This article originally appeared in Credit Today, the leading publication for the credit professional.
Click here for Special CMA Member $10 Trial!
How Capable is the Typical Credit Executive?
In our recent survey of collection agency leaders, we asked for their take on how their clients – credit professionals – are doing. Now, our readers might wonder “why ask this question at all?” And the answer to that is easy. Collection agencies – while certainly dealing with “after-the-fact” results – are in a unique position to judge the quality of the work of their clients. They see the “leftovers” from all kinds of accounts receivable operations – the good and the bad; the tightly run operations and the sloppily run. They see it all. They see the files and what went into the decisions to extend credit. Overall, they see as much as anyone which gives them a unique perspective enabling them to assess both the quality of credit decisions as well as the collection capabilities. In addition, the respondents we reached out to are all experienced and have been through many ups and downs.
Overall, collection agencies view the credit executives that they work with as generally doing a good job. Fewer than 1 in 5 were viewed as being in a critical situation either due to overwhelming challenges (13 percent) or lack of skills and ineffective processes (5 percent). Even so, a similar number of credit pros were seen as competent, but having difficulty keeping up with the rate of change (18 percent). On the top end of the scale, just 1 in 10 credit execs were seen as on the top of their game, with over half doing a good job, but still facing room for improvement.
This differs a from the views expressed by other vendors (software and service companies) in the trade credit marketplace. In a survey completed last summer survey completed last summer (see “Vendors Speak Out on Credit Profession Today”), the vendors felt that slightly more than 1 in 4 credit pros were in a critical situation compared to the 1 in 5 ratio observed by the agencies. Also, 6 percent of the vendors felt that credit execs are at a disadvantage in comparison to AP automation, an observation none of the collection agencies made, and which might be an indication of the technological bias of the vendors. Otherwise, over two-thirds of the vendors felt credit pros were competent or doing a good job, but facing significant challenges — just slightly less than the agencies.
Despite these moderate differences of opinion, both collection agencies and other trade credit vendors see a lot of room for improvement in credit and collection management. The good news is, both the agencies and other vendors are a ready source of expertise for you to tap into to lift your own skills along with the efficiency of your organization to a higher level.
What Will Impact Credit Execs the Most?
We also asked the collection agencies to “Please tell us about the two or three issues or trends that you expect to have a significant impact on your clients’ collection practices. What advice do you have for business credit execs as they seek to respond or adjust to these issues or trends?”
Read on to learn about the unique perspectives of these collection agency leaders:
Risks are Evolving
“Debtors are more savvy than ever, and they are looking for ways to cloud the process. Credit executives must be very thorough in their vetting of the collection agencies they use. Proper licensing, bonding and insurance is vital. As businesses look for ways to increase productivity and lower overhead, they sometimes see the credit and collection department as merely a minor player in their business process. When a business begins limiting resources and manpower in the credit and collection process, the credit executive must have a relationship with an agency that can provide the “full measure” of service. The collection agency must have the flexibility to assist the credit executive throughout the credit and collection process.”
– Peter Roth, President, CST Company
“Credit and credit card fraud — do your due diligence. Increase new customers — follow for payments sooner than usual. Slow pay getting slower — slow pay becomes no pay when not addressed.”
– John Student, CEO, Jonathan Neil and Associates
“Geopolitical risks remain elevated around the world, underlining certain vulnerabilities that could negatively impact businesses. It is important to do your due diligence, work with reputable sources and federal agencies to help screen customers and mitigate risk. Credit applications are good. Some businesses sell on open terms. With cash-in-advance payment terms, an exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. Wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters for international sales.”
– Jennifer Tirra-Daniels, Director of Global Business Services, ABC-Amega, Incorporated
Bankruptcy and other Corporate Risks
“Bankruptcies will likely increase for the small and medium marginal businesses and my best advice would be to stick to credit limits as companies will try to obtain higher credit limits in the run up (90 -120 days) prior to filing bankruptcy. Companies that are turned down for credit will attempt to buy product COD/CIA but could write bad checks, so you should be aware of the bad check laws in any state that you do business in. I would suggest requiring payment by wire or cashier’s checks. Even with cashier’s checks, they can sometimes be fake or have payment stopped, so you should allow enough time for the banks to make a return of the item before shipping the product.”
– Bruce A. Jamrozy, President, Scott and Goldman
“Two issues involve large bankruptcies that affect all industries such as Westinghouse and large mergers by foreign entities. Credit professionals should have a clear understanding with their corporate office of what they can and cannot do on their own, and what has to have corporate approval. Do not get comfortable or lackadaisical in your collection practices.”
– Mary Cowan, President, NCS
Stay Close to Your Customer
“1) Pay close attention to your clients’ financial situation as well as the country where your clients are located. 2) Get secured by using firm, enforceable terms with your customers. 3) Build contacts with good collection professionals in order to benefit from the relationships when needed.”
– Octavio Aronis, Attorney, Aronis Advogados
“Get those personal guarantees signed in the beginning! Our clients sales departments rule the roost! Be wary of marginal credits in the beginning!”
– Bruce Seligman, President, Financial Recovery, Incorporated
“The potential increase in domestic manufacturing and tax incentives will generate activity for this year and possibly into next year. With that in mind, gearing up for credit file review is imperative for keeping your customer base intact and reducing risk. Be sure your staff is retrained and ready for the continued growth. Too many companies are relying on too few truly experienced credit professionals. We are seeing many firms hire folks with no credit experience and relying on AI.”
– Edward Burton, President, CST Worldwide
“Clients aren’t prepared to chase their money and need to support the collection efforts by supplying documents and/or information when needed.”
– Elliot Portman, Attorney, Portman Law Group, P.C.
Budgets and Automation
“Budget constraints seem to reduce attendance in credit groups and limit ability to develop relationships with peers from competing companies. Often I hear new software programs are introduced without any contribution or input from the credit department or from the credit professionals in the frontline.”
– Lou Figueroa, Vice President Global Services, BARR Credit Services
“Two key trends include budget cuts and the use of robotics. We believe that credit executives, if able, should be networking with their peers and customers to stay up on trends in the industry as well learn new tools that aid the profession.”
– Bob Gerstel, CEO, AG Adjustments
“1) FDCPA and TCPA add risk in commercial collections. It’s important to partner with vendors who have demonstrated compliance with both. 2) Business credit executives doing business internationally run the risk of corporate brand issues by using agencies not licensed nor bonded in the debtor’s country. Ask for documented compliance to avoid reputational risk. 3) Cost of recovery – review statistics of retaining “self-paying” customers who pay slightly outside terms and outsource all others to a white-label provider before sending to third-party. Manage your top 20% of revenue customers with white gloves and outsource the 80% of customers responsible for 20% of revenues.”
– Brad Lohner, Director, Priority Credit Recovery Incorporated
1) Increased workload and not enough people to handle it. Utilize the tools available – collection agencies are one example.
2) In-house staff recently hired – untrained and unqualified. Develop and institute a concrete training process; and
3) Demand for easy credit. The growth spurt will make one forget the errors of the pre-2007 period. This is a huge mistake. There are no shortcuts to sustainable and healthy growth.”
– John Chotkowski, Vice President – General Collection Manager, Commercial Collection Corporation of New York
“Running with a lean staff may be among the biggest challenges credit and collection departments will face. With the possibility of a smaller, less experienced staff, the expertise of your collection agency may have a strong impact on the department’s performance.”
– Pete Roth, President, CST Co.
“Don’t overreact to anything, don’t rely exclusively on technology, keep away from the CFPB.”
– Jon Lunn, COO, Sko Brenner American
– David Ward, Delta Recovery Systems
– Terry Taylor, CEO, Dynamic Legal Recovery
While this survey covered a lot of ground, we believe it provides credit execs with a unique framework for evaluating how your credit department stacks up with the recommendations of the collection agencies. If nothing else, we’ve listed 63 primary recommendations (and 41 second level recommendations) for improving collections and preparing for the next economic downturn. However, on top of this you get a peek at the shared perspectives of these 45 collection agencies.
If you don’t do a good job, they will end up cleaning up your mess. That can be good for an agency in the short term, but chances are you are not going to last long in your position and they will end up competing against other agencies for business with your replacement. The best collection agencies, therefore, take a longer view of their relationship with you and your company. They want to build a relationship that sees you and your companies succeed in terms of receivables performance. Moreover, they have both the expertise and capabilities to help you become a better credit manager. Good agencies offer much more than just third party collections, as this survey reveals.
Thanks to Credit Today’s Benchmarking.