Please see : Economic soft landing

No clear answers to these questions from last month’s Credit Manager index but a very intersting article on the subject from NACM

The prevalent economic uncertainty can be a downer for a lot of employees, collectors included. Many are seriously concerned about job related issues such as, being laid off, doing more with less, the possibility to see their firm being taken over, jobs moving offshore, stagnant wages and even the viability of the firm that employs them.   

With this back drop, leaders need to be proactive in creating an environment that brings out the best in people to keep producing bottom line results effectively. If employees are referred to as “ a company’s number one asset,” are they being treated appropriately?

 Leaders could use a few of the following techniques to keep employees motivated and challenged :

• have the necessary tools to perform and continually search for leading edge working techniques
• seek out recommendations for change, from the staff
• if change is being considered, request input and seek buy-in from the staff
• know your staff and what motivates them
• determine if there are challenging individual goals in place and that clear expectations are established
• cross train individuals to enhance their knowledge base and to be more valuable
• listen
• provide recognition for a job well done
• Encourage employees often with phrases such as, “Thank you!”, “I appreciate what you have done!”, “That’s a great idea!”, “Fantastic results!”, “Way to go!”

I am sure that we all can remember at least one boss who took the time to praise us. The memory we have of this is still so vivid in our mind. Praise is very meaningful to people and a high motivator.  It encourages us to exceed expectations. By praising others, you too can be that, never-to-be forgotten leader.

Strong leadership is about driving results to well thought-out strategies, developing, motivating and encouraging staff, being a valued resource internally and externally, exhibiting respect and producing results.

John C. Maxwell said “A good leader is a person who takes a little more of their share of the blame and a little less of their share of the credit.” The present day economic challenges require not to drop the leadership guard. At the contrary, it’s time, more than ever, to extend credit!

In any case, one thing is for sure and that is that the lending players are still holding tight to credit. Money is harder to come by and that either through self wisdom or out of a certain fear of regulation, major players of the financial world are applying stricter and more stringent rules to borrowing.

What does this means to business operations? How do CFO’s and Finance Director’s take the best approach to optimize their financial position in the actual economical environment?

At CashOnTime, we’ve asked our Credit specialist Ken Young to recommend an approach for each of these scenarios.

Here is advice for the hard  landing.

What to do if the economic recovery does show up for a while? By Ken Young

First of all, if you see an economic storm coming, all bets are off. In such an economy, a new way of doing business emerges in most firms. In real life, when a tropical storm is approaching, home owners put sandbags out front, nail wood sheets over windows and do whatever they can to protect their assets. It is much the same with a company.

A new vision needs to be created and executed, in order to prevent the default rate from growing, which is sure to happen if a stand-still approach is taken. Status quo cannot remain in effect if a company hopes to survive. Many companies will not only want to prevent this default rate from growing, but will also take precipitous action to dramatically reduce or prevent any write-offs.

Assessing exposure and risk level has always been part art and part science. Both areas must be tightened when the economy turns south. Firms, in creating a more stringent framework, may implement changes such as:

• Mandating financial disclosure for any significant line of credit
• Adhering strictly to predetermined financial ratio components
• Requiring more, partially-or fully-secured transactions
• Analyzing the risk/reward on credit insurance and revising the deductible level
• Reducing lines of credit
• Tightening up the customer shipment or service “hold” parameters
• Ratcheting up the collection call volume
• Withdrawing credit entirely, faster, in situations
• Paying more credence to the rumor mill of business intelligence, on customers
• Ensuring that the most relevant and up-to-date information and payment days trending on customers are being utilized

Under such a scenario, sales would drop off and the bottom line would be impacted, so all areas of a firm are under a microscope. Risk areas can be prevented with front end due diligence and a more effective radar scan.  In this way, once the storm passes, with the right vision and policies, all the assets will still be in tact and the enterprise totally viable.

In any case, one thing is for sure and that is that the lending players are still holding tight to credit. Money is harder to come by and that either through self wisdom or out of a certain fear of regulation, major players of the financial world are applying stricter and more stringent rules to borrowing.

What does this means to business operations? How do CFO’s and Finance Director’s take the best approach to optimize their financial position in the actual economical environment?

At CashOnTime, we’ve asked our Credit specialist Ken Young to recommend an approach for each of these scenarios.

Here is advice for the soft landing.

Enjoy the read

Soft Landing

By Ken Young

How do you handle an economic “soft landing”?

As the economy shifts from a cycle of growth to slow or non-existent growth creates unique challenges for business. Leadership is facing these concerns head on, generally with a conservative and guarded approach. They are continuing to proceed with caution in numerous ways, including:

• Performing a more in depth credit analysis of all current and potential clients’ financial capabilities.
• Ensuring that an effective risk monitoring program is in place, to source and review ever-changing, client business intelligence
• Developing a risk ranking level for all of the client base and a policy that is fully prepared to withdraw credit faster with delinquent situations within each risk level.
• Establishing ways to prevent and to resolve billing errors expeditiously
• Tightening up on cash discounts, especially to customers taking it where it was unearned
• Building a strong network of valuable external sources who can provide knowledge and information
• Generating unique, out of the box ways to satisfy sales, while not taking undue risk and remaining competitive
• Creating effective processes to reduce overdue receivables in spite of many clients stretching payables and withdrawing credit faster in delinquent situations
• Encouraging clients to transact more online

Leadership continues to look for ways to strengthen the overall customer experience.  Personally I have found that more and more firms are sending out customer satisfaction surveys in order to improve the experience where necessary.

Firms who hope to be effective must persistently search for inward and outward ways to improve the bottom line. Internally, they continue to devise methods to further automate, improve processes, cut overhead and other costs.  Outward ways for firms to increase revenue and the bottom line focus on sourcing new and untapped sales territories, many of which are foreign markets.

An economic soft landing is one in which firms are proceeding with extreme caution.

Let’s hope growth returns soon.

The fact is that the way we interact with IT is, for many reasons, changing rapidly. It seems the Cloud is here to stay and will increasingly be THE way to use IT services. Here’s an interesting article on ZDNET that analyses the major reasons to take advantage of the Cloud :

Article ZDNET

The collections strategy and process starts before the first collection call is made. The message of a company’s terms of sale needs to be communicated to clients before they place their first order. The account executive should verbally state terms and they should also appear in written form on the credit application form, in any sales agreement, and in the welcome letter sent out. All of this must occur before the first delivery. The corporate strategy may also include a goodwill collection phone call before the terms of sale have expired and the first invoice becomes due. The benefit of this type of call is:

• To ensure all proper and necessary documentation has been provided
• That the invoices are billed correctly and that they have been or are being approved
• To ensure that the correct details for the new vendors “remit to,” are established
• That the payable system has had the appropriate terms input
• That the accounts payable contact will see your professionalism and helpful approach (The contact may have some leeway and be more willing to improve on their payment timeline, if it was normally slower)   

Accounts need to be classified into risk groups to ensure that they receive the most effective form of treatment. This will help to ensure the effort will yield maximum benefit for the time spent. Risk groups could include:

• traditionally slow paying accounts
• accounts with balances owing over a specified threshold like 100K
• new accounts under four months old
• high credit risk accounts
• all others (moderate or low risk accounts)

A specific collection treatment needs to be in place for each of the account types established. The treatment would indicate the framework for timelines of follow up communication and would establish the point at which the final demand is sent, if a plan of repayment has not been established. A collection scorecard by collector is another strategy that tracks the results of individual collectors. Examples would include: DSO, dollars outstanding over a specified period like 60 days, and the percent of the aged trial balance over the same period. This would assist in creating a motivating and challenging environment that produces quality results.

Creating a collection strategy is essential for improving cash flow and financial success. Without a plan in this regard, your customer will, by default, create one for you. Cash flow is the lifeblood of an organization. Significant sized firms can no longer be successful by using the same timeline strategy for each distinct account type. It simply is not effective. Don’t make it a number one priority to collect the $75 invoice that happens to be over sixty days. Focus on the high risk and high monetary accounts.

Establishing a current and relevant collection strategy is necessary to guide collectors and increase profitability.

The final all important collection strategy is to ASK FOR THE MONEY! It sounds simplistic, but so many collectors do not actually ask for it. Build a relationship with your client but don’t be sidetracked from asking for the money

Have a good summer!

Marc Levasseur

In the movie The Blind Side, Sandra Bullock’s character coaches her football playing adoptive son to protect his quarterback in these terms: “Think of me, protect my back, protect the family.”  The Credit Department also needs to protect the accounts receivable’s back. This can be done by measuring the performance of the credit department, and then making all necessary improvements. Bad debt losses and financing costs should then be substantially reduced.

Measuring performance starts by analyzing numeric data.  When you compare past statistics to other statistics, they suddenly gain relevance.  One area of high importance is the days sales outstanding (DSO).  By itself, that number does not mean much, but when you compare it to the budget, history, the year to date average, and to the industry standard, it is easier to determine the department’s performance level.  Once that data has been reviewed and understood, all necessary improvements can easily be identified and implemented.

Other critical financial specifics that should be measured and compared to history and the industry (if available) include:

• The ratio of bad debt write offs to sales

• DSO by product line, business unit, sales territory as well as collector

• DSO can also be measured on a sales weighted basis which is not affected by significant monthly sales differences. This creates a stronger DSO measurement

• The percentage of the aged trial balance over a specified period (e.g. 60 days)

• The total dollar figure of outstanding client deductions that are unresolved. Even though the credit department does not rectify the issue directly, they do need to follow up to ensure that it gets resolved

• The total dollar figure of fully outstanding and disputed issues.  This is where the client refuses to pay until a credit is received. This greatly impacts the cash forecast projection for the period. The credit department needs to source all the details of the concern and follow through with the tracking, until rectified

• Customers on a “hold” status. This will impact sales if accounts are not being contacted and funds are not collected in a timely manner. Determine if greater numbers of customers are going on hold every month due to poor collection performance

Measuring performance from an internal customers’ perspective also needs to be investigated and would include:

• The quality of customer service provided by periodically monitoring the calls of the team members

• Ask for feedback from internal customers, they will voluntarily provide it

• Timely communication regarding particular situations involving all respective departments

• Prompt response to issues.  One example is the timeline for processing and advising the results of credit applications received.  It is important to know if these were accomplished according to the established service level agreement

• Review to see if there are regular complaints about specific team members

Don’t be blind sided!  Measuring the performance will help identify if changes in strategy are required and, most importantly, help reduce or prevent those undesired and unexpected losses.

Based on 7 ways to analyse and plan for specific actions, Stephen reminds us of the basic mind set it takes to achieve efficiency in conducting business. Either you apply it to negotiation, to selling, to communication or to collecting pass due accounts, the 7 Habits of Highly Effective People suggested by Stephen are worth the visit to his site