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Q. Periodically, we are asked to establish open account terms for relatively new companies. Often, these new customers usually have no established credit history. They are startup companies, meaning that there is virtually no information available with which to make a decision about their creditworthiness. How would you handle this particular situation?
A. Cautiously. Establishing open account terms for newly formed companies can result in significant credit risk for the creditor company. Usually, the credit department is not incentivize or encouraged to take big risks relating to extension of credit to new and marginal accounts. Experienced credit professionals know that one of the complaints that they frequently hear in this scenario is that no one is willing to take the first step by offering a new company open account terms. To some extent, this complaint is accurate. However, it is not because credit professionals refuse to take risks. Instead, the types of risks that we do accept are expected to take are ones in which we have a high degree of certainty about payment.
Q. What do you think of incentive programs for commercial collectors?
A. I think that if I were a young and aggressive collector that I would relish the opportunity to earn a bonus based on my performance. I think that this type of program is not motivating to everyone, but that the benefits clearly outweigh the costs - provided that the program itself is structured in such a way that the bonus does not become automatic. In other words, to earn a bonus collectors should perform significantly above what would otherwise be considered at an acceptable level.
Q. We have been having trouble finding a qualified commercial collector. We have contact with the local Credit Managers Association without success, and the help wanted ads running in the local newspapers unfortunately have not attracted the quality of collector were looking for. I do not have the money to hire a headhunter to find us the ideal candidate. Do you have any suggestions?
A. Not many. One suggestion would be not to give up too quickly on any candidate. Even if you don't have time to interview every applicant personally, telephone interviews takes less time and often enables the hiring manager to sort the wheat from the chaff. If this is a true collection position, consider hiring someone with experience in consumer collections. As a general statement, consumer collection specialists usually work in a high paced, high stress environment in which they are expected to make far more calls each day than the typical commercial collection specialist. Therefore, collectors with “only” consumer collection experience often have readily transferable skills in addition to thick skins, and a strong work ethic. At least that has been my experience in the past.
Q. One of our customers has an open credit balance which is more than two years old. Can we absorb it, or must we return it?
A. Usually creditors are required to return credit balances. If the credit balance in question is a credit memo and if you determine that the credit memo was issued in error, you can reverse it. However, if you determine that the credit was issued error or if you find that a customer erroneously overpaid an invoice or perhaps they paid your company in error then you have no choice but to return the money to your customer. The other lawful alternative involves sending the money to the state to hold for safekeeping if the customer has moved. This process is referred to as escheatment.
Q. I took your advice and called a past due account within three days of an invoice becoming past due. The customer complained to me and to my CFO that I had overstepped my responsibilities, and in doing so had damaged our company's relationship with this customer. Now I am in trouble with my boss. How would you respond to this criticism?
A. I am not sure I understand the question. If you're asking how I would respond to the criticism that you were blamed for taking my advice, my comment is that I stand behind the advice that I offered. Most customers in my more than 25 years of experience in this industry do not take offense when a creditor calls to inquire politely and professionally about the status of a past due balance. If you're asking if I have any comments about your manager's decision to side with the customer, I think that it is fair to say that I am both surprised and perplexed by his or her actions. Most companies not only allow their collection department the latitude to contact customers promptly once the account becomes past due, they actively encourage their collection team to contact customers and pursue payments assertively and quickly.
Q. I have been invited to apply for a position as a credit manager an unrelated company in an unrelated industry. It seems to be a good employer, and this would be a promotion. Unfortunately, I have no experience in the industry of my potential employer, and I am concerned that there will be unexpected problems associated with transitioning from an industry I know well to one in which I know none of the customers. What your thoughts?
A. I have worked for and consultant with a number of companies over the last 25 years. At no time in this process did I ever feel incompetent or unskilled. There are specialties within the commercial collection field. For example, companies that supply building materials often expect their credit department staff to be familiar with the use of mechanics liens. However, in my experience, credit professionals usually have little trouble transitioning from one position to another because there job skills are usually readily transferable. My only advice would be to accept the job if you feel that this is a good business decision for you and your family - and to reject the offer f you have concerns about your potential new employer’s long-term prospects, working conditions, or in the interpersonal dynamics that your experience during the interview process or see in the workplace.
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