Credit guru Thea Dudley has spent more than 30 years in LBM credit management. Now she's here to answer your credit and collection questions. Got a question for her mailbag? Contact Thea at email@example.com
My boss’s favorite expression on credit management is "we can lien 'em and sue 'em" to get paid. Then he believes this process will happen overnight. I have tried explaining that both of those options take time and don't always get us paid. I am tired of feeling like I am defending myself every time he asks why we aren't paid after we file suit or lien someone. Why does he believe this process is instant?
Signed, Defensive in Dallas
When you were a kid, did you ever have those little capsules that you put in a glass of water and then they would suddenly explode into the large animal-shaped sponge? Poof! Add water and instant pop up animal? This is the same thing. Everyone believes they understand how the process works until they have to do it. Everything is easy—except for those things that you do yourself.
Everyone I know, outside of other credit managers, believes that all we have to do is file that lien or lawsuit and the money magically appears. If only it were that easy. As you are aware, the legal process, of which both of those items are part of, has a pace of its own.
I have tried explaining this to various bosses and sales people over the years and I concur: for the most part, it appears to fall on deaf ears. They want to believe that you can make the money appear with your credit ninja skills.
So take a slightly different approach. Don't start talking to them about the cost of the suit or lien. Go back and see what your profit was on the job or on the sales. Calculate the profit margins of the materials sold. Take the total profit amount that would have been realized on the account IF you were paid as agreed. Then approach said boss and do a breakdown.
- Here is what is owed
- Here is the profit if paid as agreed
- Here is the profit if we file mechanics liens
- Here is the profit if we file a lawsuit
I like to do a little diagram: Stick figures and A+B-C= no mas' mucho monies for us! They usually end up looking like a pictograph on the Indian caves, but they get the idea! This also works with sales reps. Keep it simple and try to remove the "UGH, you are so frustrating" look from your face.
Some of the calculations will have to be best guesstimates but some are easy to figure, such as the cost of the lien, time to collect, added unexpected fees. Same with lawsuits. It is OK if the profitability shows a negative; it usually does. That little minus sign before a number is humbling, eye-catching, and causes a double take. It’s usually followed by the eye popping question of "Is that a negative?"
Breaking it down this way makes it much more understandable than just saying how expensive something is. Showing the calculations in a profit-margin manner speaks to your peers in sales language.
By taking a different approach, you get your message across and pave the way for real conversation on realistic solutions or approaches to the customer challenge.
Take heed, dear Defensive. This is not a "one and done" explanation. You will most likely perform this exercise numerous times. What will come of it is more of a business dialog than exercise in relating cost.
You will always get asked why you haven't gotten the money yet. After all, you are the company's miracle worker.