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
I recently took over running a mid-size lumberyard. In reviewing the accounts receivable I found they are a mess. It appears that extended sale terms were given out liberally and many, if not most, accounts are way past due. The credit manager doesn't even start calling until the accounts are 30 days past due and they don't seem to ever put anyone on hold. The credit department consists of one and a half people. Where would you suggest I start in getting this under control?
Signed, Amazed in Amarillo
Ever hear the phrase "Never judge a book by the cover?" I suggest you and your newly inherited credit manager have a heart-to-heart about your train wreck of an aging. Your comment of "doesn't EVEN start calling" leads me to believe you think the problem is the credit manager. Maybe she is, maybe she isn't. To figure it out, you will need to get to chattin'.
What has the credit attitude been? Was there an "any sale is a good sale" mentality? Has the credit manager been beat down by being constantly overridden and unsupported to the point she just gave up? Was the focus on getting business in the door and then worry about how they were going to get it collected? Or is she truly lackadaisical?
Ask the credit manager to explain how the department works. Do they have processes and procedures? Are they involved with the sales team and the business in general? Do they operate in a silo or does she manage by the credit manager mood of the day? Ask about her approach to her job. Love it or tolerate it? Ask why there’s a 30-day "gift with purchase" before the calling starts, at what point does an account get put on hold, and other credit mysteries you would like revealed. Then listen. You can find out a lot in those answers.
The CM may get defensive depending on how the credit department (which is basically her) has been treated. If her input was discounted and unsupported, she may feel attacked. If she is lackadaisical and happy with how things are she may be defensive because she doesn't want to work that hard. Listen to what you are hearing between the lines, the paralinguistic's. For those of you unfamiliar with this, it is listening to what isn't being said- body language and how words and phrases are put together.
It comes down to what you and your company would like the credit philosophy to be. What do you want it to look like? If this person is someone you think would be worth investing in to help implement this new philosophy, then it is worth the time and effort it will take to make her feel supported and encourage her to move into the brave new world. If not, then walk her out the door to find her smile elsewhere.
Once you have the person in place, the work starts. You have to outline what is acceptable and what is not. For instance, consider when you should start calling (two days, seven days, or whenever you choose past due) to ask about payment. Other issues: When to place someone on hold, when to decide enough is enough and cut them off permanently (whatever that means to your company). Are you going to rein in terms and have a standard term or set of core terms and exceptions have to be managed through a process? In short, what do you want from your credit department?
Next comes the retraining process. This work encompasses both your customers and your sales team. People will live up to your expectations of them. If you don't expect them to pay on time and to communicate, they won't. If you allow constant exceptions then you are left with an aging full of exceptions. This will be a LONG, ongoing process. I have been informed by my HR department that for a change to stick a person has to hear it 14 times. From experience, that sounds optimistic, but we are going to go with it. Your credit and management team will need to all be on the same page, repeating the same message—over and over. I find bumper stickers and T-shirts emblazoned with the slogan and handed out liberally can help drive that message home.
Retraining your customers to pay your company on time will be a pain staking, all-consuming journey. It will not happen overnight. It’s the same with sales reps; they like to be the blue sky and everything is awesome people. I want to live in rainbow and unicorn land too, but alas, my responsibility is to be the keeper of all things cash.
My all time favorite way to explain my pay-on-time philosophy to customers and sales reps alike is this: "If I half-assed delivered your products they way you are half-assed paying me, would you have tolerated it?" The answer is always "NO". Sometimes spat out begrudgingly, but it is a point that is hard to refute. That customer knows good and well they would have been on the phone chewing the hind-end off my sales rep if that delivery was 15 minutes late. And then asking for a price consideration for pain and suffering.
We are talking about a company credit philosophy. So you as the leader, along with your credit manager, will need to determine what your expectations are from that department based on the direction and goals for the company as a whole and then help promote and support it. You spend time working on sales philosophy and training why would you overlook the money train?
As I said before, people will live up to your expectations. If you are content to judge that book as the land that time forgot, you will be condemned to judging every book (and when I say book I really mean your credit manager) by its' cover...and getting the same results.
Now go turn your credit department in the profit center it longs to be.