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 protected].
Editor's note: This mailbag entry is a follow-up on an October post soliciting suggestions, ideas, and thoughts about creating a credit manager compensation program.
The results from the credit manager compensation conundrum are in! Don't get excited. The most illuminating part of this discussion is how passionate and verbal all credit people are on the topic. We all agree we need one, want one, and believe wholeheartedly that we deserve one, but that is where momentum bogs down and turns into an old lady coffee klatch: lots of chatter with no solutions.
Responses were plentiful, all sharing a common acknowledgment of wanting one, but none of us have a clear path for how to make it happen. We all were excited about the possibility that one of our kind would be brilliant, illuminating the way to cultivate and calculate our way to a commission program. All of us were dying to see what someone else came up with.
Some thoughts trickled in—along with the bemoaning of how sales gets all the glory—on how to craft it:
- Percentage based on collection of money over 90 days;
- Percentage based off anything that doesn't hit the over 30-day column;
- Percentage based on collection of an account gone to collection;
- Percentage of collection of accounts that have been written off to bad debt and later recovered; and
- Percent of accounts that were refused credit and went on to crash and burn (not even sure how you would track that one but it would be interesting).
You get the idea. All ideas were an expansion on that basic theme. The challenge for all the meanderings is how to calculate it. Where are the starting and stopping points? Another by-product, as pointed out by one company owner, was the question: "What is to stop said credit manager from letting the account role into any of those categories and then collecting the balance in a shameless grab of commission to line their own pockets?" As I told him, while that is always a risk, most credit managers have more pride and integrity than that. Otherwise, you have a much bigger issue in your company, my friend.
With sales, it is a more clear-cut path: Here is what I sold to who and when I sold it. Commission is clear, hard to argue with, and easy to calculate. With collections, our world is based on:
- Are you paying me within terms?
- When are you supposed to pay for that?
- When are you going to pay for that?
- Why are you late and how much later are you going to be?
If we can't find a way to build a credit commission program based on collections, how about we extend credit? That idea has its challenges as well. It is hard to track and calculate credit "wins." How do you keep track of an account you DIDN'T extend credit to that flamed out taking a sum of your competitor's money with them?
The sad, sorry conclusion to this story (at least for now) is that none of use have come up with something that we are proud enough of to spell out and share. Ideas? Yes. Passion around the topic? Absolutely. But nothing to hang our hats on. However, dear readers, I am ever the optimist (as I know you all are aware). I am confident and hopeful that one day, very soon, one of our kind will rise up with an idea so brilliant, so fantastic, and so pathetically obvious, that we can all benefit from it.
Until then I will just keep giving sales reps everywhere the "side eye" when they start bragging about their amazing commissions...and quietly put their customer accounts on credit hold. Okay, I'm kidding...but I made you think "would she or wouldn't she?"