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April 1, 2011 BCMA - It’s All About You! Welcome to the latest issue of BCMA News! This month’s topics… 2. Winning the Recognition You Deserve 3. Be Your Company’s Inside Consultant 4. Cutting Deduction-Resolution Time 1. 1. Do any of you produce inventory in advance for a customer, hold it in your warehouse, without the customer prepaying for the inventory, until the customer requests a shipment? This question came from one of Credit Today’s ListServ members: We manufacturer playing cards, poker chips and layouts (for poker tables). My question is regarding inventory. Do any of you produce inventory in advance for a customer, hold it in your warehouse, without the customer prepaying for the inventory, until the customer requests a shipment? We currently do this for several of our major casino customers. We either have a purchase order or a contract with the customer. I am wondering how you handle the situation my customer decides to go elsewhere for their product, goes out of business or simply decides there are no longer in need of this specific item. As you can imagine cards for a specific customer are not easy to get rid of. Your thoughts on this would be appreciated. Donna = = = = = = We are a Steel Distributor. Some of our customers require us to purchase "special" inventory for a job they are doing. It is shipped over a period of time. Prior to purchasing the material, we draw up a contract for that request. It always includes: A percentage of cash down payment, non-refundable if the order is canceled, but to be applied to the last shipment. A storage charge if the job is delayed, or something happens that does not allow the material to be shipped as originally discussed. After a cutoff date, we charge a monthly storage charge which is due upon receipt of invoice. Depending on the customer and the requirements, many other things can be added or not. But the two biggest items that encourage the customer to keep with the agreement is their cash up front money. They really don't want to lose it. Also, the storage charge keeps them moving forward. Judy, V.P. - Credit = = = = = Without knowing if you have clear verbiage on your Agreement or the PO, I think you should first make sure that they are credit worthy to the extent that you will be able to bill them for however much you're stocking for them. On the other hand, it may be better for them to have the inventory inhouse and draft a stock /consignment agreement with limited dating, i.e., as they pull from it, they pay for it up to 6 months, then it's due in full, or whatever your tolerance is for payment. This way, if things turn poorly down the road, they already have the non-returnable inventory in their possession, and you can file suit with the stock agreement default. Kathleen, National Credit and A/R Manager = = = = = = = What latitude do you have with your customers? Generally that answer will have to be crafted with the other members of your company’s management team and weighed against your company’s goals in a competitive market. For special items. I set up a set of criteria that consists of either a number of past transactions or a dollar amount of past transactions (or both). If the customer exceeds those bench marks then there is no up-front charge. If the customer does not have enough transaction history to qualify, then they are to pay 50% down for the specialty item to be made and held in inventory for them. Allen, Corporate Credit Manager 1. 2. Winning the Recognition You Deserve Have you performed any credit management magic lately? Have you put together a deal that helped a struggling customer without jeopardizing your receivables? Chances are you have, but did you then make sure top management knew about it? That's usually the missing step. When you perform credit magic, you should get credit for it. One credit manager we know of assures prompt payments by alerting customers' accounts payables departments when she receives orders that she judges are too large for the customers to pay within terms. Working with A/P, she's able to figure out how to supply the customers' needs in quantities they can pay for. It's a credit management tactic that neither provokes her company's salespeople nor antagonizes customer managements. Rather it wins the gratification of both by assuring and building rational business relationships. 3. Be Your Company’s Inside Consultant Jerry F. Dean, CCE, manager of Corporate Credit Services, encourages credit professionals to transform themselves into internal consultants in their organizations. “Future business conditions will require us to rethink our current roles,” he contends. “In addition, you already know your organization better than a third-party does.” What can you contribute to your organization as an internal consultant? Dean sees several opportunities: · You can make recommendations related to strategic and operational questions being considered. This information can help management make more intelligent operating decisions and strategic decisions. · You can develop alternative courses of action. · You can make recommendations to improve efficiency. “Your input could be very valuable under the right conditions,” he notes. Skill Requirements What skills would you need to become an internal consultant? Some of the essentials are: · Being sure to begin with a broad base of experience (including managerial accounting and industry trend knowledge). · Developing a mind-set of starting your own consulting practice, and thinking like a professional consultant. · Generating credibility with senior management if you do not already have it. · Working to be perceived as a professional, or no one will seek out your advice. · Being sure you have excellent communication skills. · Thinking of co-workers and managers as clients who could easily outsource your services. “Adopt a willingness and ability to be responsive to client (internal customer) needs,” says Dean. · Being sure to have a strong sense of “value-added” in the performance of your duties. · Beginning with the “olive branch” approach, rather than trying to “bull” your way in. “Approach the process as a team player, rather than an intruder,” Dean advises. · Explaining what you can provide and how your services will add value to the organization. · Being able to demonstrate some measurable improvement in the organization as a result of what you do or recommend. Opportunities to 'Shine' What kinds of results and benefits can you expect by setting yourself up as an internal consultant? “You'll have the opportunity to ‘shine’ in your organization,” he says. “If you can show substantial bottom line results, you may even be able to work your way into a different job title and promotion." Some readers may agree that they can do more than they have in the past in the role of consultant but feel that there is still a role for third-party consultants. After all, don’t they bring a sense of objectivity to the table that internal people lack? Dean disagrees. “I think this concern really boils down to communication--or lack of it,” he says. “Traditionally, people in organizations have often had difficult times talking with one another. I think something is wrong with an infrastructure if you cannot work together. Once you are able to do so, you can accomplish so much--and you can do it by yourselves.” 1. 4. Cutting Deduction-Resolution Time"When they can't make money selling merchandise, they try to make it from their suppliers. You pay through the nose to get your product on their shelves, and then you have to deal with all these deductions." That's Credit Manager Agnes Hamos of Loctite Corporation (Rocky Hill, Conn.) complaining about her retailer customers. Not surprisingly, dealing with deductions--and late payments--has come to occupy much of her attention and that of her 15-member staff. In the process, they have become extremely proficient. Average deduction resolution time has been cut in half. One motivator is a bonus plan through which staffers can earn up to the equivalent of an extra month's pay each year for resolving deductions within set time periods and holding days sales outstanding to acceptable levels. Interestingly, bonuses are determined by group--rather than individual performance--and Hamos credits the resulting teamwork for the department's outstanding results. "We all have to work together if we're going to work efficiently," she says. "If returns are made, but credits are not issued or if checks come in but are not immediately applied to customers' accounts, we can't do our jobs properly." Self Starters So she has been careful to assemble a staff made up entirely of self-starting decision makers who know exactly what is expected of them. "I don't hire children," she says. "I hire adults who can make decisions. I believe in leading by example, and I pick my supervisors the same way." Credit staffers are alerted to deduction and delinquency problems by computer-generated discrepancy reports. They all have the authority to contact customers and they do so immediately by phone, fax, or e-mail. If customers' explanations lead to further questions (e.g., "I returned the merchandise because the salesman said I could"), staffers are expected to pursue the problem until they have the information they need to resolve it. "Our people are trained not to make assumptions," Hamos says. "They're expected to know what they're doing. If they don't have the information they need, they are expected to get it." They are also expected to treat all customers with respect. "That's just good customer service," she notes. No Second-Guessing Staffers have the authority to open new accounts up to $50,000 and supervisors can go up to $100,000. "We have to see that our books are kept clean, so we increase or decrease credit lines as we see fit," she says. "If we see an account getting into trouble we might shorten their terms or get cash up front. We never second-guess staffers' decisions so long as they can justify why they made them." A case in point is one account referred for agency collection. This account had been chronically slow pay and under close scrutiny. The collector responsible had called, as she usually did, before releasing the last order. They promised to pay but never did. "They always paid when they said they would, even though they were always slow," the collector explained when questioned about her decision to ship, and Hamos accepted that as a reasonable explanation. "If we stopped shipping to every slow pay, we'd seriously restrict sales," she says. "A good credit person has to walk a fine line between supporting sales and protecting accounts receivable. It's never easy." Changes in Ownership Loctite Credit has two routine ways of monitoring customer accounts. One, of course, is credit limits. The other is a computerized record of days credit outstanding. Normally if an account remains within its credit limit, the computer calls only for annual reviews. If there is some concern about an account due to slow payments or signs of weakness, however, the review cycle can be shortened up, even if the amount outstanding is within the credit limit. All new accounts are reviewed every 60 days. "This gives us a comfort level," notes Hamos. "For consistently slow pays, it gives us an additional checking point. My people have the prerogative of setting these checking points at whatever length they think is necessary. They're the ones who have to collect." The Loctite bonus plan does not penalize credit staffers for bad debt losses resulting from customer bankruptcies, but for Hamos bankruptcies and the uncertainties stemming from the frequent mergers and acquisitions among customer companies are a constant source of anxiety. "We in collections have to be aware of changes in company ownership," she says. "You don't know if the new owner is taking over liabilities. If it is an asset purchase rather than a stock purchase, the purchase price is not intended to cover the liabilities of the previous owner." When she becomes aware of an impending change in ownership--often through word from the sales force or news on the Internet--she may insist of cash up front with all orders, but she emphasizes that each case is unique. "We have to accommodate them on a case-by-case basis," she says. "We have to watch the cut-off date. Everything that ships before that date is the old owner's responsibility. "The new owners always hope to do better, but that's not necessarily what happens."
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