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December 1, 2011 BCMA - It’s All About You! Welcome to the latest issue of BCMA News! This month’s topics… 1. The Importance of Being There 2. Working with Sales Makes Credit Work 3. Balancing Payables With Receivables 4. Does Anyone Have Any Experience Using Online Credit Applications? 1. The Importance of Being There Travel budgets were among the first victims of recession cost-cutting. Arguments about the illogic of denying first hand, eyes-on assessments of customer risks when the risks were surging were dismissed out of hand. Visits cost money, and the best use of money, as everyone knew, was to have it pile up on the balance sheet. Now counterarguments are trickling in. Dave Feigenbaum, corporate credit director of Kichler Lighting, has championed customer visits for years. Earlier this year, we published his article “Tough Times, Tough Credit Decisions” in these pages. Last month he told us how a customer visit he made two years ago has paid off handsomely. “I had visited a customer who shared information with me that I never would have learned over the phone and that made me wary of their financial future,” he told us. “As a result of that meeting, we initially had them sign a UCC and Purchase Money Security agreement, and later we reduced and eventually withdrew their credit line. “All signs pointed to failure. Today I received a Chapter 7 bankruptcy filing on that customer and we have no balance. I know of at least $100,000 in unsecured debt that others in the trade will have to write off. “While I’m not pleased to see any business file bankruptcy, I can honestly say that visiting them saved us thousands of dollars. I know Credit Today continues to emphasize the importance of visiting customers, I thought I would share this story with you as further confirmation.” 2. Working with Sales Makes Credit Work Will the following suggestions eliminate the stress and discord between Sales and Credit? Absolutely not, but they will tend to reduce problems. In addition, if you adopt all of these suggestions you are less likely to be criticized by senior management as working against the interests of the sales department in particular and, by implication, preventing the company from reaching its sales and profit targets. Suggestions for bringing Sales and Credit together: • Participating in training new sales personnel. • Attending sales meetings and taking questions. • Traveling to meet with customers. • Providing detailed information to sales about risks, problems and concerns. • Making responses to inquiries from Sales a top priority. • Listening with an open mind to input from Sales. • Recognizing that Sales and Credit act as counter balances, and not being surprised when they challenge a negative credit decision. • Trying to keep salespeople informed about problem accounts. • Giving the sales department advance notice of possible credit holds whenever possible. • Asking the sales department to tell you what credit limits they need for their customers (with as much advance notice to the credit department as possible). • Making sure that releasing orders pending gets the credit department’s top priority. • Not delaying credit decisions on new accounts unnecessarily while waiting for complete or “perfect” information.
One final thought: Credit and Sales will disagree from time to time, and when this happens, disagree (discuss, debate, argue) in private. Public arguments tend to entrench the parties in their respective positions, and this makes it difficult for either side to back down even when new information is brought to light that changes the picture of the credit risk under review. 1. 3. Balancing Payables With Receivables Sizing up the financial strength of key suppliers is a worthy role for savvy credit managers. So is figuring out how to balance payables with receivables for positive, or at least improved, cash flow. “We try to negotiate the best terms we can get from our suppliers, case by case,” a credit manager friend who asked for anonymity, told us. He routinely gets involved in his company’s supplier relations, and he contends that many companies have opportunities for better payables agreements that they’re not taking advantage of. “They may just accept terms that come in,” he says. “They should be questioning what’s stated and negotiating. “We have a laundry list of these suppliers,” he continues. “We look at who their primary customers are and what their terms are. If we’re giving them better terms than what they are receiving from the OEM, then we try to adjust ours. You have to find out what their situation is and whether you can adjust to your advantage. But many companies are neglecting to do that, often because their staffs have been downsized to save money. Doing this takes a lot of time and work.” He knows that whatever is on that purchase agreement both companies have signed is what’s going to dictate the terms. But he’s found that, if you can get enough information, this is a legitimate area of negotiation. “If it’s good for them, they don’t want to deal with it,” he says. “If it’s the reverse, they just scream and cry. But I still study all of the numbers that we get on suppliers. One ratio you should look at is their days payable outstanding (DPO) to their DSO. From that you can fairly easily see if they are getting free financing from their customers.” 4. Does Anyone Have Any Experience Using Online Credit Applications? Here’s an excerpt from Credit Today’s Email-based forum. We are thinking about setting up a new division that will sell directly to customers over the web. Does anyone have any experience using online credit applications? If so, do you have any suggestions or possible examples? Also, any help with potential problems to avoid would be appreciated. - - John = = = = = = John, I'm not sure if your new venture is B2B or B2C. On the B2B front, at a previous gig, we involved the youngest tech-savvy associates in the department, and let them run with it. The workflow and notifications were the toughest part to get right. The application itself was relatively easy. Just a few things we decided on: very few required fields, no account or password required, no archiving of the application PDFs, only a link to the company terms and conditions, no button to check "I accept" and no ability to add attachments, to name a few. One big issue was salespeople filling out the web-forms themselves to make it "easier" for the customer, as well as the resistance we get with paper applications. Another issue: Customers wanting just to send their own canned "reference sheet" instead."
- - Denis = = = = = We initiated an online credit app through our website, and the only significant issue we had was overcoming the signature issue. We considered an electronic signature, but we found that banks did not accept this in order to provide banking information. Our solution was to prompt the customer to print a signature page after submitting the application. The customer has to print this page, sign it and fax or email it to us. It's worked relatively well. I agree with the below statement, not to have too many required fields. - - Sean T o learn more about subscribing to Credit Today, check out our web site at http://www.credittoday.com/Credit Today Benchmarking Survey: Collection Agency Selection Criteria Credit Today Benchmarking Survey- 2011 Improvement Initiatives -- Many Different Things Going On Credit Today 2011 Outlook Survey Reveals a Changing Risk Scenario Benchmarking Survey on Meetings Looks at the Worst Meeting Experiences - Learn What to Avoid! |
