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July 1, 2011 BCMA - It’s All About You! Welcome to the latest issue of BCMA News! This month’s topics… 1. Bill Quicker, Get Paid Quicker 2. Credit Reference Guidelines 3. The Value of Early Courtesy Calls 4. Use Customer Visits to Build Credit/Sales Cooperation 1. 1. Bill Quicker, Get Paid Quicker “Bill quicker, and you will get paid quicker.” That’s how one credit manager we know sums up his strategy for accelerating cash flow. Some of his recommendations: Bill daily. "If you ship or deliver products to customers, you should be able to bill on a daily basis. Many companies already do this, but they may wait a day or more before billing." His recommendation: Bill on the same day you ship or deliver. If you operate a service business, bill on the day that you perform the service (if it is a day-by-day service arrangement) or on the last day of performing a service (if it is a project or multi-day arrangement). Bill weekly. If you are unable to bill daily for whatever reason, do the next best thing: Replace monthly billing with weekly billing. "This should certainly pose no problem if you sell products. If you provide services, it may pose a bit of a challenge in that you will need to accelerate the process of getting time and expense reports from the direct field service providers. However, many companies have had success doing so." “I know a number of service companies that have been able to shift from monthly billing to weekly billing by expediting the way in which the field reps submit their time and expense reports,” he continues. Consulting companies and temporary employment agencies should certainly be able to bill weekly, he believes, in that they are contracting out employees for specific projects on a daily basis. “In some cases, though, a service firm may have no choice but to bill monthly, based on the nature of the arrangement and the requirements of their clients.” Before accepting this eventuality, though, consider a couple of other options: 1. Accelerated monthly billing. Consider billing a little earlier each month. For example, if you normally bill on the twenty-fifth of a month, consider billing on the twentieth next month, the fifteenth the month after, the tenth the month after that, and so on. 2. Scheduled billing. Another easy way to improve cash flow is to find out which of your largest customers pay bills on a certain day of the month. (Some may pay 30, 45, or 60 days after receipt. Others may pay on a specific date each month.) If you find a large customer that pays on a specific date each month, find out what that date is, and also find out when the last day is that they accept invoices for that batch of payments. Then, obviously, make sure your invoice arrive by that date. 1. 2. Credit Reference Guidelines How can you be sure that you and your staff are meeting the requirements imposed by antitrust laws when you are giving and receiving trade reference information? Here are some guidelines recommended by one Ohio company. Telephone and written reference requests. The most common way to get credit information on new customers is through the references they list on their credit applications. "However, you should use discretion when disclosing information," notes the company's credit manager. His company follows these guidelines in deciding what information it will and will not provide to other suppliers: · The information provided will be as helpful as possible to the prospective supplier. · It will be totally factual, objective, and historical. · Keeping the customer in mind, however, the company will not share sensitive information or subjective opinions with other suppliers. · Credit decisions are to be made solely by the individual company. "In other words, it's important to know where to draw the line between factual information and subjective opinions, "he emphasizes. "This is especially true when you have some negative payment experiences with a customer, or are aware of derogatory information or nonpublic financial data. " Reference requests from direct competitors. The company prefers to minimize this kind of exchange if at all possible, both in terms of requesting and providing information. "There are specific antitrust laws that apply to credit," he says. "Thus the issue of collusion always hangs over a credit manager's head if he or she starts sharing credit information with direct competitors." Here is an example of how sharing information with competitors can backfire: You may contact a direct competitor that was given as a reference by a new customer. Based on the information you receive from this company and information you gather from other sources (references, a financial statement, information from salespeople, trade reports, etc.) you choose to deny credit to the customer or restrict the line of credit. Meanwhile, the direct competitor you contacted for credit information may have made that exact same decision based on its updated information and/or current experience with the customer. This could evolve into a very "touchy" situation, because the customer could charge collusion among an industry group of suppliers. "If a direct competitor requests a credit reference on a customer, we explain that we are in the same product category or industry, and that we are sensitive about providing information," he says. "Then we only disclose factual experience." Conversely, to steer clear of this problem, the company's credit application is formatted to encourage customers to list references that are not direct competitors. The credit manager also emphasizes the value of industry credit interchange groups. "Formal, registered groups are an excellent way to exchange historical/ factual information on customers," he says. "Many of these groups even provide computer/tape interchange of information. These groups also provide a forum where you can learn some credit and collection practices that have been used successfully by other credit managers and companies. Personal contacts made at the meetings are also a valuable resource for future information." 3. The Value of Early Courtesy CallsNever underestimate the value of making early courtesy calls to customers. That’s the lesson learned by one credit manager during two previous jobs with companies having serious collections problems. “I called customers when we shipped orders and just before payments were due to make sure there would be no problems,” she says. “If there were any problems, we were able to resolve them before the invoices were due.” The next step was to begin working through the old balances. She found that telephone calls were the most effective. On rare occasions, personal visits were warranted, but telephone calls usually produced the required results. Her other tactics included: · Monitoring customers’ compliance with their promises. If a payment was not forthcoming as promised, she would call again, becoming progressively more insistent with each ensuing call. · Treating each customer individually, and rewarding cooperation with flexible payment plans and new shipments but stopping shipments to the uncooperative until past-due balances were cleared up. · Monitoring the financial stability of all existing accounts—those who were paying on time as well as those who were clearing up old balances. · Maintaining a positive attitude throughout the process. “It’s easy to focus on the problems of old balances,” she notes. “But I took the attitude that each time we collected an old balance, it was a victory—a positive event.” 1. 4. Use Customer Visits to Build Credit/Sales CooperationIf you want a recipe for disaster, have a sales and marketing department that has big plans for a group of customers and a credit manager who feels just the opposite," declares this corporate credit manager.. The fact that he is consistently able to avoid such disasters, he attributes to an ambitious schedule of customer visits that enable him to see their operations first hand. "The visits help me find different ways to do business with customers that are really important to our marketplace strategy," he explains. "On some occasions, if there are serious problems with a customer, a personal visit will allow me to identify all the details and explain these problems to Sales and Marketing in a way they will understand." Pre-Visit Preparation He spends a lot of time in preparation. First, he meets with Sales and Marketing to discuss their plans for the region and for each specific account in it. He identifies how they feel about each account, what they want to with each and what they feel the opportunities are. "I get an estimate of the sales volume they want to do with each customer," he says. With this information, he "backs into" what the credit accommodations need to be. He supplements this with information from discussions the salespeople have had with customers on what the customers themselves perceive their credit needs to be. Next, he reviews the credit application, researches trade and bank references, reviews financial statements (if they are available), and then investigates management background. The next step is to identify specific objectives for the visit. Examples include getting copies of financial statements and getting to know management better. "I then plan ways to make sure I can cover these issues during the visit," he says. Finally, he tries to place himself in the customer's shoes to anticipate any questions, concerns, needs, or requests they might raise during the visit. For example, customers might request extended terms or additional discounts. "By anticipating these issues in advance, I can prepare for such discussions if they arise," he notes. Visit Details During each visit, he constantly reminds himself of three additional things: · Be respectful. "I work hard to always be on time for all visits," he says, “and I don’t overextend them unless the customer wants to do so. I don't want to turn a one-hour meeting into three hours." · Be friendly. Russell always prepares a friendly opening comment to help set a positive tone. "Even the most experienced customers can be intimidated by credit people," he notes. · Be professional. Russell takes complete notes on what is discussed during the meetings. He then makes it a point to follow up promptly on things he promised the customer he would do. To learn more about subscribing to Credit Today, check out our web site at http://www.credittoday.com/ Fire-Starter Words- Four Things Never to Say to a Customer Credit Today Benchmarking Survey- 2011 Improvement Initiatives -- Many Different Things Going On |
