If you are reading this page and are wondering why it hasn't been updated for some time, I have changed the method of my weekly articles to posts on LinkedIn. If you want to receive the weekly articles, invite me to "Link In" and you will continue to receive them. I also post them in my weekly Ezine called "The Credit Coach" you can get your copy by subscribing Click here. Hope you enjoy the insights!
I am often amazed at how little thought and effort is put into this vital area of a business. We put huge effort and resources into prospecting for new customers, then the whole sales process and even customer service.
The job of opening the account is usually a clerical exercise that is stuck in somewhere in the middle, and in some cases is done at the last minute because someone, somewhere is looking to print a delivery docket to get the goods out of the stores or in the case of service to log a service call.
You would not hand €1,000 to a stranger in the street and hope to get it back, then why would you deliver goods or service to someone you don’t know without first checking who they are, what they are and if you can trust them with the goods or service for the agreed period?
Start with a proper New Account Application Form that asks the right questions and gathers the right information. (I am happy to help you with this if required).
Then you must have a process based on the amount of credit required, your profit margins, your place in the market, what your competitors are up to etc.
You need information before you can make your decision, look to the agencies (E.g. Search4less for information you can buy at a very reasonable price to give you an up to date picture of them.(contact me for an invitation to see how this works)
Use trade references to find out how they are performing.
Get bank references.
Use the Companies Registration Office website (www.cro.ie)
Use your Credit Insurer to verify the limits you are looking for.
Use Google, Yahoo or Bing
Use The Irish Times or for overseas customers use ft.com – I know you can’t believe everything you read in the newspapers, still it will give you a picture of how they are performing. Are they expanding or letting staff go?
Have a clear communications map of who and when needs to be aware the account has been set up – the rep, the sales manager, the operations people, the service manager, the boss, the marketing department to apply pricing, bonuses or discounts, your IT department, the credit controller, the van driver… the better you communicate the better.
This process is the root of all success and failure for your business. Make sure you take it seriously, make sure the people doing it fully understand what they are doing and the implications of their actions.
Finally ensure there is some type of management review of all new accounts opened in a week or a month, you just might be amazed at the amount of knowledge that is untapped within your own organization.
Some companies see their credit function at the end of the line in their business. First there is product development, then there is marketing, then sales and finally when everything is done and dusted the credit department step in to collect the money that is owed.
While this may work in some instances I believe your business would be better if you involved the credit team earlier in the process. Would you agree - there is no point selling and delivering goods that you are never going to get paid for. Then, is there any point in taking these orders and sending them into the office? So, is there any point to the sales rep wasting their time in pursuit of this customer and this order? If not would you have been better served to run a list of prospective customers past the credit controller on a daily, weekly or monthly basis? Tell the Credit Controller – “this is the list of 50 customers we are targeting next week, can you run a quick check and confirm the ones you would be happy to give credit to” (An indication of an amount of credit you would be prepared to extend would also be useful). This way the sales staff have a better understanding of the potential customer and is happy to know if an order is obtained it will be delivered, without hesitation.
The sales staff can also manage potential customers expectations, if they know in advance what credit will be extended or if cash on, or before, delivery is required.
Using this simple pre-emptive model can boost your sales and increase your profitable orders. It can also add to the level of customer service you offer by focusing on the customers that generate the greatest return. This approach can also increase your profits, as you become aware of high, medium and low risk customers you can adjust your pricing accordingly, obviously the higher the risk, the higher the cost of credit that has to be passed on to the customer, tracking this premium against your late payment costs and eventual write offs will prove if your strategy is working or needs to be revised.
If you involve your Credit team even earlier, the payoff will be even greater. Get your Credit & Marketing teams together when you are deciding on new markets, drill down to individual customers in each marketplace before the sales team make a single call, you can have your marketing plan completed and include potential customers you would be happy to deal with, who have the wherewithal to pay their bills in full and on time.
I am aware that most of the articles I have written up to now have been focusing on the area of Business to Business credit. In this article I will focus on the very important area of consumer credit. We all know that consumers are having a difficult time right now and a survey completed by the Irish League of Credit Unions revealed some time ago that 1.7m people in Ireland have less than €100 per month left over after all their bills have been paid and worse still 518,000 are left with no money after the essential bills are paid, these numbers combined with the fact that mortgage arrears are still too high it is little wonder that people are juggling their finances just to keep their heads above water.
The challenge for anyone involved in collecting money from consumers is to find the right line. If you are too soft you risk being put to the bottom of the queue and never getting paid, on the other hand if you are overly forceful or aggressive you risk losing the customer and the money.
Utility companies have to be careful on two counts, they have a responsibility to provide essential services to consumers, and they also have a responsibility to ensure they don’t allow the consumer get into a spiral of unsustainable debt. In my experience I think service providers are too lenient with non-paying customers and allow debts to mount up for far too long before taking action. Now I am not saying you should cut off the service the day after the payment doesn’t arrive in every instance, there are instances when this is appropriate and there are instances where it is not. Hitting the right balance is essentially what I can talk about for days without repeating myself and is a major part of all the training I deliver
Credit unions too are having a difficult time, they have money available to lend and the difficulty is finding members with the capacity to make the repayments who are willing to borrow and the eternal problem of getting the members who owe the money to pay it back in full. I have developed a number of strategies to help credit unions and have discussed these methods at length at various training courses and in house training sessions I have delivered all over the country.
Bearing in mind the current reality the concept of “Paid in Full” is probably outdated and as a consumer credit controller or credit manager you have to train your staff to negotiate settlements with consumers over a time frame that is workable from their perspective. Here is the key – if you put a repayment schedule in place and you are continuing to supply on an ongoing basis you have to make sure the account is coming down month after month. For credit unions you have to make sure that the payment agreed covers the interest charged and something is going off the principal.
There are times when even that is not possible and I would recommend that you accept any payment in the short term just to maintain the contact and set a review date for three or four months down the line to see what things have changed.
We are still on a long hard road, credit is not as easily available as it once was and people have to reassess their priorities and question every cent they are spending to make sure they have enough for what they consider to be essential. This definition of essential may differ from person to person the notion of essential is easier to define: a roof over your head, some food to eat; light and heat in the home and the head space to enjoy life free from constant contact from creditors who are looking to be paid in full, when there is simply not enough to go around.
From the creditors perspective we have to ensure we are skilled negotiators who know exactly where the line I spoke about earlier is and the consistent and persistent approach to ensure a good result in the end, so the debtors can live and the creditors will get paid eventually.
We are all living in the shadow of the Celtic Tiger, whether we benefited from it at the time or not, and the immortal words of Charles J. Haughey “we have to go back to the old fashioned methods of living within our means”, has never been truer. When he said those words back in the seventies the level of personal debt was just a small fraction of where it is now, so it is now more important than ever before that we play our part in reducing the amount of unsustainable credit that has been granted for the benefit of our companies/ credit unions, for our customers/ members and for society at large.
One of the jobs credit controllers spend a lot of time doing is “releasing orders”. In fact it is a task that is not even questioned anymore because it is so much part of the working day. Well I am going to question it! Why are you doing it? The only reason an account should go on hold is if the customer is either over the credit line set for the account or they are exceeding the number of days permitted. For each class of customer, depending on the risk category, you should build in a tolerance level showing how many days beyond terms you are prepared to let the customer go before you stop supplies or withhold service.
So, if these rules are being applied, the job of the credit controller should either be to review the amount of the line of credit, the customers risk category or the tolerance allowed.
If this important task is not completed on a daily basis in favor of releasing individual orders, then the problem will persist and what is even worse, the number of orders will eventually get out of control.
The function of management is to ensure that proper controls are in place and in my experience this is not always the case. In fact some don’t even keep logs of what orders were released or why. Anytime you constantly override your system you are losing control.
To maintain control of your exposure you have to have rules and stick to them. Of course there is a need for some flexibility in certain circumstances and credit control usually involves applying common sense in every situation. There are good reasons and downright lies and the role of the Credit Professional is to be able to differentiate between.
It is only when things go wrong, when a business closes or a company goes into liquidation that the senior management comes looking for answers and explanations. If an account goes with a balance exceeding the signed off line of credit then all concerned have very serious questions to answer.
My advice for what it is worth, spend less time dealing with the symptoms of a problem by constantly releasing orders and more time tackling the root cause and making better decisions every time. The alternative can be very expensive.
The credit department is well placed at the centre of your organisation to ensure your internal communication processes are working. Every time there is a breakdown it will show up in the form of a customer query or an unpaid invoice. Rather than being viewed as a problem, every issue should be seen as an opportunity to review what was done or in most cases what hasn't been done and you can identify what changes need to be put in place to ensure that this never happens again.
Customer contacts and queries must be viewed in a positive light everyone in your organisation must be bought into the idea of keeping your customers happy. This is why every single instance and every single query must be taken seriously and responded to quickly, whether it is justified or not. Your unjustified queries came about by a miscommunication somewhere, and even these should be investigated thoroughly and you should communicate with your customer the result of your findings and you should explain how the query has been dealt with, and if the result is not as they were expecting extra care should be taken.
If you are in a service business you should encourage the service providers within your organisation to be aware of your billing cycles and every invoice should be expected and agreed in advance, especially if you are billing on a stage payment basis.
If you are supplying goods the invoice should be raised on the basis of what was delivered, not on what was dispatched, and if there was a short delivery, you should check with your customer if they still require the goods if they were left short on an order.
Everyone in your organisation must play their part in delivering excellence from the sales rep to the store man, from the marketing executive to the account manager, everyone should be brought through your administration procedures right at the start, you must explain exactly what is expected and when, and exactly what they must do at every stage. Failure to deliver on this will cause untold problems for you and will damage your reputation in the market.
You should keep a query log and this should be discussed with all the relevant people on a weekly basis, you should have a credit note analysis to understand what is going wrong, you should log your customer calls, particularly complaints, not because you want to focus on the negative, but to fully understand what is going wrong and what you have to do to resolve it.
Every overdue amount on your ledger is there for a reason, a properly trained and motivated credit team will get to the bottom of every single issue and use it as a learning tool for the future.
Reports should be concise and geared for the audience that is going to read and action them, you must get Board approval and buy in and it is the job of the credit team to explain the importance of this vital function to everyone.
In today’s competitive market anything short of excellence is not good enough.
In Ireland we have an excellent system for collecting debts and like everything else it works when it is used correctly. There are many misconceptions and some practices that should be improved. The whole system could be improved and in particular the use of the small claims court for debt collection and the ability of individuals and companies to handle the paperwork for all undefended judgments without the need for a legal firm to get involved in what is mainly an administrative process would be good for starters. For the purpose of this article we will concentrate on the system we have and how it works from start to finish. Forgive me if you know most of this stuff already I am writing for the benefit of the person who has little or no knowledge of the current system.
If you have done everything in your power to collect a debt, if there is no reason you are aware of why the amount hasn’t been paid, or sometimes when there is, if the customer is not engaging with you in a meaningful way, i.e. making payment, there are times you have to make a hard decision whether to go down the legal route or to simply write the debt off completely.
As simple as this choice may seem, there are times when it is cheaper and easier to write the balance off, particularly in cases where the other party simply has no way to pay the amount in question. Once you have established that the money is due and owing, you know the exact legal entity you are trading with, ideally you have the necessary back up documentation, including copy invoices, signed dockets and a record of all the activity that took place since the account became overdue and you are satisfied that there are sufficient funds available to pay the amount in full, including interest and fees and that the relationship is beyond repair and you have no intention of doing business with them again, then the sooner you issue proceedings the better.
The court you sue in is determined by the amount outstanding, The District Court hears cases up to €15,000, The Circuit Court up to €75,000 and there is no limit in the High Court.
Each court has its own rules and vagaries and I have lots of information on the specific processes if you want to find out more, just let me know. There are also some common ground: If you are successful each court will issue a Judgment, this is simply a piece of paper that says the court accepts that the debt is due and owing, it is worthless unless you do something with it. Your options include:
1. Register the Judgment for publication – it will appear in Stubbs and be on the public record, and as a result will have a negative impact on their credit rating.
2. Lodge with the local Sheriff, who has power to seize goods to the value of the Judgment
3. Register the Judgment as a charge against property owned by the company or individual. You can then enforce your mortgage through the sale of the property in question. The reality right now is that no judge would enforce the sale of a family home for the settlement of a debt.
4. In the case of an individual you can get an Instalment Order, which if it isn’t honoured can lead to committal to prison. It is important to understand that the Instalment Order is an Order of the Court, if the person fails to pay the instalments in accordance with the Order, they are in contempt of court. This is why they go to jail – not for the debt itself.
There are many other remedies, one final point if you are dealing with another business you are entitled to add on Late Payment interest and Admin charges to the account before you take proceedings and the amount should be included in the amount claimed, you are entitled to court interest of 8% on all amounts due from the date of the judgment. Hope this helps your understanding and make sure you get details of what it is going to cost you before you engage any legal firm.
Today I want to share with you my seven secrets of excellent collections. Before I do the first ingredient that must be present is the right person with the right attitude, without that everything else will count for nothing. You have to make sure your collections staff are trained and educated to know exactly how to communicate effectively with people and get the required result with a minimum of conflict.
If you or your staff are in conflict with your customers, if a number of the conversations descend into arguments then you know there is a problem that has to be addressed. The collector should be clear, focused and confident, with the ability to stay in control at all times, this can be learned, if the right attitude exists in the first place.
Now to the seven secrets:
1. Using the right words and asking the right questions.
Words are the raw material of communications, you have to use the right words and ask the right questions in order to get the results you desire, if you don’t you will get the results you deserve! There are good words and bad words, some will get instant results others will create conflict. Some are very subtle and others are not.
2. Being clear about your desired outcome
Anyone who has been on a course with me will remember my favourite question “So, what do I want?” This question has power beyond measure. Before you pick up a phone or make a call make sure you ask yourself that question first, then make sure the call is maintained in the direction of where you want to go, and if it strays for a time, use that question to bring it back on track.
3. Staying focused on the task in hand
I know much is spoken and written about the virtues of multitasking, to me unitasking is the key. Doing one thing at a time, focusing 100% on it, completing it and then moving on to the next most important task is the key to success here. When it comes to collections the task in hand is to collect the money – nothing more or less.
4. Listening Skills
It is said that a salesman has never listened himself out of a sale! Same goes for credit control, Take time to become an active listener, listen to the words, the tone, what is said and what isn’t said. When listening with a problem solving hat on you will be amazed what can be achieved.
5. Knowing the Stages of the call
There are three stages to every call – the opening, the fact finding part and the closing where you get a clear commitment from the customer – each stage is vital to manage effectively and as you go you need to learn how to manage the three elements of emotion, logic and power.
6. Ending every call with the commitment
The call doesn't end until you have a date, a time and a payment method confirmed with the customer. You have to agree how much is going to be paid, exactly when it is going to be paid and how it going to be paid. Anything short of this is a waste of time.
7. Follow Up
Follow up, follow up, follow up – exactly when and how you said you were going to do it, your credibility and your results depend on your ability to do this.
Enjoy the process, celebrate your results and know you are doing one of the most important jobs in the business.
Finally, this one isn't a secret at all; to be successful you need persistence, never take no as a final answer. Remember the line from Og Mandino’s book called “The Greatest Salesman in the World” – he was asked how he knew he would succeed and his answer was simple: “I will persist until I succeed.”
2015 is going to be a great year for credit controllers, particularly the ones who have a recognised qualification in the area. There are more jobs available than ever before, so the career prospects are looking good.
For those of you who are not looking to change, 2015 should be the year when previous pay cuts are reversed and you begin to see some extra money in your pay packet, the tax changes announced in the last budget are going to kick into place from this month, so that alone should leave you better off.
As business improves, so will the demand for credit, so I envisage intelligent companies will take a hard look at how they are currently doing business and how they can integrate the credit function into the heart of the commercial zone, to grow profitable sales and to extend their passion for delivering a quality service to all their customers, by taking into account the quality of the invoices and statements they are sending to their customers on a daily basis.
I am hoping that 2015 will be the year when senior managers in business finally recognise the contribution a properly managed credit function can make to every business. Those of you who have attended a talk or a training course will be aware of the expanded scope I recommend for the credit role within business to become the managers of the margin. It is in that space that your true value will shine through and you will begin to make a valuable contribution to your business.
The start of each year is a good time to stop and take stock of where you are and more importantly, where you are going. Plan your career, work out exactly what you have to do to get from where you are to where you want to be. If that includes training, education or advice, I am always happy to help in any way I can.
Take responsibility for where you are now and plan your future with care. The sad fact is most people spend more time planning their summer holidays than they do planning their whole lives. Be part of the 10% of people who are living their lives with purpose.
On the jobs front, I will be keeping an eye on what is going on and through the weekly E-zine I will bring you the pick of them in the coming weeks and providing you with the help and advice you need to get to the next level, no matter where you are now.
One of my favourite questions is “does it make sense?” If it does, do it. If it doesn’t, don’t!
This week I want to share with you my vision of the Credit Department as it should be structured within companies that are dealing on a B2B basis. There are a number of challenges facing the credit manager today and securing the required people and budget to perform at a level of excellence is the first step on the ladder. So if that is the first step, then we have to go digging to find the starting point.
To me the starting point is to make sure senior managers and even the Managing Director to fully understand what is going on within the department and I know this will sound a little simplistic, you have to educate your MD and Senior Management team really understands the process from start to finish. Most confuse credit management and collections and view the function simply as the process of turning debtors into cash. Hopefully after reading this you will agree with my thinking and put a plan in place to implement the changes.
So what additional responsibilities could the credit department incorporate into your remit?
To me the credit function reflects the customer’s journey with you for as long as they are buying from you and you can increase the value of your contribution to the bottom line of your company.
Before you even start to read the following ideas I can see a large number of credit managers switching off immediately, we couldn't possibly do that with our current resources, and I agree with you, chances are that additional resources will be required, the reality is that additional resources will not be required in an overall context, it could require resources being redeployed from other departments to strengthen the credit function – properly managed that would be a good thing.
The scope of the credit department should begin before sales and marketing begin their involvement. There is great value in checking out new markets from a credit perspective before any time, effort or money is spent. Any experienced credit manager is in a position to identify the key players in any market and give the sales/ marketing team a graded list based on an agreed criteria of the customers in that market you want to do business with and the ones you will only deal with on a cash or pro forma basis.
At the end of the process, credit management are well placed to offer a simple treasury role for the business. That is by knowing the cash flow requirements of the business in the short and medium term, you can decide how much is required in the short and medium term and make sure there are no significant funds left sitting in a current account, not gaining interest or acting as an offsetting interest on another account.
If you accept my challenge that the credit manager should be the manager of the margin – these two suggestions will not be as way out as they first appear. Managing the margin is the task of making sure every sale is turned into a profitable sale through receiving prompt payment and making sure that sufficient resources are retained to deliver excellence in business processes every step of the way.
The more areas that are placed under the remit of the credit function and as long as the credit manager in question knows what he or she is doing, the company will benefit greatly from this intelligent, financial, commercial and risk aware approach to business.
It is time for the credit managers to assert their authority and start contributing to their companies at the highest level.