I have often described Credit Management as the difference between what should happen and what really happens. I can see people all over the country reading these articles and nodding their heads in agreement with what I am saying or even scoffing at the simplicity of some of the suggestions. I keep coming back to the question: “But, are you doing it?” “Are you doing it five days a week, fifty two weeks a year?” “ Are you doing it 100% of the time?”

Can you look me straight in the eye and tell me:

1. I have a new account application form on file for every single customer with an outstanding balance on our debtors’ ledger.
2. I have assigned a specific amount of credit I am prepared to give to every single customer.
3. I have a written Credit Policy that is a live document that everyone is aware of and adheres to
4. I have clear credit terms that are communicated to everyone internally and externally and they are strictly adhered to.
5. I get all the necessary information at the start and on an ongoing basis.
6. I get information on judgments every week
7. We have been in contact with every single customer who has an overdue balance and we know when the payment will be in our bank.
8. We know every one of our customers and are happy we can fully trust them with the amount outstanding.
9. We send out invoices on a daily basis and they are always correct.
10. We never have price queries.
11. The goods that are ordered, delivered and invoiced always match.
12. We have trained and educated staff who know exactly what they are doing.
13. We have a clear collection process in place for each category of customer
14. All our staff work together as a team for the common good.
15. We never have to send out Credit Notes
16. My bad debt levels are appropriate for my Industry
17. My Days Sales Outstanding are below average for my industry sector
18. My credit function is better than the sales team the way they care for and look after our customers.
19. All my people are working to their strengths and get to spend their time doing the things they love to do.
20. Stress is not an issue anywhere in my organisation.
21. We have clear reports every week and month that are easy to read and deliver the exact information we need to manage our business effectively.

If you can answer yes to all the statements above I would love to hear from you as I could learn a lot from someone that good.

If you answered yes to most of the statements you are still doing well

If you answered No to any questions the good news is that over the next number of weeks I will share with you a strategy to deal with each of these issues. If you can’t wait that long and you know the longer you wait to do something about clearing the older balances, the less you are going to collect, maybe it is time to have your own “Operation Transformation” on your ledger – call me directly or email me and I am happy to help in any way I can.

Credit Management may not be an exact science – there is a way – The Credit Coach way – that really works – keep reading and learning.

The function of Credit Controller is key to every business. If you are a full time Credit Controller who spends your days exclusively collecting what is owed when it is owed or if you make calls to customers on a part time basis – the same rules apply:

·         You have to enjoy what you do.

·         You have to come across professionally on the phone.

·         You have to know what you are talking about.

·         You have to ask for each of your customers by name.

·         You have to have the ability to build rapport with your customers.

·         You have to be focused on results.

·         You have to keep accurate records of every single call.

·         You have to follow up when you say you are going to follow up.

·         You have to maintain a positive approach.

·         You have to be in control at all times.

·         You have to know the right words to use.

·         You have to know the words you should never use.

·         You have to know the right questions, and the wrong questions.

·         You have to get that “Yeesss!!” feeling every time you get a result.

·         You have to be aware that you are competing for your customer’s money in the same way your salespeople are competing for their business.

·         You have to be the hub of all internal communications

·         You have to realise that a debtor and a customer are the same thing.

·         You have to respect all your customers.

·         You have to find a way to deliver every order.

·         You have to persist until you succeed.

·         You have to be consistent.

·         You have to be innovative.

·         You have to be numerate.

·         You have to have an excellent personality.

·         You have to be a great judge of character.

·         You have to be a decision maker.

·         You have to take responsibility for all your decisions.

·         You have to know when to say “Yes”.

·         You have to know when to say “No”.

·         You can add at least twenty more things to the list, I am sure – is it any wonder that excellent Credit Controllers are rare and valuable. If you measure up I hope you are appreciated by your company for the contribution you are making.

When you have done all that you have to know when and where to look for help.

·         Help in Education and Training to show you how to achieve everything on the list above.

·         Help from experienced professionals on collections and legal when you find you are wasting your time.

·         Help in the form of up to the minute information on all your customers to make sure you have all the information you need to make an informed decision.

·         Help to deal professionally with all your customers.

You have to know when you should be looking for help – a simple rule of thumb is that if your Debtor days are more than double your stated terms – you have a serious problem. If your three month debt exceeds 25% of the ledger total – you have a serious problem. The thing about credit problems is that the longer you leave them the worse they become. We are just starting a new year, promise yourself that your business is not going to fail because it ran out of money – just like the thousands of businesses that failed up to now and you are going to do whatever it takes to survive and thrive no matter how challenging things become.

It is a sign of strength not weakness to recognise that help is required and availing of it. What matters is results, make sure you get the right results. 

We have reached the end of this series of articles and those of you that took “The Credit Coach Challenge” should be seeing real results at this stage.

Initially I showed you how to identify your possible bad debts and how to develop a workable collection strategy on these more difficult accounts to collect. Over the fourteen weeks, using the methods shown, you should now be in a position to calculate the amount collected in this very high risk category.  The amount collected here goes straight to your bottom line because by your own admission these would have been write offs if special action was not taken. So you know what your potential bad debt write of was at the start, you know what it is now and you have to make a call on the remainder – is the customer in a position to pay in full, to pay over time, to pay a reduced amount or not in a position to pay at all? Categorise your remaining customers into one of these four sections and take the appropriate action on each one.

 

You learned how to calculate your debtor days (DSO) correctly, so was there a reduction from the time you started to the end of November? You know the value of a single day’s sale, you know how much you are paying for funding, so calculate the savings here on the basis of the reduction in facilities required due to increased collections.

I hope you are now reporting on what % of your ledger is within terms, with the increased focus you will have a more realistic understanding of what your terms really are and I hope this graph is going upwards for the period. Until you get to 100% there is always more work to do and remember help is available if you don’t have the resources to commit to this vital function – all you have to do is ask.

Have you looked at the options to automate your invoice delivery and storage facilities? This alone can save you up to .80c on every invoice and statement you send out, not to mention the savings on storage costs and the hidden costs in time spent looking for paperwork.

You now know how to credit score your ledger, having a simple but effective system will focus your attention on the high risk, higher balance accounts that will reduce your exposure to the riskier customers.

You have been shown how to set a figure for your bad debt provisions, this should make your reported profits more accurate and combining this with an increased collection effort should mean more profitable sales at every level.

You should have set individual lines of credit for each of your customers, reducing the risk of getting caught at the very end for a higher amount than was previously outstanding – further reducing your exposure to bad debts.

You have a blueprint to decide if you should “go legal” and you now know the most cost effective way to do it, and how to keep legal firms working with the level of urgency you require.

You should be setting up a meeting schedule with your key and high risk customers to make sure they will be with you for at least the next three months. You should also have a greater understanding of the risk associated with doing business with them.

If Credit is important to your business I hope you are getting everyone in your organisation bought into cash collections, and working together as a team to increase sales and collections while keeping all other costs under control, anything less will spell danger for your own business.

I have shared with you ways to reduce your exposure to risk and still remaining commercial in your outlook, you still have to find a way to deliver every order and do it intelligently.

I would love to hear your success stories, even if you only implemented one of the recommendations that made a difference to your business– please let me know how you got on, if you have implemented more than one and are seeing real results, all the better.

If you know you should be doing more but simply don’t have the time or resources please let me know and I can show you where help is available at a reasonable cost. You can contact me on 087 244 7062 or email declan@icmt.ie – I look forward to hearing from you.

When managing a ledger there are a number of factors you should take into account. Firstly there are the names of your customers that appear on your ledger, if you are a regular reader of these articles you will have read before that you have to make sure you have the correct legal entity for every single one. Just because I keep saying it and you keep reading it doesn’t mean you have it right.

As soon as you have finished reading this, go through your ledger line by line and ask the person who receives your cheques, has it ever happened that a cheque arrived in where the name on the cheque didn’t exactly match the name on the account? If the answer is yes, then you don’t know who your customer is. I am sorry if I keep labouring this point, this is the foundation stone that everything else is built on and you have to get this right from the start.

Secondly you have to manage the ageing – the older the balances the less money you are going to collect. The areas of concern is the amounts that are outside agreed terms. On the oldest balances, if there is a payment plan in place and they are honouring the new agreement I would be inclined to treat these accounts as within terms – so focus on the others.

Thirdly, you have to manage the exposure – this is the highest balance the account can go to at a particular point in time. For a large company paying by cheque this point is one week after the month end – before the cheque has cleared and they probably have their stock for the current month, leaving you with a potential exposure of three months purchases on a 30 day account paying to terms.

The easiest way to manage this is to calculate your exposure on your key accounts every month. When that is established you can then look to ways of reducing this exposure the following are some ways this can be done:

1. Credit Insurance. You probably have insurance on every single one of your assets from cars to premises, yet the largest asset and the fastest depreciating one is in most cases left uninsured. I urge you to look at this as an option. There is a perception that if you can get insurance on a buyer, you don’t need it – in other words the Insurance Companies will only take on blue chip companies – this is not the case and they are prepared to write limits based on a number of factors. For large amounts it is the best way I know to let you sleep at night, knowing that as long as you comply with the rules you will be covered.

2. Discount structures. There are a number of ways you can arrange discounts with your customers that can partially and in some instances completely eliminate your exposure at specific moments in time.

3. Guarantees. There are a number of guarantees you can look for: Personal Guarantees, Parent Company Guarantees, Bank Guarantees all have benefits and pitfalls, knowing which one is appropriate is essential for your business.

4. Payment methods. Using instruments such as Letters of Credit and increase the reliance you can put on payment and as long as you perform your side of the deal, your payment is guaranteed on the agreed date.

There are lots more ways you can manage your exposure without reducing sales to potentially big buyers, it is in your company’s interest to know what these are and how to implement them. Failure to manage this area can prove extremely expensive.