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By clicking on First National Merchant Solution's logo, you will be leaving this web site. Products and services accessed through this link are not provided or guaranteed by your Business Credit Management Association (BCMA). First National Merchant Solutions may have a privacy policy that is different than your BCMA Affiliate. Please review First National Merchant Solutions privacy policy. BCMA MEMBERS NACM Credit Services, Inc. Pennsylvania Association of Credit Management Wisconsin Credit Association GOT AN IDEA? Would you like to contribute to the BCMA Newsletter? The most important part is your idea. We can handle the polishing. Just write to us at BCMAEditor@ CreditToday.net with your idea!		December 1, 2008 BCMA - It’s All About You! Welcome to the latest issue of BCMA News! This month’s topics… 1. Memorize This and You'll Be Worth a Fortune to Your Company: Schilit's Seven Shenanigans 2. Guarantees: What to Do. What to Look for. What to Avoid 3. Writing Effective Collection Letters 4. Requesting Updated Financial Statements When Poor Results Are Reported Back to top 1. Memorize This and You'll Be Worth a Fortune to Your Company: Schilit's Seven Shenanigans Shenanigan One: Recording Revenue Too Soon or of Questionable Quality Recording revenue when future services remain to be provided Recording revenue before shipment or customer's unconditional acceptance Recording revenue although customer is not obligated to pay Selling to an affiliated party Giving customer something of value as a quid pro quo "Grossing-up" revenue Shenanigan Two: Recording Bogus Revenue Recording sales lacking economic substance - side agreements Recording cash received from lender as revenue Recording investment income as revenue Recording as revenue supplier rebates tied to future required purchases Release revenue improperly "held back" before a merger Shenanigan Three: Boosting Income With One-Time Gains Recording gains by selling assets recorded at deflated book value. Including investment income or gains as revenue. Including investment income as reduction in operating expenses. Creating income by reclassification of investment gains. Shenanigan Four: Shifting Current Period Expenses to a Later or Earlier Period Capitalizing normal operating costs, particularly if recently changed from expensing Changing accounting policies and shifting current expenses to a later period Amortizing costs too slowly Failing to write-down or write-off impaired assets Releasing asset reserves into income Shenanigan Five: Failing to Record (or Improperly Decreasing) Liabilities Failing to record expenses (and related liabilities) when future obligations remain Reducing liabilities by changing accounting assumptions Releasing questionable liability reserves into income Creating sham rebates Recording revenue when cash is received, yet future obligations remain Shenanigan Six: Shifting Current Revenue to a Later Period Creating reserves and releasing them into income in a later period Improperly holding back revenue just before an acquisition closes Shenanigan Seven: Shifting Future Expenses to the Current Period (as a One-Time Charge) Improperly inflate amount included in special charge Improperly write off in-process R&D costs from acquisition Accelerating discretionary expenses into the current period Thanks to Dr. Howard Schilit. Back to top 2. Guarantees: What to Do. What to Look for. What to Avoid Guarantees are being increasingly used by savvy credit execs throughout the country to help secure open account transactions. We recently spoke with Jim McCoskey, formerly the commercial credit manager at cell phone giant T-Mobile, which authorized the bulk sale of phones and products to independent retailers around the country for resale to their customers. He used guarantees as an integral part of the credit process. The Personal Guarantee (PG) Form: Some Dos and Don'ts CT: Guarantees can be very technical. What did you do to make sure your documents were sound? JM: First off, it's important to note that an attorney should review and approve any legal form used in your business. With that said, however, here are some important principles that have worked for us: Your guarantees should not be limited in time or amount guaranteed unless jointly negotiated; rather it should be all inclusive and in force as long as a business relationship exists. It should guarantee all balances resulting from all company purchases, including CODs which may be uncollected by the shipping company. Consider, in association with counsel, if you want the guarantee to include a waiver of all defenses along with jurisdiction (location) of litigation. A credit report permission statement should be included at the end of the form above the guarantor signature line. Also, above that line should be a mini-form, completed by the guarantor, which includes his/her legible printed name, residential address, telephone and social security number. CT: Good points. Anything else? JM: Yes. In community property states (in which husbands and wives have equal and joint ownership of marital assets) consideration, in consultation with your counsel, should be given to requiring a personal guarantee from both parties to avoid a potentially adverse legal ruling that one of the parties cannot obligate assets of the other to guarantee a debt. Consideration should also be given to requiring notarized PGs to avoid potential signature validity issues if suit is brought against the guarantor. Back to top 3. Writing Effective Collection Letters Writers of any business correspondence have to know how to influence others to see their point of view. The key in credit letter writing is that the letters must be especially well written since they are supposed to encourage a reluctant debtor to do something they don’t want to do - pay up! Avoid Business English Any book or seminar on letter writing will stress a conventional approach to business correspondence. Unfortunately, standard or conventional collection letters are frequently ignored. One way to improve letter-writing skills is to save copies of letters that you feel are especially effective. From time to time, credit professionals must review each of their form letters and revise them in order to make them as effective as possible. Experienced credit professionals know that effective letters: • Are concise, direct and east to understand. • Request immediate action. • Include all relevant information. • Have all relevant documentation attached. • If appropriate, give the debtor company a face-saving way out. Brevity Are there paragraphs, sentences or even words that do not contribute to accomplishing the goal of the letter? If so, remove them. Less is sometimes better. Rarely is a carefully crafted credit or collection letter more than one page. Documentation A credit or collection letter can reference other documents (with copies attached). Supporting documentation should be attached to remove excuses for additional delays in payment. Be a Salesperson Many credit professionals do not view themselves as having much in common with salespeople. However, if creditors are going to collect using letters, those letters must sell the idea that it is in the debtor’s best interest to pay the creditor as soon as possible. The reader should be told how cooperation is in the best interest of all parties concerned. Misuse of Tone All the facts contained in the letter may be correct. The creditor may be justified in sending a letter to the debtor; yet the reader may take the letter the wrong way. Why? Perhaps the letter rubbed the debtor the wrong way. Some common problems are that the letter: • Is more demanding or threatening than required. • Stresses the creditor’s needs more than the debtor’s. • Conveys a condescending attitude. • Repeats points. • Is discourteous. • Is unprofessional. • Lacks tact. • Is not truthful. • Is not accurate. The tone of a letter should avoid unnecessarily antagonizing the debtor, no matter how severe the collection problem. A professional approach displayed in the credit letter will further support the facts contained in the letter and the serious nature of the problem. Therefore, the debtor should be more likely to respond appropriately. Back to top 4. Requesting Updated Financial Statements When Poor Results Are Reported Sometimes, when applicants or customers provide updated financial statements to the creditor or to a credit reporting agency, the statements indicate that the company might be in serious financial trouble. No credit professional can afford to ignore this type of information. Rather than jump to hasty conclusions, the more experienced credit professional will ask the debtor company to provide updated information. This more current information should enable the credit professional to make a better informed credit decision. A letter should be carefully written to cause as little offense as possible. The letter should assure the debtor company that you are looking for additional information in order to continue to extend open account credit, and that you are not looking for a reason or an excuse to withdraw the open account terms. The salesperson and the sales manager should be copied on this type of letter. If the debtor fails to provide the requested updated financial information, the creditor may have no choice but to withdraw or reduce the debtor’s open account terms. Here’s an example: [date] [customer name] [address] Attention: Milt Gibson [title] Dear Mr. Gibson: Thank you for sending us a copy of your company’s fiscal year end financial statements. We have analyzed those statements carefully. I hope you will understand that as an unsecured creditor we are concerned about the financial position of your company as reported in those financial statements. Specifically, your Income Statement shows a loss for the year of $XX,XXX. I do not want to act hastily. Therefore, I would appreciate it if you would send me a copy of your company’s interim financial statements for the first six months of the year. Please include copies of your Balance Sheet, Income Statement, and Cash Flow Statement. I look forward to receiving this information shortly. If you have any questions or concerns about this request, please call me at (XXX) XXXXXXX. Thank you. Sincerely, Melissa Ryan-Bonhall Corporate Credit Director [creditor company name] cc: salesperson sales manager credit file correspondence file Back to top To learn more about subscribing to Credit Today, check out our web site at http://www.credittoday.com/ Credit Execs- NO to Federal Bailout of Automakers! Benchmarking Credit Insurance: Benefits - Raw Data Survey Results: Telecommuting Not Gaining Traction in the Credit Community Survey Results: Credit Executive Attitudes Towards Outsourcing Strongly Affected by Experiences With Receivables Outsourcing Survey Results- Majority of Credit Pros Believe We're DEFINITELY in a Recession - Coping Strategies Detailed Survey: How Credit Leaders Are Dealing With Today's Tough Economic Climate; Insights & Action Items You Can Use *Back to top*