|COLLECTING FROM YOUR BIG CUSTOMERS.||
Collecting from your large customers: Is it 'Collections' or 'Corrections'?
A few years ago I was at a major intermodal transportation and railroad company for training sessions on Collection Skills and Receivable Management. The training was to be imparted to five groups spread over five days. My initial interview with management was fairly straight forward where the elements and the scope of the training were defined. The elements incorporated for training were Collection Techniques, Credit Management tools and Role play.
On the first day of training around the first break I realized that the
collections staff was made up of people who had years of collections experience
either at this company or prior to joining to the organization. The accounts
were not profiled and were rather assigned arbitrarily and as a result
an account manager ended up having a mix of different size accounts located
in different provinces or states.
Dealing with the Automotive Industry, Chemical Industry, Petroleum Industry and large accounts in general, creates a huge challenge for an A/R department. Multiple invoices leads to missing invoices, pricing issues, delivery problems, damages, short payment and a host of other problems that results in millions of dollars sitting in unpaid receivables. Just ask any Credit Manager what his/her policy is on collecting from their large accounts and you will most likely hear that issuing credits and debits and reconciling accounts is the biggest setback to getting paid, things that they have little control over.
In this age where the customer is deemed to be always right, the credit
management team requires to be sensitive to each and every customer. Having
said that, we can perhaps afford to lose a small business client and it
will not bankrupt us, but can we afford to lose a big client of ours that
adds big dollars to our revenue stream?
Ask sales, and they will talk about revenue that leads to greater profits or bottom line. Ask the credit department and the concern is cash flow (arent we obsessed with DSO?). Large accounts may have overdue amounts that your collectors have been working on for months trying to collect only to find out that the customer does not actually owe this amount in dispute.
When I was a consultant with D&B (formerly Dun & Bradstreet), I once visited a company that sold perishable foods on terms of net 7 days. The credit manger was new to the organization and when he looked at the A/R he realized that there was over 8Million dollars in disputes. He took 7 of his 30 collectors and assigned them to these accounts. His instructions were to find out what were the issues surrounding non-payment. What they uncovered was that the payment terms of Net 7 days was a quick turn around and many of their customers on receiving a shipment would pay the invoice in full within those terms. However, after finding damages to the same shipment they would then deduct the amount off the next invoice a week later. The customer was justified in doing so and did not owe this amount but it still appeared on the A/R list and a collector was wasting time attempting to get paid. There was never a paper trail or procedure set up to deal with these issues before which led to reconciliation nightmares for both the collectors and the A/P clerk on the customers end. To resolve this and other issues, he realigned their system for deductions management which included proper documentation and strict timelines to resolve issues. His team managed to reduce the A/R to a million in just one month. Putting a focus on Correction issues improves collection issues.
At many of my training sessions I am asked the question as to How
to deal with large accounts?
I mentioned this at a collection seminar and one of the participants told the group that he visited his A/P contact in another province racking up an expense of $1500 but came back with a 1.5 million dollar check and an account that now pays him on time all the time. Was it worth it? I believe so. Many collectors who are given the responsibility of collecting from our major account only deal with the A/P clerk, have we ever encouraged them to move up the ladder and communicate and associate with the A/P management group? Nothing against A/P clerks but it is the manager who signs and releases those checks.
One of the most important things for an A/R person to understand is the accounting processes that their customers are using. Many large accounts have very sophisticated accounting systems for processing invoices and payables. Why have we assumed that our accounting is compatible with theirs? Are there any special requirements that we or they have to meet? Have we developed systems for our collectors to gather information from our customers to understand what they want from us? Do we ask our customers what the customers that are paying on time are doing to get paid on time?
I do believe that out large accounts are our bread and butter and we should ensure that we keep them happy and close to us. Many large accounts however use us as their bank (interest free loans). Delaying payments to their creditors allow them to pass the savings to their customers and gives them that added competitive edge. Many of them use issues such as discrepancies on invoices to delay payments of the full invoices for months and being an account that everyone wants to sell to gives them the bargaining chips to take advantage of this. They would not even allow us to develop relationships with the A/P department by changing the A/P person and not allowing visits from our A/R department.
I met one credit manager that dealt with one of these accounts and was successful in keeping them within terms. The one benefit that he had was that his company was also a large well known enterprise that had an array of products that is always in demand. Beyond the fact that he had a lot of leverage he was able to resolve the issues faced by the customer by developing a system that coded all deductions. He then set up a process and a timeline to deal with each of these deductions. His success however was attributed to his access to the management team at the customer and their buy-in to the system that he had created.
Have we ever considered that an account may move to the competition because they are frustrated with problems that they are facing with our A/R department as far as the accounting issues, deduction management systems and collection calls for issues that turn up month after month? Would we have done justice to our organization if we are not focused on remedying the problems with our Major Accounts? Remember that the credit and collections department is an extension of the Selling department within the selling process.
Every account is different but we must set policies and approaches to deal with accounts that fit the same profile and keep our fingers crossed that they will be successful at least 80% of the time. There is no magic solution for dealing with any account that is not paying. I have proposed dealing with large accounts as a Corrections issue to resolve a Collection issues
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