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September 1, 2010 BCMA - It’s All About You! Welcome to the latest issue of BCMA News! This month’s topics… 1. Customer Expanding? Four Questions to Ask in a Review 2. Three Common Excuses for Delayed Payment 3. Sometimes Basics Matter Most: Fifteen Steps for Controlling Delinquencies 4. Why I Declined to Serve on a Creditor's Committee 1. Customer Expanding? Four Questions to Ask in a Review "When a customer decides to expand its business, it's time to review the account," says an Ohio credit manager. "Often, customers give signs of growth by requesting increases in their credit lines, trying to extend the terms of invoices, or by substantially changing their payment or order pattern. "Manufacturers or sales representatives can give you insights," he says. "They can tell you whether a customer has hired additional sales staff, increased advertising, or acquired a larger facility. With this expansion, the customer needs to increase sales to support these new overhead items and will also be looking for additional supplies, and so forth. "When we hear customers have made such changes, we ask for information to ascertain what their purchasing intentions might be for the coming year. You need to anticipate the new purchasing pattern and determine what the credit line must be to cover such purchases." Your list of questions to such customers should focus on whether they have thought through the decision. It should include asking:
"Listen carefully to the customer's answers and see if there are clues to dishonesty," he says. "If a customer is merely growing as a scam, you'll need to pick up clues early on to avoid loss." 2. Three Common Excuses for Delayed Payment Many times, 35-to-45 day-old invoices belong to established customers that have a tendency to ignore our net 30 day terms," says one Pennsylvannia credit manager. "When I ask if there are problems, the following have been the most common answers:We were waiting for a receiver. "I respond by offering to provide proof of delivery immediately and to instruct our billing department to 'seed proof with all future invoices'," she says. "This offer is often gratefully accepted by harried accounts payable clerks who really want to pay us on time, but whose hands are tied without a receiver." There was a price discrepancy. "Often buyers call in an order and then, when preparing the formal purchase orde, look up the wrong prices. I contact the purchasing department and request that it fax us confirmation of the purchase order before shipment. If there is a discrepancy, require a corrected purchase order before shipping." We pay in 45 (50, 60) days. "This is the toughest answer to contend with," she admits. "These customers have established patterns of payment. Since the payments were accepted in the past without serious objection, customers felt it was their right to continue the practice. Here I take one of several approaches: "I explain that if we cannot maintain our terms, we will be forced to raise our prices. "I agree to allow a customer to pay on its terms with a service charge to compensate us for the time our money should be in the bank earning interest. "Or, I offer special pricing--tailored to the special payment terms--which is a little higher than our catalog prices. "I find that if you take the approach that you are working with a customer to resolve a problem, rather than against the customer to collect money, you'll get more cooperation." 3. Sometimes Basics Matter Most: Fifteen Steps for Controlling Delinquencies You've probably seen all of these steps before. You're probably taking most of them. But review them anyway. If you're following all of them, you're doing the best job possible of controlling delinquencies: 1. Make sure each of your customers knows your terms of sale. 2. Be sure your terms of sale appear on every document that is sent to customers, including invoices, monthly statements, collection letters, and dunning notices. 3. Flag accounts with irregular payments for closer scrutiny. 4. Eliminate so-called grace periods. Follow up immediately on past-due balances. 5. Establish a method of monitoring the financial performance and payment patterns of accounts identified as marginal credit risks based either on their financial condition or on their payment history. 6. If DSO is creeping up, review and tighten your collection procedures and credit-granting policies and procedures. 7. Control extended dating plans. Make certain that only you can approve any such plan. Be certain that your subordinates--and the sales department--understand that they have NO authority to offer or accept extended payment plans without your approval. If you accept a payment plan, make certain it is documented--preferably in the form of an interest bearing promissory note with a default acceleration clause, and accompanied by a personal guarantee. 8. Treat customers' payment proposals as invitations to negotiate rather than as non-negotiable ultimatums. 9. If a customer cannot pay you in full, require a substantial "good faith" payment, in addition to a written commitment to pay the remaining balance on a specific schedule. 10. Be prepared to hold orders sooner rather than later when accounts become delinquent. 11. Always deal with decision makers within your customers' hierarchies, never message takers. 12. If a customer is withholding a payment over a small dollar dispute, insist that the undisputed portion be paid immediately. 13. Recognize that at some point it becomes more important to collect the past-due balance than it is to be concerned about future business and the risk of damaging goodwill between your company and the delinquent customer. 14. Many collection problems (and bad debts) result from poor or inadequate initial credit investigations. Make this your line in the sand. If you are not convinced customers are creditworthy, they should not get past the initial barrier to open account terms. 15. Use a professional third-party collection agency if you find that you are no longer making progress in collecting on a past-due balance. Remember: In debt collection, if you are not moving forward, you are moving backward--there is no neutral or middle ground!
By Michael Dennis To my surprise a few years ago, I was recently invited to a consider joining a Creditors' Committee in a Chapter 11 bankruptcy. Along with the invitation, The United States Trustee in the case sent along a fairly detailed description of the rights and the responsibilities of committee membership.Prior to this invitation and the informational brochure, I knew just enough about membership on a creditors' committee to be dangerous. For example, I was aware that the committee plays an important role in the Chapter 11 proceeding. I knew that participation on the committee was time consuming, that membership carried with it certain responsibilities, and that service on a creditors' committee was purely voluntary but strongly encouraged. I read the pamphlet and attended the hearing. These are some of the things I learned:
After careful consideration, and after attending the first meeting, I decided to decline committee membership. For me, the decision was made for several practical and pragmatic reasons. They were:
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