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100 Ways to Improve 100 Ways to Improve Credit Department Credit Department

PerformancePerformance © 2007. Michael C. Dennis. All Rights Reserved© 2007. Michael C. Dennis. All Rights Reserved

Presented by Michael C. DennisPresented by Michael C. Dennis To: CMA Business Credit Services To: CMA Business Credit Services

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DisclaimerDisclaimer

The opinions presented in this program The opinions presented in this program are those of the presenter. His are those of the presenter. His

opinions and recommendations do not opinions and recommendations do not necessarily reflect the views of this necessarily reflect the views of this

organization, or its Officers and organization, or its Officers and Directors. Participants are encouraged Directors. Participants are encouraged

to evaluate any suggestions or to evaluate any suggestions or recommendations made, and accept recommendations made, and accept and adopt only those concepts that and adopt only those concepts that

make make sense to them.sense to them.

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10 Ways to Improve Relations with 10 Ways to Improve Relations with SalesSales• Don’t use technical terms, or slang when Don’t use technical terms, or slang when

discussing problems or decisions with sales.discussing problems or decisions with sales.

• Take time to explain your decisions (not to Take time to explain your decisions (not to debate, just to explain).debate, just to explain).

• Be open to input from the sales department Be open to input from the sales department about problem accounts.about problem accounts.

• Think of the relationship between sales and Think of the relationship between sales and credit to be a balancing act, not a tug of credit to be a balancing act, not a tug of war.war.

• Look for win-win-win outcomes.Look for win-win-win outcomes.

• Give the sales department advanced notice Give the sales department advanced notice of bad news.of bad news.

• Ask them to tell you what credit limits Ask them to tell you what credit limits their customers require. their customers require.

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10 Ways to Improve Relations with 10 Ways to Improve Relations with SalesSales

• Disagree in private. Public arguments tend to Disagree in private. Public arguments tend to entrench each party in their current position.entrench each party in their current position.

• Communicate openly. Don't hold things in, Communicate openly. Don't hold things in, and don't hold back facts.and don't hold back facts.

• When you disagree with the sales When you disagree with the sales department's position, ask the salesperson department's position, ask the salesperson to suggest a creative solutionto suggest a creative solution..

• If you think you "might" be wrong, get a If you think you "might" be wrong, get a second opinion before making a final second opinion before making a final decision.decision.

• Respond to inquiries from sales as Respond to inquiries from sales as soon as possible --- and always on soon as possible --- and always on the same day they are the same day they are received.received.

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10 Tips on Accelerating 10 Tips on Accelerating CollectionsCollections• Eliminate grace periods before calling Eliminate grace periods before calling

delinquent customers.delinquent customers.

• Use the two and up rule.Use the two and up rule.

• Avoid having to leave voice mail messages Avoid having to leave voice mail messages by looking for ways around voice mail jail.by looking for ways around voice mail jail.

• If you must leave a voice mail message, If you must leave a voice mail message, make it sound important… which it is.make it sound important… which it is.

• Make the telephone your primary collection Make the telephone your primary collection tool.tool.

• Prioritize collections…. it sounds simple Prioritize collections…. it sounds simple and it seems obvious but you and it seems obvious but you would be amazed at would be amazed at how often it does how often it does notnot happen.happen.

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10 Tips for Accelerating 10 Tips for Accelerating CollectionsCollections• Make the fax your primary mechanism for Make the fax your primary mechanism for

delivering required documentation to delivering required documentation to delinquent customers.delinquent customers.

• Enforce your cash discount policy. If you do Enforce your cash discount policy. If you do not, you will almost certainly see an increase not, you will almost certainly see an increase in the number of customers paying late and in the number of customers paying late and taking the unearned discount anyway.taking the unearned discount anyway.

• Remember that the best way to control Remember that the best way to control delinquencies is to carefully control the new delinquencies is to carefully control the new account review and approval processaccount review and approval process..

• Confirm commitments for payment for Confirm commitments for payment for large past due balances and for large past due balances and for accounts that are seriously accounts that are seriously past due in writing past due in writing

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10 Tips for Evaluating Financial 10 Tips for Evaluating Financial Statements More Quickly. Statements More Quickly.

• Determine how carefully you will evaluate Determine how carefully you will evaluate customer financial statements based on customer financial statements based on the credit limit requested and the level of the credit limit requested and the level of risk you believe is present. In other words, risk you believe is present. In other words, do not perform the same level of analysis do not perform the same level of analysis irrespective of the credit limit requested.irrespective of the credit limit requested.

• Always begin the process with a quick Always begin the process with a quick overview of the financial data to determine overview of the financial data to determine which statements require immediate which statements require immediate review.review.

• If you can, train and then delegate the task If you can, train and then delegate the task of calculating ratios to a subordinate. It is of calculating ratios to a subordinate. It is good experience for them, and will give good experience for them, and will give you more time to focus on you more time to focus on decision making and risk decision making and risk assessment instead of number crunching.assessment instead of number crunching.

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10 Tips for Evaluating 10 Tips for Evaluating Financial Statements Financial Statements

More Quickly.More Quickly.• If your customer is a publicly traded company, If your customer is a publicly traded company, find and use a website that calculates and find and use a website that calculates and presents financial ratios, an trends, and industry presents financial ratios, an trends, and industry comparisons so you don’t have to do the work comparisons so you don’t have to do the work yourself.yourself.

• Don’t calculate ratios that you do not Don’t calculate ratios that you do not understand, or do not have a direct bearing on understand, or do not have a direct bearing on your credit decision. When in doubt, toss ratios your credit decision. When in doubt, toss ratios out.out.

• Focus on trends, not on snapshots. Hint: You Focus on trends, not on snapshots. Hint: You need two or more periods of accounting need two or more periods of accounting statements to perform trend analysis. statements to perform trend analysis.

• Don’t over-do it. For example, if a customer is Don’t over-do it. For example, if a customer is reporting a net loss, an analysis of that reporting a net loss, an analysis of that customer’s gross margin, operating customer’s gross margin, operating margin, and pre-tax margin margin, and pre-tax margin may be unnecessary.may be unnecessary.

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10 Tips for Evaluating Financial 10 Tips for Evaluating Financial Statements More Quickly. Statements More Quickly.

• Don’t reinvent the wheel. Develop a Don’t reinvent the wheel. Develop a specific methodology for reviewing specific methodology for reviewing customer financial statements and stick to customer financial statements and stick to it – at least until someone shows you a it – at least until someone shows you a better way to review financial information.better way to review financial information.

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10 Tips on Avoiding Bad Debt 10 Tips on Avoiding Bad Debt LossesLosses• Remember that sometimes it is necessary Remember that sometimes it is necessary

to require rather than to request customer to require rather than to request customer financial statements.financial statements.

• Develop rules of thumb for your team such Develop rules of thumb for your team such as this: At 30 days past due, an account as this: At 30 days past due, an account could go on credit hold. At 60 days past could go on credit hold. At 60 days past due, an account should go on credit hold. At due, an account should go on credit hold. At 90 past due, credit holds are the rule, not 90 past due, credit holds are the rule, not the exception.the exception.

• Don’t automatically re-establish open Don’t automatically re-establish open account terms just because a delinquent account terms just because a delinquent customer finally gets around to paying off a customer finally gets around to paying off a past due balance.past due balance.

• Always look a gift horse in the mouth…Always look a gift horse in the mouth…

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10 Tips on Avoiding Bad Debt 10 Tips on Avoiding Bad Debt LossesLosses

• Review active accounts no less frequently Review active accounts no less frequently than once a year.than once a year.

• Flag customers that have not purchased for Flag customers that have not purchased for more than a year into an inactive/dormant more than a year into an inactive/dormant status and evaluate those accounts before status and evaluate those accounts before re-establishing open account terms.re-establishing open account terms.

• Join trade credit groups because they can Join trade credit groups because they can provide valuable insight about the risk of provide valuable insight about the risk of selling to one or more of your customers.selling to one or more of your customers.

• Consider risk mitigation options including Consider risk mitigation options including personal guarantees, letters of credit, personal guarantees, letters of credit, perfected security interests, and perfected security interests, and mechanics liens to name only a mechanics liens to name only a few options available to few options available to trade creditors.trade creditors.

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10 Tips on Communicating 10 Tips on Communicating with Senior Managementwith Senior Management

• Senior managers hate surprises. Make sure Senior managers hate surprises. Make sure you do not “disappoint” them.you do not “disappoint” them.

• Find out how often senior management wants Find out how often senior management wants to hear from you and communicate only as to hear from you and communicate only as frequently as they want or need information.frequently as they want or need information.

• Find out how they want data delivered and Find out how they want data delivered and present it only in that manner.present it only in that manner.

• When you disagree with your manager, ask if When you disagree with your manager, ask if he or she wants to hear your perspective he or she wants to hear your perspective beforebefore offering it. offering it.

• Never complain about your manager or their Never complain about your manager or their decisions at work.decisions at work. It invariably gets back It invariably gets back to them. to them.

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10 Tips on Communicating with 10 Tips on Communicating with Senior ManagementSenior Management

• Do not look for ways to get around or go around Do not look for ways to get around or go around your manager.your manager.

• Accept full responsibility for what happens in Accept full responsibility for what happens in your department. Senior management does not your department. Senior management does not respect managers that want to try to pass the respect managers that want to try to pass the buck to their subordinates when things go buck to their subordinates when things go wrong.wrong.

• Acknowledge your mistakes and indicate what Acknowledge your mistakes and indicate what you learned and how you plan to work you learned and how you plan to work differently in the future. The only thing worse differently in the future. The only thing worse than making a mistake is not learning from it.than making a mistake is not learning from it.

• If you have poor presentation skills, like stage If you have poor presentation skills, like stage fright of fear of public speaking, work on it. fright of fear of public speaking, work on it. Senior management expects/requires “polished” Senior management expects/requires “polished” presentations from their presentations from their subordinate managers.subordinate managers.

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10 Tips on Mentoring and 10 Tips on Mentoring and MotivatingMotivating• Be selective. You can only mentor one or Be selective. You can only mentor one or

possibly two people.possibly two people.

• Avoid playing favorites. Doing so tends to Avoid playing favorites. Doing so tends to demotivate and demoralize the those not demotivate and demoralize the those not selected as the favored employees.selected as the favored employees.

• Never shoot down a suggestion by an Never shoot down a suggestion by an employee in front of their co-workers, unless employee in front of their co-workers, unless you never want another suggestion.you never want another suggestion.

• Motivate by delegating tasks to individuals Motivate by delegating tasks to individuals that express or demonstrate an interest in that express or demonstrate an interest in their professional growth.their professional growth.

• Provide feedback more than the one time Provide feedback more than the one time a year that most companies a year that most companies require require managers to discuss managers to discuss performance.performance.

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10 Tips on Mentoring and 10 Tips on Mentoring and MotivatingMotivating

• Remember that there should be no surprises in Remember that there should be no surprises in an annual performance review. an annual performance review.

• Share the credit when things go well, and Share the credit when things go well, and accept some (or most) of the blame when they accept some (or most) of the blame when they do not.do not.

• Make certain everyone understands in detail Make certain everyone understands in detail what performance is expected of them, and what performance is expected of them, and how their performance will be evaluated. how their performance will be evaluated.

• Encourage subordinates to offer their ideas, Encourage subordinates to offer their ideas, comments and suggestions. Offer feedback and comments and suggestions. Offer feedback and suggestions, and quickly adopt and implement suggestions, and quickly adopt and implement good ideas.good ideas.

• Explain both how a certain task is done, why Explain both how a certain task is done, why it is done… it is done… andand why it is important why it is important that it is done in a certain way. that it is done in a certain way.

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10 Ways to Make Other 10 Ways to Make Other Departments More ResponsiveDepartments More Responsive

• Develop cross-functional teams with other Develop cross-functional teams with other departments to address and resolve problems departments to address and resolve problems such as finding and fixing the root causes of such as finding and fixing the root causes of deductions, disputes and delays in payment.deductions, disputes and delays in payment.

• Publish information about the number and Publish information about the number and dollar value of deductions resulting from errors dollar value of deductions resulting from errors made by other departments.made by other departments.

• Publish the same information about payment Publish the same information about payment delays that result from errors made by other delays that result from errors made by other areas of your company.areas of your company.

• Go out of your way to develop rapport with Go out of your way to develop rapport with managers of other departments that are managers of other departments that are important to your department’s important to your department’s effectiveness.effectiveness.

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10 Ways to Make Other 10 Ways to Make Other Departments More ResponsiveDepartments More Responsive

• Request feedback from other department Request feedback from other department managers about how you can make their managers about how you can make their jobs easier… and then follow through.jobs easier… and then follow through.

• Remember that all departments have time Remember that all departments have time and resource constraints. Sometimes a and resource constraints. Sometimes a personal appeal will move your request to personal appeal will move your request to the top of the pile.the top of the pile.

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10 Tips on Handling Irate 10 Tips on Handling Irate CustomersCustomers

• Never respond in kind to customers looking Never respond in kind to customers looking for an argument or a fight.for an argument or a fight.

• Kill them with kindness.Kill them with kindness.

• Accept blame on behalf of the company even Accept blame on behalf of the company even if your department did not make the mistake.if your department did not make the mistake.

• Keep your promises… For example; if you Keep your promises… For example; if you promise a response by the end of the day promise a response by the end of the day keep that commitment.keep that commitment.

• Clarify the issues before making statements Clarify the issues before making statements or offering opinions.or offering opinions.

• When in doubt, give them the benefit of When in doubt, give them the benefit of the doubt…at least until you can the doubt…at least until you can verify the facts verify the facts independently.independently.

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10 Tips on Handling Irate 10 Tips on Handling Irate CustomersCustomers

• Stop talking and start listening. Stop talking and start listening.

• Make sure you take notes.Make sure you take notes.

• Ask questions initially only for clarification.Ask questions initially only for clarification.

• Make sure that you know what an irate Make sure that you know what an irate customer’s needs and expectations are. For customer’s needs and expectations are. For example, they may need nothing more than example, they may need nothing more than someone to listen to…. Or they may want a someone to listen to…. Or they may want a letter of apology. It is up to you to know letter of apology. It is up to you to know these needs and expectations before the call these needs and expectations before the call ends.ends.

• Under commit and over deliver. For example, Under commit and over deliver. For example, if you are pretty sure you can get the problem if you are pretty sure you can get the problem resolved in two days and are certain it will resolved in two days and are certain it will be resolved in three days, tell be resolved in three days, tell your customer three days.your customer three days.

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10 Tips for Increasing the 10 Tips for Increasing the Influence of the Credit Influence of the Credit

DepartmentDepartment• Stop thinking of the credit department as Stop thinking of the credit department as apart from the rest of the company. Consider apart from the rest of the company. Consider yourself to be a part of the company.yourself to be a part of the company.

• Volunteer for tasks outside of the traditional Volunteer for tasks outside of the traditional “boundaries” of the credit department. “boundaries” of the credit department. [Example: If you do not currently forecast [Example: If you do not currently forecast cash inflows volunteer to try do these cash inflows volunteer to try do these forecasts each month].forecasts each month].

• Look for ways to help the company achieve its Look for ways to help the company achieve its sales goals.sales goals.

• Stop thinking of the credit department as Stop thinking of the credit department as sales prevention and stop acting as if you sales prevention and stop acting as if you have to control all aspects of credit risk.have to control all aspects of credit risk.

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10 Tips for Increasing the 10 Tips for Increasing the Influence of the Credit Influence of the Credit

DepartmentDepartment• Guard against an attitude that it is Guard against an attitude that it is usus [meaning the credit department] [meaning the credit department] against against themthem [meaning sales and/or customers]. [meaning sales and/or customers]. Remember that Remember that our our adversaries are adversaries are delinquencies and bad debts, not salespeople delinquencies and bad debts, not salespeople and customers.and customers.

• Visit customers.Visit customers.

• Attend and make presentations at company Attend and make presentations at company sales conferences.sales conferences.

• Develop a reputation as a problem solver, not Develop a reputation as a problem solver, not a problem identifier.a problem identifier.

• Think outside the box. Be creative in Think outside the box. Be creative in helping your company to achieve its helping your company to achieve its overarching goals.overarching goals.