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April 1, 2010 BCMA - It’s All About You! Welcome to the latest issue of BCMA News! This month’s topics… 1. Predicting Customers' Debt Loads 2. Invoice Accuracy and How to Ensure It 3. Identify Your Weakest Links 4. What’s Your Balance-Per-Collector Ratio?
1. Predicting Customers'
Debt Loads Sealy was managed gently by new owner Kohlberg Kravis Roberts (KKR). While KKR paid itself $300 million from the sales of shares, about half of the money was used to pay down Sealy debt. In contrast, Thomas H. Lee Partners had Simmons issue debt, with roughly $375 million going to the private equity firm with "no direct benefits to the mattress company," according to Moody's. And while Sealy's debt-to-earnings ratio is now six, Simmons, at the time of its bankruptcy filing, had soared to 12. So, while we know that bought-out customers are going to be taking on debt, the questions are how much debt and where is this money going? 2. Invoice Accuracy and How to Ensure It 1. Check all order details against the customer's purchase order and/or sales agreement before shipping and invoicing. AP departments match their PO with the delivery receipt and the invoice you sent them. If there isn't a three-way match, the invoice is not automatically approved. Similarly, reconciling transaction details with customer expectations will identify exceptions that are likely to result in an invoice discrepancy. If there is a mismatch, it is better to fix the situation before generating the invoice, as opposed to when the customer files a complaint or takes a payment deduction because the invoice they received has discrepancies. 2. Don't expect your customers to reconcile changes reflected on your order Acknowledgement with the details of their PO. While you may be able to win the day before a judge by holding the last document exchanged before shipment, the time you will spend enforcing your pricing and terms after the fact will be self defeating. Customers that submit purchase orders that are at a variance with your pricing and terms need to be contacted directly so they don't keep sending purchase orders with these variances. When you and your customer share the same understanding of the selling arrangement, there should be not invoice discrepancies. 3. Capture all order details in electronic formats. It is hard to reconcile to paper documents because paper that is moved from one place to another can be hard to track down. Electronic documents and images take much less time to reference, and they don't have to be re-filed when you are finished with them. Electronic documents also make it possible to automate the reconciliation process (see item #1 above). 4. Provide all concerned parties with easy electronic access to all order details. Effective collaboration requires that everybody be literally on the same page. This is readily accomplished when everybody has online access to a complete set of transaction details. 5. Identify and classify pre-invoice billing discrepancies by type in order to immediately route them into the appropriate discrepancy resolution process. Just as you would do with payment deductions, pre-invoice discrepancies need to be coded and then routed through a predetermined workflow process to ensure effective handling. Identification of discrepancy types also serves to document recurring problems and system weaknesses that need to be addressed. 6. Before your company signs off on a customer's Vendor Compliance Manual (VCM), make sure you can meet all their specifications. Non-compliance can be costly, and will usually be reflected through customer chargebacks and payment deductions. If there is anything in the VCM your company cannot do, or does not want to do, that needs to be addressed with the customer and changes made to the VCM. 7. Make sure that all customer pricing agreements are visible to both the order processing and billing staffs. Many, if not a most invoice discrepancies involve pricing. Sales people cannot be allowed to make off-schedule deals unless there is a mechanism for capturing such pricing exceptions. Complex pricing schedules can also be a problem unless they are embedded in an automated system, and even then care needs to be taken to avoid ambiguous situations. In addition, when an order is changed after being entered in the system, care needs to be taken that the change has not affected the pricing parameters. Flowcharting your credit and collection processes will uncover both system weaknesses and opportunities to improve productivity. The next step is to list the challenges that can be overcome with a technology solution. As you examine your credit and collection processes, look for the weak links. Examples might be:
What’s Your Balance-Per-Collector Ratio? Drew Fischer, Corporate Credit Manager, Oriental Trading Company asked the Credit Today Forum members to share their balance-per-collector ratio. Here’s some of the responses.“We have two collectors, and we each have over 550 active accounts.” - Dawn Albrecht, Credit Representative, U.S. Music Corp.
A good beginning point is 1,000 customers per collector. You then will have to look at specifics, depending on number of deductions, invoices, etc., 1,000 may be more than one collector can handle adequately.” -Chris Finch, Credit Manager,Sumitomo Electric Lightwave Corp. “Customer Service Managers (they do smaller balance collections only) each handle about 1200 accounts. Credit Managers (they comprehensively manage all aspects of risk within their portfolio) each handle about 150 accounts.” -Norma J. Fetherman, Chief Credit Officer, Allied Building Products Corp. “We have approximately 500 per credit manager. However, our credit managers have full responsibility for their accounts, including credit lines and analysis, collections, risk mitigation (filing notices, etc.), some deduction management and sales contact. In the current environment, we need to be much more hands on with most of our accounts, and they are usually stretched to the limit with the current workload.” - Rocky Thomas, CCE, V.P. Credit, CMH Space Flooring Products, Inc. “Our average is 333 per collector. We do look at the effort necessary to maintain the customer properly and balance the work load by collector accordingly.” - Paul D. Bernardoni, Robert Bosch LLC “We have approx 700-750 accounts per collector, but they aren't split evenly because some accounts require significant amounts of time. It's also balanced to align with their other responsibilities - cash application, discrepancies, order reviews, database maintenance, processing credit applications, etc.” - Deanna Marcroft, CBA, Credit Manager. Sierra Select Distributors, Inc. “We have 8 collectors with about 1,000 accounts each.” - Kay Gaede, Director of Credit, Penton Media, Inc. Back to topTo learn more about subscribing to Credit Today, check out our web site at http://www.credittoday.com/ Survey Results- The Battle For Financial Statement Information Teaming Up With Sales For Collections Staff Benchmarking Survey- Three of Four Credit Departments Are Satisfied With Staffing Levels Benchmarking Survey- Outsourcing Acceptance Grows Among Users- Part 1 Benchmarking Survey- Outsourcing Acceptance Grows Among Users- Part 2 Checklist- Major Online Seller's Top Seven Risk Factors of Fraud For Web-based Orders |
