategies.

By: Michael C. Dennis. Michael is the co-author of the Encyclopedia of Credit. Please visit www.encyclopediaofcredit.com

CMA Member Credit Confidence Scores – 2009-2011

Each quarter CMA surveys our members about their payment experiences and payment confidence for the next quarter.

The CMA Credit Confidence Score represents the level of confidence our members have in their customers’ ability to pay in the next quarter. The scale is 1 to 10 with 10 being the highest level of confidence.

The graph below displays our members credit confidence by quarter starting in Q2 2009. This is an overall score with all industries included.

Scores since 2009
Scores since 2009

In Q2 2010 we started tracking the score by industry. The three major industries reporting are graphed on the chart below.

Scores by Industry

 

Please feel free to reference this data, with our permission. CMA would appreciate acknowledgment using our full name Credit Management Association and/or website address CreditManagementAssociation.org.

Younger & Clueless – Michael Dennis, CBF

No Clue
No Clue

Years ago, I misjudged the negotiating power of one of our largest customers. The customer was a national retail chain that routinely paid 20 to 30 days beyond our terms. I decided to draw a line in the sand when the account slipped to more than 45 days past due with no payment commitment offered. I left a voicemail message with the customer’s Controller indicating that if payment was not received within 7 days, the account would go on shipment hold. I expected a quick return call.

Instead, the division President [meaning my manager’s boss] received a call from their Purchasing Manager who said something like this: “We were just told that our account will be on credit hold 8 days from today. If this happens, your company will be taken off our preferred supplier list that day, meaning you can forget about the $10 million a month in purchases we have forecasted. Let me know what you decide to do.”

I often write and speak about the need to be more assertive in debt collection. From time to time, I have to remind myself that creditors are not always in the best negotiating position. In the situation described above, in return for (1) my sincere apology to the customer and (2) a promise never to test the limits of our bargaining power with any of our 50 largest customers again, I negotiated a deal to keep my job.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

The moral of the story is this: Know with whom you are negotiating, and adjust your strategy accordingly.

Have you ever had a negotiation take an unexpected turn?

By: Michael C. Dennis. Michael is the co-author of the Encyclopedia of Credit. Please visit www.encyclopediaofcredit.com

When the Going Gets Tough, The Best Get Going – Michael Dennis, CBF

When the Going Gets Tough
When the Going Gets Tough

I spoke to a friend of mine recently.  I have always considered her to be a truly accomplished and knowledgeable credit professional and manager.  She told me that she received a 2% increase at her most recent annual performance review.  Her said that her manager told her that 2% was “the best the company could do.”  He added that many employees would be receiving no performance increase this year.  She was not pleased by a 2% increase which she pointed out was not even keeping up with inflation.

She asked if her manager thought that her performance over the last year actually warranted only a 2% increase.  He  responded that the 2% increase was not based on her performance; It was based on the company’s sales and profitability, and also on the Board of Director’s decision about the amount of money available for raises.

She told me she was both befuddled, demoralized, and demotivated and she planned to evaluate all of her options.  I asked if that meant she would be looking for other employment.  She said, almost matter-of-factly, that she could think of no incentive to stay but would not leave until she had secured other employment.

When one considers the huge costs associated with replacing any employee and in particular a key decision maker such as the credit manager, I find it hard to understand why companies would risk the

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

attrition / defections that are likely as a result of a maximum 2% annual performance increase… because when the going gets tough, the best get going.

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.

The Most Expensive Type of Mistake – Michael Dennis, CBF

Most Expensive Mistake
Most Expensive Mistake

The most expensive type of mistake to make is one that you do not learn from.  Why?  If you do not learn from your mistakes, you are likely repeat them.

In my opinion, every time a company has a bad debt write off, an examination should take place to determine if the credit risk was properly evaluated and monitored, and if the account was properly managed once there was a reason to believe the customer was in financial trouble.  I look for information such as this:
  • Who made the credit decision?
  • Was it properly documented?
  • When was the last time the credit file was updated?
  • What was the first indication that the debtor was in trouble, and what action was taken at that time?
  • What steps were taken to collect the past due balance?
  • When was management informed about the problem?
  • More fundamentally:  Was everything done that could be done to prevent the problem in the first place, and to minimize the impact on the creditor company once the problem became apparent?
Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

I believe that an objective review is critical, and that any and all of the lessons learned be shared openly with the entire credit team.  The intent is not to embarrass anyone.  The goal is turn lemons into lemonade. To make the best of a bad situation and ideally to reduce the chances that the company will lose money as the result of a similar problem in the future.

Do you try to put past problems behind you as soon as possible, or do try to learn something from every bad debt write off?

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.

Cold Dead Fish Served on Rice – Michael Dennis, CBF

Cold Dead Fish On Rice
Cold Dead Fish On Rice

I believe there is a tendency among credit professionals to sell themselves short.  If we described Sushi as “cold dead fish served on rice” people would think long and hard about ordering it because that is selling Sushi short.  Every successful credit professional I know is a solution provider. They have a unique set of skills and capabilities that benefit both internal customers and external customers.  So, don’t sell yourself short. Remember the solutions we offer include:

  • The capability to evaluate and understand external customers’ financial condition and understand how financial distress impacts their ability to pay you
  • The flexibility required to address dramatic changes in workload that can and do occur from day-to-day
  • The foresight necessary to recognize that one important way creditor companies succeed in the marketplace is by making fast and accurate credit decisions
  • The core group of skills necessary to assign appropriate credit limits
  • The expertise to select from various tools to mitigate credit risk when necessary
  • The ability to effectively and efficiently collect delinquent payments, as well as to address disputes and deductions
  • The skills required to address the interrelationship between higher risk and higher sales and to find the ‘right’ balance between the two
  • The ability to make our decision making process transparent to our internal business partners
Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Next time someone asks you what you do for a living, remember how you contribute to your company’s survival. Credit is not “cold dead fish served on rice;” it is the lifeblood of the company and each of us are striving to master the skills necessary to be an artisan of the craft of managing business credit risk.

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.

Update on the Overworked – Michael Dennis, CBF

Overworked Update
Overworked Update

A couple of weeks ago, I wrote about a fellow credit manager working 60+ hour weeks with no end in sight.   I commented that he was putting his health and his marriage at risk and challenged him to either (a) take action, or (b) choose to do nothing and accept the consequences.

I have an update.  He met with his manager and told him the workload was not sustainable.  His boss said that he had no idea that anyone in the credit department was working 60+ hour weeks.  In fact, all his boss knew was that the work was getting done, including special projects assigned to the credit and collection team.  His manager said that he assumed and believed that since things were operating effectively and all tasks were being completed even with the reduced credit department staff that no increases in headcount were required.

My friend has agreed to:  (a) Work 11 hours a day for the next two weeks, followed by (b) 10 hours a day for the following two weeks.  After that, he has committed to work a solid 9 hour work day going forward. Meanwhile, my friend is tracking and reporting on how much time he spends on the various tasks he performs each day.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

I am convinced that addressing or confronting this problem head-on was the right decision.  He told me he was not going to pretend that his manager was happy to learn he was no longer prepared to work 60 hours or more a week.  However, he is convinced that the time studies he completes each week will highlight the workload problem for his manager in a short amount of time.

When you have found that the volume of work assigned outstrips your bandwidth, what steps have you taken to change things?

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.

Can You Walk and Chew Gum at the Same Time? – Michael Dennis, CBF

Multitasking or Managing Priorities?
Multitasking or Managing Priorities?

If your answer is Yes, do you consider this to be multitasking?  I believe multitasking is impossible.  If you disagree, try this simple experiment:  Can you: Add 8+13+9 and spell the name of your first pet at the same time.  If you can, you are capable of multitasking.  Here is a work example:  Can you type a final demand notice and give your full attention to a difficult negotiation with a seriously delinquent debtor at the same time?

What most or all of us do every day is not multitasking.  It involves managing multiple, competing priorities.  In my opinion, the keys to doing so successfully include:

  • Keeping track of the tasks you are required to perform/complete
  • Prioritizing these tasks
  • Spending the appropriate amount of time on each task
  • Delegating work whenever possible
  • Making sure nothing gets missed
  • Finding appropriate ways to cope with the stress associated with managing multiple priorities
  • Helping subordinates and co-workers understand how to prioritize this type of work
  • Documenting your successes, and learning from your failures

The first step is often overlooked, but it is the most important step for any member of the credit team. The first step is to make certain that you and you manager agree what you top priorities are.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Once this is resolved, your goal of managing multiple, competing priorities will be easier.

If you establish your own priorities, please consider this question:  How do you know you are right?

So, do you multitask or do you handle multiple priorities?

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.

Discretion is the Better Part of Valor – Michael Dennis, CBF

Discretion In Action!
Discretion In Action!

From time to time, everyone must deal with an irate customer.  Sometimes, I feel like I am talking to a child throwing a temper tantrum.  Over time, I have learned by trial and error what not to do or say when a customer is having a meltdown on the phone.

I learned to be patient.  Temper tantrums usually blow themselves out.  I learned that people are often upset because they feel their needs are being ignored or no one is listening to them.

One of the biggest challenges is to stay calm.  If the customer shows no sign of slowing down, I think it is time to disengage. Something that works for me is to say this to the customer —and yes I have it written down on a 3×5 card.

“I recognize things are pretty tense right now and I don’t think we are going to make a lot of progress today.  I will give you a call the same time tomorrow.  In the meantime, I will discuss your concerns with senior management and I do appreciate your time.”

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Whenever possible, I ask my manager to join the follow up call.  I am often amazed by the difference in the customer’s demeanor.

How do you deal with temper tantrums?

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.

I Am Now Working Part-Time – Michael Dennis, CBF

Get In Balance
Get In Balance

I was talking to a friend of mine recently at an industry credit group meeting.   He told me over lunch that he was now working half days.  I congratulated him.  He told me his comment was meant as a joke and that half-days meant he was working 12 hours a day, every day.  He explained that his credit team had shrunk by 50% over the last 2 years because senior management would not approve job requisitions as people left the credit department.

He has been working at least 60 hours a week for more than a year, and told me it was taking a toll on his family life and probably his health.  I asked what he planned to do differently, and he told me that in this economy he felt lucky to have a job… but that if a better opportunity presented itself then he would certainly consider it.

In my opinion and in my experience, job opportunities rarely present themselves.  People normally change jobs after an extensive job search.  The math works something like this:  For every 100 jobs you apply to, you will receive perhaps 10 responses.  For every 10 responses, you are likely to become a finalist for one of those ten jobs on average.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

My advice was for him to either (a) change his present working conditions starting with a candid face to face discussion with his manager, or (b) change his employer through an active job search.  After all, all he has to lose was his health and /or his marriage.

When you are stretched to the max at work what approach(es) do you take to reduce your stress level and the impact on your personal life?

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.

Enhanced by Zemanta

How I Start My Work Day – Michael Dennis, CBF

starttheday
Start The Day

I start every day with five to ten outbound phone calls. The reasons for making these calls include:

· Ensuring that problems previously identified have been addressed and resolved
· Thanking customers and salespeople for their assistance
· Requesting help from other employees in addressing open issues
· Following up with customers to make sure documentation sent was (a) received and (b) understood and (c) addressed the specific question or concern
· Asking customers or fellow employees for specific supporting documentation
· Asking for feedback about what I can do to help them avoid recurring problems in the future
· Soliciting feedback… and in particular complaints and concerns about the work done by me or my team
· Requesting a heads-up on any events that will require additional resource allocation by the credit and collection team.

The information exchanged is valuable, but this is only part of the reason for placing these calls. As you know, it is easy for credit department become both insulated and isolated. For the credit department to remain relevant, it cannot operate independently.

One of the easiest ways to stay relevant is to reach out every day to your peers, your customers, and your superiors by phone. Some credit professionals try to build rapport and improve working relationships via email. Email messages are less

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

time consuming but also less effective than phone calls in developing or improving personal relationships.

So, how do you start your work day?

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.

Why Do We Have to Call Customers Every Week? – Michael Dennis, CBF

Why?
Why?

A friend of mine is a credit manager. She told me that during a regularly scheduled staff meeting, one of her newer collectors asked why they were required to speak with a delinquent debtor no less frequently than once every seven days — in contrast to simply leaving voice mail message for them. My friend said that she quickly considered a range of answers, including these:

  • Because I said so
  • Because it is your job
  • Because you could be terminated if you don’t do it
  • Because follow up is an important part of your job duties
  • Because calling customers works; it is an effective collection tool
  • Because if the debtor answers your call, at least we know they are still in business
  • If for no other reason, because we measure this, meaning this is one way we evaluate your job performance

Instead, she asked the other members of the credit team to explain why calling delinquent debtors each week is important. They responded:

  • Because it works as a collection tool
  • So the debtor does not become complacent
  • To remind the debtor that we are not going away
  • Because if we don’t call, it can easily become a matter of: “Out of sight, Out of mind”

In my opinion, rather than always being the one that answers these questions, it is important for the Credit Manager to encourage peers to address issues such as this. To do so requires little more than a simple question such as this: Who would like to take a shot at answering this question?

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Sometimes hearing the answer from peers rather than management makes acceptance of the answer easier.

Does anyone reading this have another answer as to why calling delinquent debtors weekly is important?

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.

So What? – Michael Dennis, CBF

Answer- So What?
Answer- So What?

A couple of years ago, I joined the Financial Executives Networking Group (FENG). Networking is often the key to finding a new position, especially when you are out of work. For me, one of the advantages of FENG membership is that I can repay in-kind the people who helped me through two layoffs. I volunteered to review resumes submitted by FENG members for peer evaluation. Some resumes are simply outstanding. Many are not. A good resume might open doors for a job candidate, but a poorly written resume will slam them shut, especially when you remember that individual resumes are normally screened by human resources in a minute or less.

A friend of mine was laid off recently, and asked me to review his resume. It ignored a basic rule I now call: So-What? For example, his resume stated: “I managed a staff of 9 collectors.” So What? If his resume stated: “I managed 9 collectors and with my guidance we reduced DSO by 40% and bad debt losses by 60% within 12 months” then every potential employer would have an answer to the So What question.

Here is another example from the same resume: “I developed and ongoing dialogue with the sales management team to foster closer collaboration.” So close, but so what? His resume could have said: “I developed a collaborative working relationship with sales management resulting in an incremental increase in sales of at least $15 million a year.”

In my opinion, resumes need to be more focused on accomplishments, and far less on job responsibilities. Remember, you have one chance in about one minute to impress one resume screener enough to include your resume in the “for further review” pile. Don’t waste that chance.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

In my experience, most resumes break the “so what” rule. What do you think of resumes you receive that break this rule?

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.

I Just Don’t Have Time – Michael Dennis, CBF

Don't Have Time
Don’t Have Time

At a recent industry credit group meeting, the morning guest speaker talked about the need for periodic financial statement updates from customers. One of his strongest recommendations involved updating statements no less frequently than once a year…an idea I agree with completely.

Over lunch, several of the credit managers at my table basically scoffed at the idea of annual updates. One common concern or complaint involved not enough time or resources. One especially vocal credit manager said: “If I actually had to update financial statements once a year, it would take nothing less than 40% of my time.”

In my opinion, annual customer financial statement analysis is a critical success factor for any credit department. I am not convinced that credit managers can effectively manage credit risk without period financial updates and analysis… even if

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

doing so does take 40% of the manager’s time. Of course, this work is routine and can and probably should be delegated to an employee of the credit and collection team as quickly as possible.

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.

What are your thoughts?

Must Do – Michael Dennis, CBF

Must Do List
Must Do List

A decade or so ago, I carried around a particular brand of Day Planner about 2 inches thick.  I attended a workshop on how to use it, and other workshops on related topics including Prioritizing and Creating a To-Do List.

That was then, and this is now.  I no longer focus on generating daily To-Do lists.  I no longer worry about classifying tasks as: A, or B or a C priority.  Now, I have a Must-Do list which is far shorter than my To-Do list would be.  This allows me to focus on the tasks that must be completed…or else.

Instead of assigning tasks as: A, B or C priorities, I now focus on identifying and completing only A priority tasks.   The rationale for doing is as follow:  I will be very lucky just to complete the A priority tasks each day.  Therefore, I can ignore B and C tasks unless they, at some point, become A priorities.

When I share this technique, I am sometimes asked this question:  How do you keep track of B and C tasks so they do not get overlooked?  The answer is that I don’t track them.  When a B or C task becomes an A priority, I add it to my list and take care of it.  The only time I work on B or C priority tasks is on those rare occasions when I have completed all my A priorities.  Another common question is:  How do you track your Must-Do’s?  As I mentioned earlier, I generate or more precisely update my Must-Do list every day.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

In my opinion, everyone should have a Must-Do list, and focus on it.   In this way, each of us can focus our time, energy and attention on the tasks that are the most important.  I also believe this process may not work for everyone…but it works for me.

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.

Enhanced by Zemanta

Share the Burden – Michael Dennis, CBF

Build Your Network
Build Your Network

As a credit manager, you know that unless the credit limit requested exceeds your level of authority, the responsibility for making the decision is yours.  Many, and probably most credit managers carry this responsibility alone.  I believe this is a serious mistake.

In my opinion, credit managers should develop a network of advisors.  This is not a network of people simply to commiserate with.  Instead, it should be a group of individuals with whom you can share issues and concerns, and with whom you can request feedback about the more difficult credit decisions.

I joined a network of credit professionals more than five years ago.  I know this network has helped improve the speed and accuracy of the decisions I have made, and I am convinced that every credit manager should consider forming their own network.  Just be careful that you

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

do not violate any antitrust rules when discussing ways to mitigate credit risk.  For example, I never reveal the name of the customer that I am calling about when requesting guidance from my circle of trusted advisors.

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.

Willing to Walk Away – Michael Dennis, CBF

Willing to Walk Away
Willing to Walk Away

A new credit applicant company refused to sign our credit agreement or list bank and trade references, or provide financial statements, or sign a personal guarantee.  The VP of Sales stopped in to tell me that this applicant was “important” and could become one of our larger customers.  He added that he would have to “pull out all the stops” if this applicant was rejected.

With this conversation in mind, I met with my manager and explained the situation.  I said I was uncertain how to proceed, but based our standard tools for credit evaluation; the applicant clearly would not qualify for open account terms.   Even if they did, the credit limit I might assign on a good day would be perhaps one-tenth of the credit limit our salesperson had requested.

My manager told me to:

  • stop straddling the fence,
  • stop hoping that she would make the decision for me,
  • stop worrying about the Sales VP’s comments,
  • start thinking logically,
  • start doing my job.

Later that day, she asked what my decision was.  I told her I refused to extend credit.  Her only comment was that if an applicant is unwilling to provide basic information to a new creditor that there is good reason for concern.  In my opinion, this company either (a) had something to hide, or (b) had an inflated opinion about

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

their creditworthiness.   In hindsight, I realized she was right.  I had all the information I needed to reject the application. Her approach was a great way for her to reinforce my role and my responsibilities.

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.

Fishing For Information – Michael Dennis, CBF

Fishing For Information
Fishing For Information

In the last week, I have received calls with questions from two different members of our industry credit group.  In both cases, the answer to the question was essentially a click away and I referred the callers to the Encyclopedia of Credit.  As some of you already know, access to the Encyclopedia of Credit is available at no charge, and it is searchable by subject.  At present, the Encyclopedia of Credit contains well over 1,000 essays on a wide variety of credit and collection related topics, with additional information being added or updated every week.

Don’t get me wrong.  I enjoy speaking with other credit professionals, and I consider many of the people in my credit group to be friends as well as colleagues.  That said, my decision to refer the callers to this online resource is reminiscent of this old adage:

Give someone a fish and you feed them for a day.  Teach someone to fish and you teach them to feed themselves forever.

So, if you are fishing for information on almost any business credit related topic, I think your first step should be to visit the Encyclopedia of Credit website, located at:  www.encyclopediaofcredit.com

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

In my opinion, the information it contains is practical, pragmatic, factual and authoritative.  I think it is one of the most valuable resources Credit Management Association makes available to its members and probably one of the least frequently used.

Do you have any other online sources of information that you visit and would like to share with other CMA Members?

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.

Enhanced by Zemanta

What’s in an Effective Final Demand Letter, by Michael C. Dennis, CBF

Final Demand
Final Demand

I recently received a final demand notice from a Supplier.  After I read it, I sent it to our A/P Manager.  Whenever I receive something from another credit department, I try to see what I can learn from them.  In this case, there was essentially nothing to learn.  The final demand letter was too long, and it took more than a paragraph to get to the point.  Add in the fact that it was addressed to the “Credit Manager” rather than to our A/P Manager, or the Controller or CFO, and it was even more of a mess.

Our basic demand letter says this:  “As of today, there is a balance past due of $x.  I hoped this matter could be resolved amicably, but I am almost out of time.  If payment in full is not received within ten days, your account will be placed with a third party for immediate collection or legal action.”

More broadly, I think the keys to generating effective correspondence include:
  • Making certain your message is clear and concise;
  • Not repeating yourself;
  • Avoiding the use of jargon;
  • Sending correspondence directly to an individual – never to a job title;
  • Indicating the action you need the recipient to take, and the deadline for completing it;
  • Not being overly formal;
  • Trying to appeal to the reader’s needs;
  • Keeping your message brief and professional;
  • Using templates for routine correspondence.
Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

That’s my opinion.  What is yours? How about sharing the highlights of your Final Demand letter in the Comments section?

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.

 

A Better Mouse Trap? – Michael Dennis, CBF

A Better Mouse Trap?
A Better Mouse Trap?

I recently attended a Lunch-And-Learn program sponsored by our credit reporting agency.  Their guest speaker spoke about the importance of accurate bad debt forecasting.  His presentation described a study he had conducted for the credit reporting agency in which customer ratings were used to establish appropriate bad debt reserves.  I was intrigued.

He recommended that every creditor company rate its customers on a scale of 1 to 5, with 1 being the lowest risk and 5 being the highest risk customers.  Without repeating the actual formula used to calculate the bad debt reserve, suffice it to say that accounts rated a 5 had significantly higher reserves as a percent of open A/R than low risk customers.

On the drive back to the office, it occurred to me that problem with this process was that the classification of customers into one of the five risk categories was largely arbitrary.  Once that became clear to me, the idea of testing this methodology for establishing an appropriate bad debt reserve was abandoned.

However, my manager liked the idea.  He said our outside auditors would love reviewing the documentation used to calculate the bad debt reserve.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

In my experience, bad debt reserves are difficult to calculate and usually incorrect… often grossly inaccurate.  I think that the idea of building a better mouse trap is good, but that this was not a winning design.

How do you estimate bad debt reserves? How accurate have your estimates been? Maybe someone out there has the better mouse trap.

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.

Opportunity Is Knocking – Michael Dennis, CBF

Opportunity Is Knocking
Opportunity Is Knocking

Today’s business climate provides an excellent opportunity for credit managers to refine and sharpen the collection and risk management skills and to refine the process within their departments. 

Credit managers across all industries face continual pressure to:

  • (1) reduce DSO
  • (2) minimize bad debt losses
  • (3) offer more reports, analysis value-added services to internal customers or to their senior management team. 

Unfortunately, many credit managers spend so much time on items 1 and 2 that they dedicate far less time to item 3 than it deserves.

Improving the effectiveness and efficiency of every task performed in the credit and collection function has become more important than ever. The current economic climate provides a perfect opportunity for credit professionals to redesign and refine credit department operations including:

  • The risk mitigation process
  • The collection process 
  • Dispute management 
  • Process automation 
  • Develop more collaborative relationships

One new task that the credit department is ideally suited to accept involves evaluation of the financial health and viability of potential suppliers, as well as existing suppliers.  The impact on an organization when a single source supplier fails to deliver products on time, or worse, or goes out of business can be devastating.  It takes very little imagination to see how the information resources available to the credit department combined with the financial statement analysis skills can be used to evaluate the financial condition and long-term viability of a supplier.  This information provided by

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

the credit department to purchasing/procurement could be used to proactively manage this risk.

Opportunity is knocking – do you see other opportunities for credit at 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.

You’re a Warmonger! – Michael Dennis, CBF

Warmonger
Warmonger… really?

I have been called a lot of things. An email I received recently from a division sales manager was the first time I was called a warmonger.   I had to look up the definition.  A warmonger is someone who tries to stir up wars.

I called and asked what he meant when he wrote this.  The divisioin manager told me there was a widespread feeling that I enjoyed conflicts with customers, and that maybe I got a rush when I had to handle disputes between sales and credit, or between credit and an applicant, or between credit and an existing customer.

I told him that he was totally wrong.  I reminded him that no one is thrilled to hear from me or my team.  No one likes to be told that their orders are on hold.  No customer likes to be in a position in which they must make a specific commitment to clear a past due balance.  Also, no one likes to be proven wrong when we document that deductions were taken in error and must be repaid.  No company wants to be told they do not qualify for (a) open account terms or (b) a higher credit limit.

In response to the warmonger comment, I said:  I am not looking for a fight with anyone.  I do not look forward to disagreements. However, I cannot back down just because a customer is disappointed, angry, irate, profane, belligerent, dismissive, demeaning, sarcastic, caustic or

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

otherwise unpleasant.  These difficult interactions help limit bad debt losses and reduce serious payment delinquencies.

That’s my opinion.  What is your opinion?

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.

 

Conflicts with Customers – Michael Dennis, CBF

Conflict
Conflict

In a meeting last week with our VP of Sales,  this comment was made after a particularly lively discussion about whether or not a seriously delinquent customer with two broken payment commitments should be on credit hold:  “I think you enjoy situations involving conflicts with our customers.   It is almost like you made the decision to place this customer on hold because you can… and that you did not take time to look at all the facts including:

  • How devastating placing them on hold will be to them and to their production schedule
  • How much damage you caused our business relationship
  • How much business they so with us every year, or that their sales have been trending up
  • How bad it would be if we lost this customer, and how difficult it would be to find a replacement for our lost sales.
Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

In my opinion, the decision to hold was necessary and appropriate.  I also think thisjob is not a popularity contest.  I don’t think anyone enjoys conflicts, but conflicts in credit and collection are unavoidable and inevitable.

That’s my opinion.  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.

Is Credit Insurance the “Silver Bullet”? – Michael Dennis, CBF

The SIlver Bullet
The SIlver Bullet

In response to a recent blog in which I suggested that companies not reporting bad debt losses are not taking enough credit risk, I received an email suggesting that I had overlooked an important option which would allow B2B creditors to offer credit to less creditworthy companies with little or no credit risk.  His comment was essentially this:  Credit insurance is a “silver bullet.”  Bad debts are the problem and credit insurance is the solution.

Of the 25 years I have worked in credit and collections, I spent at least ten years with companies that purchased credit insurance including my present employer.  In each of those ten years, my company experienced bad debt losses, and in only one of the ten years were the costs associated with credit insurance offset by the recoveries we received.  How can this be true?  The answer is that there are a variety of factors, including these:

  1. My company [and most applicant companies] cannot not get credit insurance on every account for which coverage is requested.  Unfortunately, it is often these higher risk accounts (the zero credit coverage accounts) that fail
  2. Credit insurance is never first dollar coverage.  Insurance policies have (a) an annual deductible, (b) a per loss deductible and (c) a minimum dollar loss threshold below which losses were not insurable.  Put these together with the annual credit insurance premium and it is relatively easy to see how hard it could be to receive more than you put in.
  3. Each credit insurance policy issued had an annual dollar cap on payments.  If and when the cap on payments is reached, all bad debt write offs above the dollar cap are not covered by insurance and are bad debt losses.

In my opinion, credit insurance is not the silver bullet solution to bad debts.  However, I have a slightly different perspective on a statement I made previously that “bad debt losses are inevitable for companies offering open account terms”  which is this:

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

“Bad debt losses are inevitable for companies offering open account terms… unless the company’s credit department refuses to accept appropriate credit risks.”

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.

No Bad Debt Losses? – Michael Dennis, CBF

No Bad Debt?
No Bad Debt?

A friend of mine called to ask if it was possible to have no bad debt losses. My flippant response was: “Sure, if you don’t take any risk.”

Another friend of mine was fired after three years with no bad debt losses. Why? Because management said he was not taking enough risk. It is easy to limit risk if you limit sales to marginal or high risk customers and applicants for open account credit terms. However, there is a cost associated with this benefit.

If your credit granting criteria are set too tightly, you will turn away profitable business because of the possibility of slow pay or non-payment by one or more of these high risk accounts.

I told my friend that the role and the goal of the credit department is not to eliminate credit risk. Instead, it is to manage risks so that losses are contained and controlled. Of course, this is a lot more work than simply taking no risks and incurring no losses.

Why do most companies take these risks? The answer is simple: The companies do so because they are convinced that over the long-term the additional profits that will be generated on the open account sales made to marginal or high risk accounts will more than offset the bad debt losses that will be taken.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

Here is the bottom line: I do not know of any well-managed, growing, profitable company that does not require their credit department to manage risk rather than avoid them. In my opinion, any company that routinely reports no bad debt losses is too conservative and is leaving profits on the table instead of in their pockets where they belong.

That’s my opinion, 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.

A View From Under The Bus – Michael Dennis, CBF

View From Under The Bus
View From Under The Bus

I had lunch with a friend and former manager last week.  When I left the company, he was VP of Finance.  Since then, that company has been acquired by a competitor.  Since he is still employed, I assumed things were going well.  Wrong!

I asked him how he liked working for the new company.  He said the first day following the acquisition, he was demoted and that he is now the Director of Finance.  His base salary was left unchanged, but his bonus was reduced “so he could be in line with his peers” at the parent company.

I said things could be worse.  He said they were… and asked me if I wanted to hear about the view from “under the bus.” He told me their new General Manager does not have a good thing to say about his work.  He said the only time the GM calls is to complain, and that he often complains about issues over which my friend has no control.  I asked if he thought they were trying to get rid of him, and he said he was sure of it.

Some companies do a very poor job of terminating employees.  Of all the ways to do so, the idea of nagging, harassing, complaining and criticizing people until the give up and leave ‘voluntarily’ seems to be a completely unprofessional approach, but one that is used far too often.

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

In your career, have you been pushed under the bus? If so, please share your story.

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.

My New Year’s Resolutions – Michael Dennis, CBF

Be Awesome
Be Awesome

For years, I have been writing New Year’s Resolutions every year.  These resolutions usually addressed perceived deficiencies.  For example, one of my resolutions last year was to become more proficient at analyzing foreign financial statements.  Another resolution was to lend my expertise to the Purchasing Department by becoming more active in qualifying new suppliers.  This year, my Resolutions are quite different.  They include:

·         Have more fun at work
·         Take work less seriously
·         Try to stop worrying about things I cannot change
·         Find out what the boss wants, and make sure I deliver it
·         Leave on time at least one day a week and ideally more than once
·         Follow through on the promise I made to delegate work more frequently
·         Address problems but don’t forget to focus on the person and the problem
·         Take real vacations by not responding to messages and emails while on holiday
·         Follow through on the commitment to build bridges, not fences, between sales and credit
·         Never turn down an offer of assistance, and ask for additional resources if/when you need them
·         Give up on the idea that every customer related dispute can be resolved provided enough effort is put into addressing that dispute

I think every credit professional should develop new resolutions like these that help them to:

·         Focus on the positive aspects of work and life
·         Change the focus from addressing perceived deficiencies to developing a better balance in life
·         Help you to focus on what is important rather than simply urgent resulting a fundamental change involving a broader perspective which in turn should make me more rather than less valuable as an employee

Michael Dennis, MBA, CBF, LCM
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.

How To Handle a Bribe – Michael Dennis, CBF

No Bribes
No Bribes

A friend of mine called recently to share this story.  A member of his credit team was contacted by a customer.  She was asked if she responded to trade reference inquiries.  She answered yes.  The customer asked if the trade reference she provided would be done“faster and better” if she received a $250 expediting fee.  She told the caller: “After this call, I will meet with my manager to discuss your offer.  If he agrees that there is nothing inappropriate about it, I will be happy to accept your offer…but I can only guarantee the reference request will be answered faster – not better.”

My friend’s question was this:  How would you address this situation?

I responded that I would not confront the customer about the $250 bribe offered if for no other reason than the accusation would be based on hearsay.  I suggested that based on the customer’s unethical behavior that this account should be flagged for special attention which would include:

  • Updating the credit file more frequently
  • Requiring the customer’s financial statements more often
  • Possibly having the credit manager handle the account personally for a period of time
  • Calling more often and sooner once the account is past due
  • Holding orders sooner when the account is past due

Someone said:  You never get a second chance to make a good first impression.  I think the corollary is this:  You rarely get a second chance to convince me that your company operates ethically once you have

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

lied to me or done something that causes me to question your ethics and honesty.  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.

A Vote Of No Confidence – Michael Dennis, CBF

Inconsistent Choices

A friend of mine was invited to a meeting in his manager’s office. The VP of Sales and the Controller were waiting when he arrived. He was told that sales management had no confidence in the credit department because the decisions made by the four people in credit with the authority to release orders or increase or decrease credit limits were “wildly” inconsistent. I asked an obvious question: Is there a difference in the way you and the other approvers evaluate risk and make credit decisions? He admitted there were differences.

He then asked the tough question: What should I do now? I responded that he had to focus on winning back the trust of his manager and the sales department, and that this was not the time to do anything in half measures. I said it was important to review all ship / hold decisions being made along with the credit limits assigned as well as the risks associated with applicants rejected. I added that if the problem was not addressed quickly that my friend’s job is at risk.

In my opinion, when credit decisions being made are inconsistent from person to person, the decisions appear arbitrary and poorly understood. I think it is critical for every credit manager to review ship/hold decisions and credit limits approvals from time-to-time as a way to be sure that the decisions being made are consistent irrespective of which member of the credit department

Michael Dennis, MBA, CBF, LCM

made the decision.

That’s my opinion. How would you handle a vote of “no confidence”?

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.

Not A Great Idea! – Michael Dennis, CBF

Not a Great Idea

Last month, I was invited to attend an industry credit group meeting as a guest / prospective member.  FYI, this group was not part of CMA.  I was also invited to the group’s reception the night before, which is a regularly scheduled event because many attendees fly in for the group meeting the night before.

 During the reception, I was introduced around, but as often happens I hung out for most of the evening with two members.  After the reception, they invited me dinner.  The only reason I declined was that I had filled up on appetizers.

The next morning, I joined my new friends for breakfast, and sat with them for the group meeting.  Soon after the meeting started, I wondered if they worked for competitor companies.  During the first break, I asked that question and I was told:  “Our companies compete.  We don’t.  The only thing we want to accomplish is to reduced bad debts and delinquencies.”

Were they colluding?  Were they doing anything unethical, unlawful or contrary to the credit group’s rules?  Who can say.  However, the amount of time they spent together might cause an impartial observer to wonder whether their discussions ever strayed outside of the lines that define appropriate conduct.  I think each of us should try to avoid even the appearance of impropriety during credit group meetings.

Michael Dennis, MBA, CBF, LCM

Some might say I am being overly cautious, but everyone is entitled to their opinion… and this is mine.  What’s your take on this?

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.

It’s A Trap – Michael Dennis, CBF

It’s A Trap

I recently received an email from a credit manager friend of mine I will call Al.  The email explained that Al’s employer just hired a new CFO.  The CFO told Al that the company’s bad debt loss history was unacceptable and that something had to be done immediately.  Al suggested the following:

1.       Hold orders more frequently and more quickly on past due accounts

2.       Lower credit limits on marginal credit risks

3.       Refuse to grant open account terms to high risk applicants

4.       Require collateral or security from high risk customers and applicants

5.       Update credit files more frequently

6.       Attend industry credit group meetings more often

The CFO responded that these ideas would result in fewer sales and higher administrative costs.  She told Al to “think outside the box” and come up with better suggestions before their next meeting.

Al asked me for my suggestions.  I responded that his new boss was setting a trap.  Al was being given a task that he could not complete if for no other reason than this:  In order to reduce credit risk, you have to limit credit lines as well as hold orders on past due accounts.   This scenario reminds me of a story a friend of mine told me.  He was a pitcher and his coach walked out to the mound during a game and told him:  “Don’t throw anything this guy can hit, but whatever you do don’t walk the batter.

Michael Dennis, MBA, CBF, LCM

The truth is that everyone knows how to reduce credit risk, and the six suggestions listed above are a great start.  We know and the CFO should know there is always a trade off when a company tries to reduce credit risk.  Under similar circumstances, I have made this commitment to management:  I will guarantee lower credit risk and fewer write offs if you can guarantee to take the heat over lost sales opportunities.

That’s my opinion on this issue.  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.

That is Not the Way This Works – Michael Dennis, CBF

Now not Later

On numerous occasions, delinquent debtors have given me this ultimatum in connection with payment of their past due balance.   “We are not going to discuss payment status until and unless you release the orders you have on credit hold.”  Often, credit department employees are so surprised by this tactic that they are at a loss for words.  After several incidents, I developed a standard response along these lines:

My reply:  I suggest we start this discussion all over again, only this time without the threat of non-payment.  That is not the way this process works.  Your account is past due.  Our decision to extend credit to your company is based on trust.  We trusted that when we extended credit and shipped product to your company that invoices would be paid when they became due.  Now, you are threatening not to pay these past due invoices unless I agree to release the orders on credit hold. This does not inspire trust, but you are demanding I trust you by shipping additional products on open account terms. 

As you know, orders are on hold because your account is past due.  You can start to re-establish credibility by issuing an immediate payment for the past due balance, but without the threat and the preconditions.  When I receive that payment, I will review the status of your orders pending.  What I cannot do is allow you to use the threat of non-payment to get orders released.  This is not the way that business partners treat each other, and to be completely honest, no one likes to be threatened.  So, let’s start again.

Michael Dennis, MBA, CBF, LCM

In my opinion, it is a very serious mistake to allow any debtor to use extortion to get orders on hold released.  It is a poor precedence to set for future interactions with that debtor.

Those are my thoughts.  What do you think?

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.

Setting The Bar – Michael Dennis, CBF

Setting the Bar

When I was a consultant, it was always difficult for me to understand how or why a credit department would not have specific goals and objectives for every one of its collectors.  I think that setting the bar for collectors is an essential part of a managing the department and a great way to increase cash inflows.  Setting the bar for collectors is not the same thing as harnessing them to a plow.  It does not mean they need to turn rabid when a customer tells them they cannot clear a past due balance.

I think of setting the bar as involving things like this:  Determining how many outbound collection calls should be made in the average week.  Setting a limit of x percent of total accounts receivable in the oldest aging bucket.  Determining the frequency of calls to delinquent accounts, and setting targets in terms of the percent past due in each of the aging buckets.

Even when collection goals did exist,  I often found that the bar was set far too low.  In one memorable instance, the collection goals of each of the collectors combined were lower than the collection goal established for the credit and collectione department.  Specifically, the department’s goal was to have total A/R at > 90% current but none of the collectors’ individual goals were higher than 85% current!

Most of us know about S.M.A.R.T. goals.  The A stands for achievable.  My opinion is that an achievable goal should be potentially achievable, not

Michael Dennis, MBA, CBF, LCM

readily achievable [or worse] easily and regularly achievable.  One last comment:  If one or all of your collectors achieved their collection goals last quarter and/or last year, I think time right now to raise the bar.

That is 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.

A Compromising Position – Michael Dennis, CBF

Backed Into A Corner

About a year ago, I attended a half-day training program geared primarily toward our sales department in which the speaker emphasized communicating, connecting, and compromising as ways to rapidly increase sales and profits.  At one point, we were asked to break into smaller working groups.  My group consisted of me and 6 salespeople and not surprisingly, they wanted to talk about compromise!   On a flip chart, they listed the compromises I could make that would increase sales.  The list included:

  • Automatically release more orders
  • Release all orders under a certain dollar amount
  • Offering longer payment terms
  • Make it easier for customers to get higher credit limits
  • Accept extended payment proposals made by delinquent debtors
  • Do not require updated financial statements unless there is clear evidence the customer is in financial difficulty
  • Approving applicants more quickly by reducing the number of checks we do

I was feeling backed into a corner…until I remembered that while I can offer input, I did not have the authority or ability to establish the goals and objectives for the credit department.  So my response to their suggestions went something like this:

“These are all great ideas, and they each involve compromise.  In addition to increasing sales, the compromises would also: (a) increase credit risk resulting in (b) higher bad debt losses and (c) higher payment delinquencies. Therefore, all you have to do to make these recommendations a reality is to convince my managers that the benefits outweigh these risks.” I added that in my opinion they do not.

Most credit managers do not have the authority to accept higher risk, to make exceptions, and to disregard standard practices.  These are decisions that need to be made by senior management.

Michael Dennis, MBA, CBF, LCM

What about compromises?  Credit departments compromise every day — every time a decision is made to ship to a past due customer or to extend credit to a marginal risk.

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

Credit Automation – 5 Years Later – Michael Dennis, CBF

5 Years Later

Five years ago, I wrote an article entitled “Twenty-Five Tips on Deduction Management.”  This article resulted in several speaking engagements for me.  I ran across this article quite recently, and I was amazed by what I read and by what I didn’t read.  Only 1 of the 25 tips addressed credit automation and more specifically deduction management software.  That 1 tip was exactly 25 words long.  It read:  “Develop your own, or purchase commercially available software that allows you to track the status and the actions taken to address and resolve customer deductions.”

If I were going to write this article again, the main focus would be the effectiveness of deduction management software.  I would focus on how deduction management software has matured and is now a ‘need to have’ rather than a ‘nice to have’ tool for many credit departments — especially those whose customers routinely and aggressively take deductions.

I have said before that the ‘worst thing’ that can happen when a customer takes a deduction is they may eventually have to repay a deduction taken in error.  However, in the mean time, the customer gets what amounts to an interest-free loan from your company.  The key question is how long that interest-free loan will remain outstanding.

Without a tool that enables your team to systematically address customer deductions, managing customer deductions is like trying to hold back the incoming tide with a mop and a bucket.  What is the solution?  In my opinion, one strong candidate for a solution to the problem is deduction management software.  I think you will be impressed by its capabilities, its ease of use, and how effective it is in helping the creditor to resolve deductions quickly and efficiently.  That’s my opinion anyway.  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

Enhanced by Zemanta

Nice To Know Meetings – Michael Dennis, CBF

Nice to Know

Like most managers, credit managers are invited to attend numerous meetings.  A friend of mine works for a company where he routinely spends 15 hours a week in what he calls Nice to Know meetings.  These are not special meetings called to address and resolve particular issues or concerns, and the most painful to attend is a 4 hour long meeting each Monday in which every department manager provides an update relating to their progress relating to plans, processes and problems.

As the name suggests, a Nice to Know meeting is one in which the information being discussed may not be necessary for attendees to perform their work.  The issue that I want to address is how to avoid attending Nice to Know meetings.  The first trick I learned is that when I receive an automated invitation to a meeting, rather than accepting or rejecting, I select the third option… which is to tentatively agree to attend.  This means if I find the subject matter interesting I might attend unless: (a) I get a better offer or (b) a project or a problem requires my attention or (c) I am too busy to attend, or (d) I am just not in the mood to attend.

Another useful tool is to respond to an invitation with a series of questions, such as these:

  • Have you published a meeting agenda?  If not, please send it to me ASAP so that I can decide if my attendance is necessary
  • Will I need to attend the entire meeting, or can I attend a portion of it?
  • What specifically will you need me to share during this meeting?
  • Do you have any objection if I delegate the task of attending to someone else?
  • Is there a dial in?  I ask this question even if the meeting is down the hall.  Why?  Because I prefer to attend by phone so I can get other work done while listening to the meeting with my phone muted

I think you will be pleasantly surprised how easy it is to avoid attending many Nice to Know meetings.  Some of you may be asking if there has been any backlash relating to avoiding Nice to Know meetings.  I think the answer depends on the individual.  If you tend to isolate yourself anyway, or if your department is ostracized to some degree within your company, you probably want to attend some of the Nice to Know meetings.

Michael Dennis, MBA, CBF, LCM

What should you do with the time you save by not attending Nice to Know meetings?  To most credit managers, I would say this:  Try leaving on time once or twice a week.  I think you will find it to be a pleasant experience.  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.

Enhanced by Zemanta

That’s Not Intimidating to Me – Michael Dennis, CBF

That’s Not Intimidating To Me

My father was an NCO in the British Army.  When I was growing up, if you were easily intimidated, you didn’t get a lot to eat at the free-for-all that we called meal-times…. So I am not easily intimidated.

Delinquent debtors frequently use intimidation as a negotiation tactic.  Often it takes this form; the debtor says:  “If you don’t release the order(s) pending, we will take our business elsewhere.  When we are asked why, we will be sure to list you and your behavior as the primary reason for the decision to move to a competitor.”

I was invited to take a trip to visit a local customer to discuss the status of their past due account and to review the status of orders on hold.  When I arrived, I was escorted into the main conference room in which six or more of the debtor company’s executives waited for me.  After the introductions, the debtor company President told me:

·         The decision to place their account on hold was “a serious mistake”
·         He said he “could not imagine” what I was thinking at the time
·         Their account was one that should never be placed on credit hold
·         He told me the orders I held needed to be released immediately, and that doing so would benefit his company and my employer
·         He expected an immediate affirmative response – meaning the orders on hold would ship no later than the next day
·         Once the goods were received, they would open a dialogue with me about a mutually beneficial debt repayment plan

The debtor company President told me that this was my last and best chance to remedy the problem, and make amends for my past errors.  He said he was prepared to call my company President, but preferred to work things out with me rather than pointing the blame at me.  My response was to request 24 hours to make a decision.  The decision was actually already made.  I would consider releasing the orders on hold if and when the past due balance was paid in full.

The debtor called my company President within two hours of my meeting.  By the time he called, I had already provided my boss and through her, the company President, with an update.  As a result, the debtor had no bargaining power, only threats.

Michael Dennis, MBA, CBF, LCM

Does intimidation work?  Yes.  It is a popular negotiation strategy.  It is especially effective if the credit manager is not certain their decision is fully supported and/or supportable.  If you are confident that you understand your company’s tolerance for credit risk, then customers’ attempts to intimidate you to influence your credit decision-making is unlikely to work.

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.

A Recipe For Disaster – Michael Dennis, CBF

I recently had lunch with a friend of mine.  As we talked, he shared his concern that the deduction specialist he had hired about a year ago was not working out.  He dreaded the idea of firing her because he did not want to take the time necessary to train someone to replace her.  Based on the details he provided, I guessed that he was using the deduction specialist position as the entry level position in credit and collections.  He confirmed this was true.  When asked, he told me that the deduction specialist was trained by one of the collectors, and agreed that her training was focused more on collection practices than on dispute resolution.  I asked if there was any formal training program for the deduction specialist position.  The answer was no.  I asked if he had created operating procedures and working instructions.  Again the answer was no.

Since he asked for my comments, I told him that I thought hiring an entry level person to handle deductions for his department was a recipe for disaster.  I added that reconciling customer deductions and resolving them through customer payment, credit or write off is far more complicated that collecting undisputed past due invoices – which while more complicated than simply dialing for dollars does not reach the same level of complexity as researching and resolving deductions.

Michael Dennis, MBA, CBF, LCM

I suggest that the person selected as the deduction specialist should be promoted from among the collectors meaning this should never be an entry level position.  Given how complicated the deduction resolution process can be, I think that processes, policies and procedures along with work instructions must be developed for and provided to the deduction specialist.  Anything less will result in less than optimal results.  Anyway, 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.

I Needed A Job, But… – Michael Dennis, CBF

Toot Your Horn

In the 1990s, I was interviewing for a position as a credit manager.  The negotiations were going well.  The CFO and I had discussed an annual salary.  I met with the company President and I thought the interview was largely a formality.  It was not.

The President told me he wanted to offer me two-thirds of the amount mentioned by the CFO.  I responded that I knew of at least two people who would be excited about working for him for that lower salary.  I told him they were good at their jobs, well trained, diligent, detail oriented, etc.   The company President asked why he shouldn’t hire one of them. I responded that he definitely should do so.   He asked why I would offer these candidates, and I responded that I thought the position would be a great growth opportunity for either of the two individuals I had mentioned by name.

The President finally asked me the right question. Why should I hire you for one-third more than I can hire one of the two people you recommend?

I responded that this was the right question, and my answer to this question got me the job.  I said that by hiring me, you get someone able to start with the status quo and improve on it from there.  In contrast, the other candidates would have to grow into the job.  I added that for one-third more he would be hiring someone who could make an immediate impact on his company’s bottom line.

I was confident.  I was calm.  I was right.  My final comments went something like this:  If you want to stay within your new budget, these candidates are arguably the best you are going to find, and they are worth every penny.  If you want to hire the teacher rather than one of the students, hire me.

Michael Dennis, MBA, CBF, LCM

I got the job at the original salary.  To me, the lessons are:  (1) be willing to toot your own horn because no one will do it for you and (2)  if you are going to toot your horn anyway, make sure you do it loudly.

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.

Winning the Gold – Michael Dennis, CBF

English: U.S. swimmer Michael Phelps shows off...
(Photo credit: Wikipedia)

Carrying on the Olympic analogies in this Blog, I was watching the medal rounds of the swimming events which, I admit, are my favorite Olympic events.  A couple of the medalists won based on raw talent despite being young and inexperienced in international competition.  However, the majority of the athletes that received medals were experienced, seasoned athletes who won in part because of their physical attributes but also based on their commitment to excellence, practice, and exceptional technique.  I don’t know how many times I heard a commentator say that these winners make it look almost effortless.

Raw talent is rarely enough to win in a race, nor is raw talent or enthusiasm enough for successful negotiations with delinquent debtors.  Debt collection is not just about effort.  Effort and proper technique result in success.  Some people believe that experience is a great teacher.  In the commercial debt collection field, collectors can gain experience through (a) trial and error or (b) on-the-job training.  I am not a proponent of either approach.

Olympic swimming coaches do not allow their athletes to learn by experience; floundering in the deep end before giving them the tools to succeed.  Instead, they observe and study the swimmer’s technique. They point out areas requiring improvement. I think the same approach can and should be used by credit managers.  Specifically, for every member of the credit and collection team, the credit manager (the coach) should:

(1) Observe,

(2) Point out problems

(3) Correct those problems and

(4) Reinforce correct technique which results in better outcomes.

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.

Enhanced by Zemanta

Are You Bulletproof? – Michael Dennis, CBF

Executive Body Armor

I have been laid off twice.  The first time was unpleasant.  The second time, I was out of work for five months and had to move five hundred miles in order to get another position.  I consider myself lucky.  A good friend of mine was out of work for eighteen months before he found work and another friend has been out for two years and counting.

Sometimes, layoffs are unavoidable.  For example, if your employer is acquired by another company there is very little you can do to bulletproof your job.  However, I believe that there are things that each of us can do to make it less likely that our position will be eliminated as a result of downsizing.  Here are a few ways to distinguish yourself from your co-workers:

  • Find ways to improve productivity
  • Never disagree in public with your manager or senior management
  • Focus on creating error-free documents and presentations
  • Accept additional responsibilities; better yet, volunteer for them
  • Be self-confident; including being confident enough to admit your mistakes
  • Demonstrate a positive attitude, honesty, enthusiasm and flexibility

Your goal is to distinguish yourself from your peers.  Remember this old joke — When you and your best friend are being chased by an angry bear, you don’t need to run faster than the bear, you only have to run faster than your friend.

Michael Dennis, MBA, CBF, LCM

My opinion is that each of us should make sure we are running faster than our peers.  What’s your opinion?

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.

Got Change? – Michael Dennis, CBF

Got Change?

Change in the workplace is both inevitable and unavoidable. Change can be positive or negative. For example, if your job is being outsourced the change, from your point of view, is negative. However, some changes can have a positive impact on the credit function. Some changes foster and encourage positive changes including more teamwork, better communications, and shared goals.

When big changes are on the horizon, the credit manager can help control any negative impact of these changes by using these tools and techniques:

  • Explain when, why and how changes will be implemented
  • Encourage an open dialogue about the upcoming change
  • Invite people to express their concerns with you in private if they are not comfortable doing so in public
  • Allow people to vent their frustration or express their concerns about the planned changes
  • Discuss ways to manage the change process to help ensure it happens as smoothly as possible

Changes in the workplace can be overwhelming. When people are overwhelmed, there is often productivity and morale drop along with motivation and enthusiasm. This results in more mistakes as well as missed opportunities. Look for these early warning signs that people are not happy:

  • Tardiness and higher absenteeism
  • More mistakes and less attention to detail
  • Missed deadlines and substandard work
  • Moodiness or anger
  • Withdrawal
  • Turnover
Michael Dennis, MBA, CBF, LCM

If you are initiating the change, it is best for that try to build support for the change. How? The first step is to share your vision and goals relating to the planned changes. As a general rule, the more detailed information the credit manager can provide about how an upcoming change will affect each and every member of their department, the better.

Anyway, 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.

Only Superman Can’t Delegate – Take Two – Michael Dennis, CBF

Can’t Delegate This!

Years ago I wrote an article entitled: “Only Superman Can’t Delegate” which was published in “Business Credit” magazine.  I wrote that it was essential to delegate, and that delegation benefits the delegator and the person to whom work has been delegated.

A colleague contacted me recently.  She is a credit manager. Her question was why her boss cared whether she did the work herself, or delegated certain tasks to other members of her team.  I asked why she was not delegating, and got the answer I expected.  She told me she could do the work faster, better and with fewer mistakes.

I told her I thought it was likely her boss wanted her to delegate more work more frequently based on some or all of the following reasons.  Your boss thinks:

  • You are micro-managing your subordinates,
  • That you may burn out if you don’t slow down,
  • You may be holding subordinates back by not delegating since delegation usually involves cross-training others to do the work you are doing right now,
  • Delegating is a simple and effective way to help the credit department to operate more efficiently,
  • You won’t delegate because you don’t enjoy training the members of the credit team or because you don’t trust them,
  • You are insecure about your position and believe that by not delegating and not cross-training you can make yourself indispensable to your employer, but at the cost of a less efficient department,
  • Your boss thinks you are capable of performing higher value added work, but he or she recognizes that until and unless you delegate more routine work you will not have time for new assignments no matter how important they are to your employer and to your manager.

Work should be delegated to the lowest level at which it can be performed competently.  When this happens, it frees up time for managers to think and act tactically or strategically rather than operationally.  When the credit manager think more tactically and strategically, their employer’s investment in accounts receivable is better managed. My advice was to consider her boss’ “suggestion” not as a request but as an order.  Start making lists that day about what tasks could be delegated to whom.

Michael Dennis, MBA, CBF, LCM

My opinion is that everyone reading this who has someone working for them has work that could be delegated… and if it could be delegated then it should be delegated.  Anyway, 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.

Soft Skills Needed For Leadership – Michael Dennis, CBF

Soft Skills Needed For Leadership

A credit manager can have exceptional technical skills but be considered an ineffective department leader because of poor interpersonal, communication or relationship-building skills.  I believe that any credit manager that does not have the skills needed to effectively lead, manage, mentor, and train their subordinates will not be a particularly effective manager.  Why?  Because department managers succeed or fail largely based on their ability to properly manage, retain, train, retrain, cross-train, lead, manage and motivate members of their credit team.

There are many credit professionals with exceptional technical skills who unfortunately have not developed the kinds of soft skills they need to be seen as a leader rather than simply as a manager.  What can you do if you feel that your soft skills have not kept pace with your technical skills?  The answer is that there are plenty of things you can do, including these:

  • Spend more time out of your office.  Get out to where the work gets done
  • Get to know the professional goals of each of your team members.  If you don’t already know the answer to this question already I can almost guarantee at least one surprise.  For example, someone’s goal may be to have your job, and another person’s goal might be to retire from the company in the same position they hold today
  • Stop focusing exclusively on improving your technical skills.  If you have any aspirations about advancement, remember that senior managers are selected more on their ability to manage people, projects and processes than on one or more technical skills.  To illustrate this point, consider this story about the legendary industrialist and innovator, Henry Ford.  When asked what Mr. Ford knew about his company’s tax and cost accounting processes, he responded that he knew where his cost accounting manager and tax accounting team sat — and that was exactly all he needed to know.
  • Read a book or take a class or attend a webinar about something unrelated to financial analysis, collections, deductions, and negotiations.  It could be a program on creative writing or speed reading.  The point is that to broaden your horizons you have to get out of your comfort zone
  • When interacting with people, think about how you can make the interaction more effective… not more efficient.  Your goal is to be efficient performing tasks and effective managing and interacting with the people you work for, the individuals who work for you and of course your customers and your sales team
Michael Dennis, MBA, CBF, LCM

Anyway, 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.

Supersize or Specialize – Michael Dennis, CBF

Supersize or Specialize

Another friend of mine lost her job after many years when her credit department was combined with customer support and order entry and her position as credit manager was eliminated.  I honestly and sincerely don’t get it.  The skills required to be effective in the collection role are very different from the skills required to handle the order entry and customer support functions.  How do I know?  At various times, I have managed all three departments… and I never once thought:  What a good idea it would be to take an order entry representative and turn them into a collector… or… Wouldn’t it be great to cross train everyone and make one supersized Collections/Order Entry/Customer Support department!

I don’t disagree that creating a larger combined department would enhance the customer’s experience when placing an order, asking a question, or requesting assistance for the simple reason that more people working generally means shorter waits and quicker responses.   That is certainly good for your customer.  However, I cannot imagine how combining job functions could possibly improve collection performance for the company for all of the following reasons:

  • Not everyone is cut out to be a collector, but this Supersized department assumes that individuals will be equally adept at collections as they are in their other roles
  • The economist Adam Smith wrote that specialization leads to greater efficiency.   Creating generalists, which the Supersized department requires, is the opposite of specialization
  • Expecting most if not all the employees trained in customer support to become effective collecting outstanding debts is unrealistic.  Why?  Because collections is not for everyone and given a choice, I believe that most people will spend more time helping customers and less time calling for payment
  • The skills needed to manage a Supersized department are different than the skills required to manage the collection process, and
  • By eliminating the credit manager’s position this company apparently overlooked a very basic fact.  The credit manager’s biggest value add involves establishing appropriate policies to monitor and manage risk before orders are released, not in managing the collection team.  Unless credit limits and credit terms are set appropriately and credit risk is managed proactively, the chances of collections improving as a result of this departmental merger and the layoff of the credit manager are somewhere between (a) highly unlikely and (b) it’s never gonna happen!
Michael Dennis, MBA, CBF, LCM

That’s my opinion anyway.  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.

 

Garbage In, Garbage Out – Michael Dennis, CBF

Garbage In, Garbage Out

A friend of mine asked for my comments about a scenario in which an applicant stated it was their company policy not to release bank information to any creditor. I responded that my concern is the applicant has something to hide.  Examples include a loan default, low account balances, NSF checks, or loan covenant violations on their outstanding debt.  Requesting bank information is normal – as normal as requesting trade references from the applicant.

Her underlying question was more nuanced.  She asked: How can I make a good credit decision in the absence of basic information?  The answer is of course that she cannot do so.  My recommendation was that she refuse to do so, and I suggested that she frame the response to her manager this way:

  • I am trained to make sound credit decisions based on adequate but not necessarily perfect information
  • I am not trained nor authorized to make guesses based on incomplete and inadequate information, and the information I have gathered is incomplete and inadequate to make an informed decision

For this reason, I am forwarding this to you to request that you:

  • Approved the requested credit limit and payment terms, or
  • Reject the applicant, or
  • Provide me with additional guidance or instructions about how we should proceed in a way that minimizes or more accurately optimizes the relationship between risk and reward.

Occasionally, a manager will counter that the credit department must make its best decision based on the available information, whether or not it is complete.  In my opinion, it is important to push back.  When I have been given this assignment, I have responded that I will require training and guidance relating to:

  • What facts and factors go into making business decisions
  • How these decisions are documented to make it clear that the decision to extend credit was not based on standard or sound review of appropriate information
  • Who must approve business decisions in the organization
  • Whether higher bad debt reserves should be established for these accounts if open account terms are approved
  • Whether management wants reports showing the amount of credit extended based on credit approval vs. business decisions
  • Whether my performance evaluation will be negatively affected if one of these business approvals goes south and we are unable to collect
Michael Dennis, MBA, CBF, LCM

Using these tools, the risks described are at the very least shared by the credit decision maker and his or her managers.  This can be quite helpful for the credit department if losses start to add up on these marginal accounts.  That’s my opinion on this issue.  I would welcome your comments.

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.

Voice Mail Jail – Michael Dennis, CBF

Voice Mail Jail

I believe any collection call that does not result in a payment commitment being made by the debtor must be considered a failure, and a collection call resulting in a payment commitment of less money than the creditor expected must be characterized as only marginally productive.  Many times, collectors never speak to anyone in accounts payable.  Instead, they leave voice mail messages and end up in voice mail jail.

In my experience, as often as not creditors voice mail messages are ignored.  Why?  As a former accounts payable manager, my experience was that the volume of incoming collection calls far exceeded the time that the members of the accounts payable team could spend updating creditors on the status of payment.  The question that we must all consider is this:  Is there a way to make collection calls more productive?

I have found that one approach works particularly well.   It involves simply refusing to leave a voice mail message. Here are several work-arounds to voice mail jail:

  • Call the company operator and ask to speak to the A/P Manager.  If they are not available, ask for the Controller or CFO and conduct your collection call as normal
  • Call the operator and ask that your A/P contact be paged
  • Call the operator and ask to speak to anyone in Accounts Payable
  • Tell the operator that you are prepared to remain on hold until someone in A/P will take your call
  • If you cannot reach the A/P department and know the name of the buyer, contact the buyer and ask if she or he can transfer you to “anyone” in accounting that can help you

One final comment:  If you do not have a tracking mechanism or event alert tool that automates the process of identifying and ideally prioritizing collection calls based on the dollar amount past due or the age of the past due balance, then you are at a competitive disadvantage relative to creditor companies that have automated this process.

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.

What Went Wrong? – Michael Dennis, CBF

Learn From Mistakes

It is essential that we learn from our mistakes.  Bad debt losses are a cost of doing business, and every sale on open account terms carries some risk of nonpayment.  That said, when a bad debt loss occurs, you have two options:  (1) Lament your losses or (2) Learn from them.

I believe that there is at least one lesson to be learned from each bad debt loss.  An assessment about what went wrong can reveal any number of mistakes, but in my experience these mistakes generally fall into one of these categories:

  • The credit file was out of date and you were extending credit based incorrect or out-of-date information
  • The debtor was allowed to exceed the credit limit
  • Orders continued to release in spite of the fact the customer was past due
  • The collector’s efforts and follow up were in adequate
  • No financial analysis was done, or the analysis was inadequate, or it was done incorrectly
  • The problem account was not given to the credit department manager soon enough
  • The delinquent account was not placed for collection quickly enough

There are different solutions for each of the problems noted above, but the central theme is that bad debts can be reduced if collectors are give more structure, clearer directions,

Michael Dennis, MBA, CBF, LCM

more specific instructions and written guidance for managing delinquent accounts or for any active account considered to be a high risk.

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.

The Deductions Merry Go Round – Michael Dennis, CBF

The majority of deductions are the result of errors made by the creditor company.  Some of the more typical errors include mistakes in pricing, picking, packing and shipping.  Many credit pros are on a merry-go-round in which they clear a hundred or more deductions a month only to find a hundred new deductions open the following month.

Do you want to get off this ride?  The best way to do so is to find and fix the mistakes that result in customer deductions being taken.  Of course, the credit department does not directly control things like pricing and packing errors, but there is something you can do.  You can document the number and the dollar value and the types of deductions outstanding.  Doing so is one way to gain support from senior management for fixing the problems that result in customer deductions.

If you have never tried this before consider starting slowly.  For example, you could document the number of pricing deductions taken in a given month and the number open at the end of the month.   Calculate the dollar value of pricing deductions taken, and the dollar value of deductions open at month end.  You might also want information about the number and total dollar value of pricing deductions open for more tha 90 days.  Armed with this information, you should be able to make a more compelling case to senior management that some significant effort is needed to address and resolve the root cause of pricing deductions.  And if you want, report on whether the customer was correct or wrong in taking a pricing deduction, the easiest way to document this is to calculate the number and dollar value of pricing credits issued per month and publishing that information to senior management.

Michael Dennis, MBA, CBF, LCM

Well, 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.

I Keep Holding On – Michael Dennis, CBF

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.

Using Salespeople in the Debt Collection Process

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 – Michael Dennis, CBF

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.

Risk and Reward – Michael Dennis, CBF

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.

 

The Annual Update Meltdown – Michael Dennis, CBF

Annual Update Meltdown

In a previous Blog, I said that I thought it was essential to require some privately held customers to provide financial statement updates at least once a year.  Since then, I have received several calls suggesting that requesting this information from customers would upset the apple cart.  I disagree.  I believe the bigger risk to the average credit professional involves extending a significant amount of credit to a customer without having current financial statements on file.

One of my consulting clients took a significant bad debt loss.  I was asked to perform an autopsy to determine what went wrong, and what red flags might have been missed.  This was not a witch hunt.  It was an effort to figure out what went wrong and make any necessary changes.  I asked for the credit file.  I found that the most current financial statements on file were: (a) four years old and (b) unaudited internally prepared documents.  One of my key findings / recommendations to company management was to mandate updated financial statements no less frequently than annually on any customer with a credit limit in excess of $200,000.

These days, requests for annual updates from privately held companies are routine.  They may not provide the required reports in response to your first request.  However, I cannot remember the last time a customer had a meltdown when I requested updated financial information.

Michael Dennis, MBA, CBF, LCM

Well, that’s my experience.  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.

Bad Manners? – Michael Dennis, CBF

Bad Manners?

Many debtors seem to think that creditors should always allow a grace period of at least 7 days before calling for payment status on a past due balance.  On more than one occasion, I have been called impolite, rude and even unprofessional because I called to inquire about the status of past due invoices sooner than the debtor considered polite.  I disagree with the necessity of waiting XX days before calling for payment status.

Why?  A collection grace period benefits only your customers.  In my opinion, it is not inappropriate for you to call any customer any time their account becomes past due.  In fact, I think customers that allow their accounts to go past due are acting inappropriately.  Another very real risk associated with creating a grace period is that customers will build your grace period into their payment cycle.  For example, if you do not call until your customers until invoices are at least 10 days past due on Net 30 day terms, it is not a huge leap of logic to assume that at least some of your customers will schedule payments on or about day 40.  Why?  Because they have learned that 40 days is the tipping point.  If they pay in less than 40 days, they are paying too soon.  If you disagree with me, consider asking your company’s accounts payable manager if they would delay payment to a supplier that did not mind being paid ten days late.

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.

Tug Of War – Michael Dennis, CBF

Tug of War

I believe that the relationship between sales and credit is frequently misunderstood.  There are individuals in sales and in credit who believe that sales and credit are, in a sense, in competition with each other.  The basic premise is that extending credit to customers is a “zero sum game” meaning that if sales “wins,” the credit department loses.  I believe that sales and credit can work together to increase profits while managing risk.

One of the best ways to do so involves working proactively with sales to determine the required credit limit for each customer. For example, you could provide your sales department with the credit limits and the A/R balances for each active account and ask them if the assigned credit limit is adequate.  If not, you could work proactively with sales and with the customer to try to approve a higher credit limit before orders are placed that would place the account over the assigned credit limits. In my experience, everyone is happy when credit limit issues are addressed proactively in this manner.
Another way to increase profits is to inform sales in advance of potential credit holds so that the

Michael Dennis, MBA, CBF, LCM

salesperson can work with their contacts to resolve these problems.

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.

It’s All About The Money – Michael Dennis, CBF

All About The Money

There is a theory that an all-out effort will collect almost every delinquent account.  In webinars, I have referred to this as the Ship-and-Pray method of credit risk management.  I believe that the right time and the best time to manage credit risk is before the account is ever opened and certainly before orders are approved and released.  Once a new account has been set up and orders have been released on open account terms, the power equation shifts from the seller/credit to the buyer/debtor.

Most credit professionals can identify their high risk customers.  The real challenge, in my opinion, involves taking appropriate steps to limit credit risk.  The biggest challenge involves taking the necessary steps to monitor and manage active accounts.  As a consultant, I was frequently surprised at how irregularly some companies update their credit files.  And I admit to being mystified about why more creditors do not insist that customers with large credit limits provide updated financial statements on a regular basis.

My suggestion is simply this:  Apply a disciplined approach to your risk management process, and insist that customers demanding large credit lines provide financial statements no less frequently than annually.

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.

A New Look at Equity – Michael Dennis, CBF

New Look at Equity

I have been giving some thought to the use and abuse of customer financial ratios in which Equity is the denominator. One such ratio is the Debt to Equity Ratio calculated using this simple formula: Total Liabilities divided by Equity.

I think that credit professionals need to keep in mind that Equity is a residual number meaning that Equity is nothing more than Assets minus Liabilities… but Assets include Intangible Assets. The best known example of an Intangible Asset is Goodwill. The value of all Intangible Assets in a business failure is uncertain. I think that the most appropriate measurement of equity involves the use of Tangible Net Worth. Tangible Net Worth (TNW) where TNW = Equity minus Intangible Assets.

Tangible Net Worth is obviously a far more conservative calculation of Equity than using the Equity figure presented on the customer’s Balance Sheet. In my opinion, TNW is a more reliable measure of credit risk. I prefer TNW because it is a more conservative calculation of Equity rather than the more commonly used Asset – Liabilities = Equity.

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.

Fraudulent Financials – What’s Your Advice? – Michael Dennis, CBF

Fraudulent Financials

From time to time, subscribers to my newsletter call me for advice. Often, I can help. Occasionally, I am at a loss. Last week, I was stumped.

The caller had a story and a question. The story was that she was asked to evaluate an applicant for a 7 figure credit limit. She requested and received 12/31/11 financial statements. They were not audited. The applicant explained that the auditors had not completed their work but that the audited statements would be available in late March. She then asked for and received the prior-year end financial statements. She found they were not audited. Instead, they were compiled and reviewed by a small CPA firm. She requested confirmation that the 2011 statements would be audited but never received a response. She compared the 2010 statements to the 2011 statements and found the following anomalies:

  • The income statement showed sales more than tripled from 2010 to 2011.
  • Net income after tax increased 20 times year over year.
  • Net worth tripled year over year.
  • Each ratio she calculated year over year improved dramatically including ratios for profitability, financial leverage, efficiency, and liquidity, and
  • The internally prepared Balance Sheet for 2011 didn’t balance. Assets were greater than Liabilities + Equity by 2%.

Another piece of information she shared was that the applicant company said the corporation had been operating for more than 10 years, but the Secretary of State’s office website reported it was incorporated in 2009.

The caller told me she believed she had been supplied with fraudulent financial statements for 2011, and asked she could report to. I responded that I agreed that the 2011 statements were suspicious if for no other reason than the fact that the corporation in business for more than a decade was unlikely to triple its sales revenue in a single year. I said that suspicion of fraud is not proof of fraud.

Michael Dennis, MBA, CBF, LCM

The caller said she was ready to proceed. I could not recommend any agency or entity to report this to, and I asked her to reconsider. That was my advice. 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.

Onshore or Offshore? – Michael Dennis, CBF

Onshore or Offshore?

A friend of mine is an experienced credit analyst.  He lost his job recently as a result of outsourcing.  He learned that his employer initially hired four people in China to do his job and asked me how this could be cost-effective.  I suggested the following:  Assume that your salary and benefits total $50,000 a year.  If your four replacements earn $12,500 a year or less and receive no benefits, your employer saved money by outsourcing your job.

While my friend wondered why he lost his job, I thought about how to prevent this from happening to others, and came to these conclusions:

  1. Nothing will prevent companies from exporting credit jobs meaning that nothing I suggest will guarantee your job will not be outsourced
  2. Many companies in America have been successful in outsourcing various credit related functions
  3. Corporations have an obligation to reduce costs when it is practical to do so.  Therefore, it is essential that your work is done effectively and efficiently, and that you find ways to do your work faster and better
  4. One clear advantage you have over outsourcing is your ability to communicate easily, directly and quickly with your customers, with your sales department and senior management.  Make sure you are doing exactly that

Knowing why companies decide to outsource is the first step in helping safeguard your job. The main reason companies outsource is to control costs by saving on salary and benefits. Performing your job in the most effective manner and communicating this effectiveness to management is one way to make them aware that potential cost savings associated with offshoring may not be attainable or ever preferable to the status quo.

Michael Dennis, MBA, CBF, LCM

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.

The Right Tool For The Job – Michael Dennis, CBF

The Right Tool?

During a recent seminar, I was asked if customer financial statements are the right tool for establishing credit limits for new accounts and for monitoring or changing the credit limits for active customers.  It was a great question and one that I have thought a lot about.  In my opinion, financial statements are a useful tool in evaluating a customer or applicant’s creditworthiness, but financial analysis is not the only tool that can and should be used to make these decisions.

It is essential to differentiate between audited and unaudited financial statements.  In most creditor companies, 20% of customers account for 80% of total sales.  Ideally, these larger customers can provide audited financial statements.  Basing credit decisions on unaudited financial data is fraught with risk, including the risk that the unaudited data includes either (a) subtle manipulations intended to make the customer or applicant appear more creditworthy or (b) outright inaccurate and fraudulent financial information intended to convince creditors to extend credit to a company that would otherwise not qualify for open account terms.  The problem for creditors is that it is almost impossible to determine the accuracy of unaudited statements… but many creditor companies have only a handful of customers that have audited financial statements.

So, going back to the original question about the use of financial statements, I believe each of the following statements is true:

  • Unaudited statements may not be worth the paper they are printed on
  • Audited statements are not always completely accurate, but they are the best that creditors can get from customers and applicants
  • No credit review is complete without evaluating financial statements
  • Creditors should routinely request financial statements from customers and applicants
  • Out of date financial information can be more dangerous than having no statements at all.  Why?  Since customers’ financial conditions always change over time, relying on outdated financial information may result in a decision to extend more credit than the customer deserves
Michael Dennis, MBA, CBF, LCM

What are your thoughts? Are customer financial statements the right tool for the job?

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.

A Balancing Act – Michael Dennis, CBF

Balancing Act

A few years ago, a good friend of mine who worked in the automotive aftermarket industry lost his job as a credit manager as a direct result of his management of bad debt losses and DSO.  More specifically, he was fired because, under his guidance, the credit department had not written off any bad debts for three years.  Sales had complained that the credit decisions being made were far too conservative and way too risk averse.  The company’s senior management eventually looked at the information about losses and concluded that sales management was correct.

Credit decision-making is a balancing act with unexpected and unbudgeted losses on one side and lost sales and lost profits from overly conservative credit risk management decisions on the other side.

Is it common that a credit manager loses their job because they are too risk averse?  I think it is more likely that the opposite is true meaning that credit professionals lose their jobs because they accept too much risk resulting in higher DSO or higher bad debt write offs.

Michael Dennis, MBA, CBF, LCM

However, the fact that my friend was fired is a good reminder that credit professionals are expected to manage credit risk according to their employer’s expectations.  They are not expected or required to eliminate the risk of slow payment or nonpayment.  What do you think?

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.

Enhanced by Zemanta

To Place or Not to Place for Collection – Michael Dennis, CBF

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.

Neither Rain Nor Snow Nor Dark of Night – Michael Dennis, CBF

USPS service delivery truck in a residential a...
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.

Enhanced by Zemanta

Honey or Vinegar – Which Results in Faster Payments? – Michael Dennis, CBF

Honey or Vinegar

There is an old expression that you can attract more bees with honey than with vinegar.

Does this relate to business to business debt collection?  Will a friendly approach to debt collection result in a faster payment than a more direct approach in which the collector is “all business.”  Honestly, I don’t have any statistics about this.  However, long ago I managed an accounts payable department.  One way that we dealt with suppliers was to prioritize payments based on our interactions with the creditor company.  For example, if a creditor company sent an email or fax with a friendly inquiry about the status of payment, it was usually ignored — unless the creditor was one of the ten or so key vendors identified by management to A/P.

In addition, if the collector simply asked for the status of payment, our standard response was that payment of the past due balance would be made in 14 days.  If the collector pushed harder by stating that payment proposal was unacceptable and that our account could or would go onto shipment hold, we would then negotiate in good faith.

An interesting aside:  We did a study of how many creditors did not complain when we told them they would have to wait an additional 14 days before their past due balance was scheduled for payment, and found that on average about 70% of suppliers accepted this offer without protest.

The lesson here is to become one of the 30% that pushes back when debtors try to delay payment.

This brings us full circle to the original question:  Honey or vinegar?   In my opinion and based only on my opinions and personal experience, the creditors that are more assertive and less accommodating will get paid sooner.  So, nice guys don’t always finish last, but they might get paid last in B2B collections.

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.

 

That’s Not Funny – Michael Dennis, CBF

That's Not Funny

As a consultant, I have occasionally seen dunning notices and other correspondence being sent by my clients to delinquent customers with stickers, stamps or other messages considered to be or intended to be humorous reminders to pay the past due balance.  In my opinion, when you use humor in collection correspondence you are trivializing the problem.

As a former Accounts Payable Manager, I believe that humorous collection messages undermine creditors’ efforts to collect past due balances quickly.  Proponents of the use of humor believe that a humorous request for payment is more likely to be noticed by the A/P department, and I agree.  When my A/P department received a humorous message, they shared it with their co-workers.  However, the question is not whether the message is noticed; the question is whether the message is taken seriously and acted upon quickly.

I admit that I have never used humor in collections, but I have used irony.  As a collector, I sent birthday cards to debtor companies’ CFOs when an invoice aged out to one year.  The message I wrote in the card read:  “Happy Birthday to invoice #123456 for $xxxx which is now a year old.  Please take immediate action to prevent this invoice from getting any older.”

Michael Dennis, MBA, CBF, LCM

Delinquent debtors often (usually?) ignore written collection correspondence.  They are even more likely to do so when humor is used.  Collecting past due invoices is serious business, and the use of humor sends the wrong message.  Trivializing the fact that an account is past due makes immediate payment far less likely.

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.

Some People Say They Would Rather Die – Michael Dennis, CBF

Public Speaking

Many years ago, I feared public speaking.

I had all the classic symptoms of anxiety related to making a speech:  I froze up.  I felt sick.  I wanted to be anywhere but in front of an audience.  I tried to convince others that they were a better choice to make the speech.

One day I realized that my inability to make professional presentations had already limited or would limit my professional growth — even if the only presentations I ever made were to co-workers and to senior management so I decided to do something about it.  I joined the Toastmasters organization and the change was rapid and dramatic.  I quickly gained confidence speaking in front of a group of strangers.  I learned that audiences don’t gloat over every mistake a presenter makes.  I learned that it is OK when necessary to pause to find your place and collect your thoughts.  I quickly went from dreading public speaking to enjoying it.  Since then, I have done more than 100 seminars, webinars and teleseminars for CMA and numerous other Associations and organizations.

Even if you have no interest in public speaking, anxiety about making presentations for co-workers or to senior management can adversely affect your chances for recognition and promotion.  For this reason, the time to challenge your fear is now.  I think you will be pleasantly surprised at how easy fear of public speaking is overcome and how many opportunities there are to make presentations as part of your normal job duties.

In my opinion, a well-rounded credit professional looks at his or her strengths and weaknesses, and then makes the most of their strengths while addressing their weaknesses.  What do you think?

Michael Dennis, MBA, CBF, LCM

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.

The Truth Hurts – Michael Dennis, CBF

The Truth Hurts

Several years ago, a very good friend of mine – let’s call him Roy – accepted an early retirement package.  He decided that he was too young to retire so he started a commercial collection agency in Florida.   Naturally, he called his friends to tell them about this new chapter in his life and to solicit business from them.   Once he agreed to meet the contingent collection rates offered by the collection agency we used, I agreed to submit a couple of accounts to him.  Flash forward a month.  I was on the phone with Roy.   I asked about the status of the accounts I had placed for collection.  He provided a very candid response along these lines:  

“Michael, both the accounts you sent me were Dead on Arrival.  They were dogs with fleas.  Both of the companies were out of business with phones disconnected.  One debtor has disappeared completely. The other tossed the keys to their bank and walked away, so there is no meat left on that bone for anyone.”

Roy told me that the biggest problem he had with account placements was that most trade creditors, including me, waited too long to place accounts for collection.  As a result, there was little chance for the collection agency to be successful.  I did not take offense because:  (1) Roy was and is a good friend, and (2) what he said made sense.  Unlike fine wine, bad debts don’t get better with age.  Therefore, the challenge is to make certain that we assign problem accounts sooner rather than later.

When do you place your at-risk debtors with a third party for collection?  In my opinion, you should seriously consider doing so when the following conditions exist alone, or in combination:

  • A customer has bounced checks to you or other vendors;
  • The customer refuses to replace the bounced check;
  • The creditor is no longer making progress toward clearing the unpaid balance;
  • If the customer will not take your calls;
  • The customer will not return your calls;

The rest of the checklist can be found at this URL:   http://encyclopediaofcredit.com/When-to-Place-an-Account-for-Collection

Michael Dennis, MBA, CBF, LCM

Comments anyone?

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.

Learn more about CMA’s Collection Division, click here.

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.

Are You Hearing What You Want To Hear? – Michael Dennis, CBF

Listen For Clues

Debtor’s Plan Pledges up To 10% Recovery for Unsecured Creditors. I read this recent headline a couple of times. Then I stopped to think about what it actually means to unsecured creditors. What it really says is that unsecured creditors could receive as much as ten cents on the dollar… but are guaranteed absolutely nothing. Payment will be somewhere between 0% and 10% of the approved unsecured claim amount in this bankruptcy.

Have you been fooled by hearing what you wanted to hear instead of what the debtor actually said. I have. One example involved a multi-million dollar payment I needed by the end of the calendar year. The A/P rep told me the check would be issued without fail on the 23rd of December. What he failed to mention was that the company was on furlough from December 21 to January 2nd so there was no one to mail out the check. Ouch.

Some debtors find ways around unwary collectors. Consider this simple statement: “We will issue a check for the past due amount on Friday of this week.” What the debtor actually said was that a check would be generated on Friday. They did not say the check would be signed on Friday, and they certainly never promised it would be mailed on Friday. There are plenty of debtors that cut checks and then hold them until they decide which creditors must be paid, and which can be delayed even longer.

Here is another deceptively simple statement: “I expect the check to be signed and the payment to be mailed to you by Friday of this week at the absolute latest.” This is not a commitment for payment. I would describe it as more like a weather forecast than a payment promise. Why? Because the two words “I expect” were included. What happens if the payment is not made as agreed? You learn that what the A/P contact expected to happen did not occur.

The solution is to require specificity from your customers. This requires attention to detail on the part of collectors. For example, when on a collection call, you should know the full name, title and phone number/extension of the person with whom you are negotiating. Collectors need to listen carefully to determine whether debtor has made an unqualified commitment for payment. Collectors should always take the time to verify a commitment by repeating back the commitment and asking the debtor to confirm it. Also, if a collector has any concerns about a commitment being broken, they should: (1) ask the debtor’s representative to agree to call you if their commitment changes for any reason, and (2) call the day payment is scheduled to get the check number and confirm the payment is in the mail.

Michael Dennis, MBA, CBF, LCM

Please reply with other solutions and experiences to the “hearing what you want to hear” phenomenon.

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.

Collection Calls, Work Smart Not Hard – Michael Dennis, CBF

Work Smarter

On my first day following training as a collector, I was assigned a relatively small group of accounts by my manager.   After about two hours, my manager called me into his office.  He asked if I remembered calling a customer about a $57 past due invoice that was less than a week past due.  I said yes.  He asked why.  I said I called because the invoice was past due.  After he finished laughing, he explained the idea of prioritizing collection calls this way:

Rather than simply working your way through the accounts assigned to you, start by calling customers with past due balances of let’s say $57,000 or more.  After that, focus on accounts with $5,700 or more past due… and after that you call customers with $57 past due.

In hindsight, this meeting provided me with valuable lessons that I have used ever since.  The most important involved the need to prioritize every collection call every day.  This implies and necessitates getting and staying organized; keeping good notes about each call you make; finding a way to follow up systematically to ensure payment commitments are kept.

I cannot tell you how many times I have told this story, or how many times this basic idea about how to collect more efficiently is overlooked.  My bet is this:  If your department has three or more collectors, at least one of them does not systematically prioritize their outbound collection calls.

Michael Dennis, MBA, CBF, LCM

I would be very interested to hear whether I am right or wrong.

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.

Get Serious About Antitrust Violations – Michael Dennis, CBF

Be Willing to Walk

Some time ago, I attended an industry credit group meeting as a prospective member.  The group was run by an NACM affiliate, but it was not run by Credit Management Association.  Like every other industry credit group meeting, the President of the group read the antitrust statement, which was followed by introductions.

The group meeting proceeded normally for about half an hour.  At that point, the discussion turned to a customer that everyone knew could be trouble for unsecured creditors.  As you know, discussions must involve factual, historical information — and it is not permissible to discuss or even joke about creditors agreeing to take any joint action.

To my surprise, that was exactly where the discussion went.  After about 30 seconds, I felt I had to make a comment.  I said I thought the discussion had moved into an area that was out of bounds.  I asked the Association representative for his input.  He said the discussion was within the antitrust guidelines.  I disagreed and when the discussion continued, I left. Was that too dramatic?  I don’t think so.

After I left, I documented what had been discussed.  I shared the information with my manager and our company’s attorney knowing that both civil and criminal penalties can be imposed for violation of federal or state antitrust laws!     If I did not participate in the discussion or in the collusion, does that mean I get a free

Michael Dennis, MBA, CBF, LCM

pass? So what would you do in the same situation?   Did I overreact?  Does anyone have a similar experience?

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.

Try Not to Throw Your Boss Under a Bus – Michael Dennis, CBF

Back Up The Boss

A friend of mine, let’s call him Tom, called to ask for my advice.  His company had a customer with a $1 million credit limit.  That customer had experienced some financial setbacks over the last year.  As credit manager, Tom believed that the customer still warranted the $1 million open account.  His manager disagreed.  She instructed him to reduce the credit line to $250,000.  Tom asked why.  The only answer he got was that his boss considered the credit risk to be unacceptable.  Tom notified the sales department.  The V.P. of Sales and the salesperson were surprised, but nevertheless notified the customer.

Tom called me because the customer’s C.F.O. had just requested a call to discuss issues and options.  As far as Tom knew, there were no options or alternatives he could offer, and no suggestions or proposals he could accept.  He asked me how I would handle this situation.  I told Tom that the most important thing he could do was to own the credit decision even if he disagreed with it.  I told him that the worst thing he could do would be to suggest that there was any internal disagreement about whether the customer was creditworthy.  I warned Tom that if he hinted in any way that he was concerned about the decision, the sales department or the customer would immediately seize on this information.  Worse, if Tom told either the customer or the sales department that he disagreed with the decision, he would be throwing his boss under a bus.

I think the best way to handle this is to accept complete responsibility for the credit decision.  To do otherwise makes you appear indecisive.  If you say you disagree with the credit decision, you appear disloyal.  If you feel strongly about a credit decision, ask for an opportunity to discuss it with your manager before the decision is finalized.  Frame the discussion as an opportunity for you to learn more about the way your manager evaluates credit risks, rather than a meeting in which you try to persuade your boss that their decision was wrong because doing that makes you appear insubordinate.

Michael Dennis, MBA, CBF, LCM

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.

Setting Credit Limits: The Dart Board or the Ouija Board – Michael Dennis, CBF

Ouija Board

A good friend of mine recently called to discuss a credit limit for a new account.  The scenario involved a partnership that had been dissolved.  One partner bought out the other, and the now unemployed partner decided to start a competitor company, and he applied to most of his prior company’s creditors for open account terms.  He offered to provide an opening Balance Sheet on his new company as well as a personal guarantee.

My friend told me the Balance Sheet showed that the owner had invested enough to pay operating expenses for a couple of months.  She told me that a $1 million credit limit had been requested, and that she was trying to decide how much to rely on the personal guarantee being offered.

I responded that personal guarantees have numerous weaknesses.  One is that this guarantee relies on the financial strength of the guarantor.  Without a personal financial statement, it is impossible to know whether that guarantee is worth the paper it is printed on.  Another significant risk is that there is no way of knowing how many guarantees have been signed or will be signed, and every personal guarantee signed reduces the chances that the guarantee my friend was offered would be an effective collection tool. I added that I thought it was exceptionally unlikely that this guarantee was the first and only personal guarantee that would be signed. I encouraged her to:

  1. Ask her attorney about the enforceability of a personal guarantee in a Community Property state, and
  2. Arrange for her attorney to draft the guarantee and review any proposed modifications to that guarantee made by the applicant

Personal guarantees are nice to have because they can sometimes be used as leverage to encourage debtors to retire past due balances, but I would be extremely reluctant to base a $1 million decision primarily on any personal guarantee.

Michael Dennis, MBA, CBF, LCM

What do you think?  Does anyone out there feel strongly that PGs are the way to go when dealing with a sub-standard credit risk?

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.

Standing Up To Bullies – Michael Dennis, CBF

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.

Shocked and Appalled – Michael Dennis, CBF

Shocked and Appalled

If you recall the weakest credit application you have seen this year, you will have an idea about the problems with an application I rejected. I assumed the applicant company would not be surprised by the decision. I also assumed they hoped for the best, but expected the worst when the application was submitted.

To my surprise, I immediately received a call from the applicant’s CFO. He told me he was “utterly shocked and amazed” by my decision. He asked if I had contacted the three referenced listed on the application. I told him I did not. At this point, the CFO informed me that: “I failed to conduct basic due diligence” and “My lack of attention and professionalism caused me to make an incorrect decision.”

In the credit file was a credit report as well as an industry group trade payment experience report showing the applicant paid vendors an average of 90 days slow. In addition, multiple vendors had placed the company for collection. At some point, the debtor’s CFO said something like this: “So what do you have to say for yourself?” I explained that even if the three references provided reported his company paid right on time, there was more than enough adverse information on file to reject the applicant for open account terms.

I refer to this particular negotiating tactic by a customer or applicant as: “Shocked and Appalled.” The CFO was shocked and appalled by the decision. My experience suggests that companies use the Shocked and Appalled technique: (a) when they have little or nothing to lose and/or (b) because this tactic sometimes prompts creditors to second-guess their original decision. My recommendation is not to change your decision in the absence of a compelling reason to do so…. Otherwise it is like betting against yourself; no matter what happens you lose. Once you recognize the “shocked and appalled” negotiating tactic, you will know how to react to it.

Comments and constructive criticism are welcomed.

Michael Dennis, CBF

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.

Thrown Under a Bus — and Learned from the Experience – Michael Dennis, CBF

Watch Out!

Years ago, my manager and I attended the national sales meeting. On the second day, the VP of Sales made a surprise announcement. “All of you know that our Credit Manager is here. I am going invite him up to explain why our credit policies are so restrictive that we lost business last year to our competitors. As you know, some of you did not reach your sales targets, and I am sure you have lots of questions for him”

The next 45 minutes were stressful, but this experience taught me a great deal about how to interact with the sales group. I learned in 45 minutes the importance of taking time to explain the rationale behind negative credit decisions. I learned that it was best to give advanced notice about possible negative decisions. I learned to encourage salespeople as well as sales management to challenge any credit decision they consider incorrect.

My advice is to think carefully about your present relationship with the sales department and to remember that there is room for improvement in any relationship. I found that more open and more detailed discussions helped change the perception of the credit risk management function for most sales personnel. My challenge to you today is to look for ways to build bridges and mend fences between sales and your department. If not, one day you may be invited to a sales meeting just like me.

Tips on building bridges include:

  • 1. Return calls the same day. Chances are good that sales is calling you because the customer is calling them.
  • 2. Whenever possible, give advanced notice of credit holds. Rather than announcing an account is past due and on hold, try this instead: Let the customer and the sales department know that if payment is not received by a specific date that you will have no choice but to consider a credit hold.
  • 3. Always be open to new information or suggestions made by the sales department. Valuable information and valid options can come from anywhere including sales.
  • 4. Take as much time as necessary to explain your decisions to the salesperson, but remember that this is not a debate or a negotiation. It is an opportunity to share information.
Michael Dennis, CBF

What are your thoughts on this subject? All comments and constructive criticism are welcomed.

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.

The Telephone; 100 Years Old but Still Relevant – Michael Dennis, CBF

100 Years and Counting

When it comes to credit and collections, technology has changed a great deal.  Customers that once submitted purchase orders by mail or phone or fax now do so via EDI. Creditors that used to mail out thousands of invoices a day now send invoices electronically that are then uploaded into their customers’ accounts payable systems without human involvement.

Some creditors are using deduction management software to better manage this common problem.  Credit managers use decision support software to make faster, more consistent and better credit decisions. Creditor companies have numerous options for communicating with their past due customers including instant messages, letters and faxes, e-mail, and automated dunning notices…. and the old standby the telephone collection call.

This is a situation where the more things change, the more they remain the same.
How so?   If you want to be more effective in your collection efforts, you need to reach out to past due accounts by telephone.  You cannot rely on any form of written correspondence to get the job done. Why?  Because in spite of the advances in technology, the most effective way to collect involves a two way dialogue with the debtor.  Any form of one- way communication such as an email, a FAX, an IM or a dunning notice is more likely to be deleted or ignored than acted upon.

As a former Accounts Payable Manager, if you want your collection efforts to be taken seriously, you need to call your past due accounts for payment status.  A call from a collector is harder for A/P to ignore or disregard. One way communication will never be as effective as a discussion with the customer in which collection issues are discussed and consensus is reached.  Don’t get me wrong!  Collection correspondence works, but it is more likely to work with financially sound customers that inadvertently overlooked paying an invoice.  Correspondence is unlikely to work with customers intent on holding on to your money for as long as possible, and is even less likely to be an effective collection tool when debtors are experiencing serious financial problems.

Michael Dennis, CBF

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.

WRCC – A Peek Behind The Curtain – Michael Dennis, CBF

Behind The Curtain

For the first time in a long time, I will not be attending the upcoming Western Regional Credit Conference (WRCC) due to a prior business commitment that I could not miss and could not delegate to anyone else.  As a presenter at more than ten WRCC meetings, my perspective on credit Conferences is a bit different from most attendees because I have had the opportunity look behind the curtains into the planning process.

What most attendees do not see is the months of work that go into the Conference.  Instructors are selected for their subject matter expertise as well as their presentation and interpersonal skills.  Educational programs are carefully selected to ensure that there are opportunities for participants that are fairly new to the credit profession, as well as programs for seasoned professionals.

 

Attending the WRCC is an investment in your future.  Attendees should listen for ideas, tools, tips and techniques that can be implemented as soon as they return to work.  The goal in planning the WRCC is to offer programs that will make participants more effective and more efficient.

 

I like to explain it this way:   If you attend a Conference and learn something that makes you only 5% more efficient and you work 50 hours a week, you’ll save 10 hours a month!   Not good enough?  OK, if you have a staff of 3 people and share this idea with them, the department will save 40 hours a month!!

 

The same concept applies to the risk management, collection management and deduction management educational programs.  Applying what you learn will improve your effectiveness and efficiency, reducing risk and lowering delinquencies.  Any credit professional that accomplishes this makes themselves more valuable and less disposable to their employer.
Michael Dennis, CBF

To find out more about this years WRCC click through to nacmwrcc.com.  

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.

Give and Take; Trying to Find the Right Balance – Michael Dennis, CBF

Give & Take

First and foremost, I am very grateful for the work done by official unsecured Creditors Committees in Chapter 11 bankruptcies.  Having served on two Committees, in my opinion what members of the committee give to the creditor community is far more than they are likely to take from serving on a Committee.

A former student of mine called recently about serving on a Creditors Committee.  She explained that she was asked to serve, and believed joining a Committee would provide her with insights about why some customers file for bankruptcy protection.  Her plan was to use these insights to help her to avoid bad debt write offs in the future.

I responded that I did not recall a time when a Committee that I served focused on what went wrong in the debtor company.  Why?  We were too busy monitoring the debtor’s progress, or commenting on the proposed Plan of Reorganization, and discussing preferential transfers among many other tasks.  I told her that Committee membership requires a significant and lengthy time commitment.  I cautioned her that her own work would probably pile up while she attended offsite meetings or participated in lengthy conference calls with other Committee members and legal counsel.

Recognizing her goal was to become better at spotting customers in financial trouble, I suggested that she consider continuing her professional development by preparing for and taking the CCE Exam as an alternative to serving on the

Michael Dennis, CBF

Committee.  I am not sure whether she took my advice, but I am sure I will find out when she reads this Blog.

What are your thoughts?  Was my advice ‘on the mark’ or way off base?  Comments and constructive criticism is always welcomed.

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.

Enhanced by Zemanta