HOW TO GET STIFFED
If you use these techniques, forget about getting paid anytime soon
Talk to any chief executive who's fought the good fight over accounts receivable, and he or she will probably have some great war stories about strategies that backfired or just plain bombed. That's no surprise. After all, billing and collection is fraught with risks, not the least of which is losing clients who might have proven quite valuable, if only they'd been handled correctly. Then there's the risk of holding onto clients but losing any profits their orders might once have represented, thanks to excruciatingly slow or costly collections.
Here are some tactics from the accounts-receivable battleground you'll want to avoid:
* Levying late-payment charges. Bruce Neurohr, CEO of $12-million TEA, a land-acquisition, project-management, and engineering-services firm, tried to tack on a 1.5% fee for every 30 days of late payment. "But that wasn't a solution," says Neurohr. "Our clients just ignore the late charge and pay us whenever they feel like it." He's thought about trying to enforce the charge by adding it to later bills, but fears that his Fortune 500 customers would just continue to ignore it -- or switch to one of his competitors.
* Eroding profits with early-payment discounts. "We used to offer our customers a 2% discount if they paid us within 10 days, and you know what happened?" asks William Borne, president of Analytical Medical Enterprises, in Baton Rouge, La. His $14-million brokerage agency provides temporary health professionals to hospitals and surgical centers. "Our customers would take the 2% discount and then pay us in 60 days. We eliminated the discount."
* Running too quickly to a collection agency. "Customers get upset when you turn their bills over to a collection agency, and then they won't do business with you again," says Krishna Murthi, chief financial officer of $11-million Attronica Computers Inc., in Washington, D.C.
Adds Murthi, "The collection agency takes as much as 35% of any funds it brings in. It's less costly and less risky to have one of our employees make the follow-up calls to late payers, no matter how many calls it takes."
* Taking small-time deadbeats to court. "Sometimes you've got to cut your losses, upsetting as that might be to contemplate," says Gordon Presher, president of $5-million Ormec Systems Corp., in Rochester, N.Y. Presher lived through the ultimate accounts-receivable nightmare. "We went to court over a $8,000 bill and were countersued in a totally frivolous case. They tried to get us to disclose all kinds of unrelated, confidential information -- some of which we wound up having to release." Just before the case came to court, Presher negotiated a settlement that netted him only about $3,000 after he paid his lawyer. "It wasn't worth it. We'll never do it again." He's had better luck making his own collection calls, directly to the CEO's office.
* Blindly following credit reports. Good credit reports from Dun & Bradstreet and others can seduce you into doing business with companies that are bad credit risks, and negative credit reports can sometimes turn you away from potentially good customers. See page 6 for how to really read a credit report.
RESOURCES
Help for credit-conscious CEOs
* National Association of Credit Management (NACM), a network of 75 affiliated associations that offer several key benefits for their 40,000-plus members, including educational seminars and credit-reporting, collection, and adjustment bankruptcy services. For information on membership, write to NACM, 8815 Centre Park Dr., Columbia MD 21045, or call (301) 740-5560.
* Credit Research Foundation, an educational group affiliated with the NACM, offers a wide array of day-and weeklong seminars on such topics as collection strategies, credit management, financial analysis, and the legal aspects of billing and collection. Fees range from about $200 to several thousand dollars, depending on the length of the course; discounts are available for NACM members. For a list of seminars, write: Credit Research Foundation, 8815 Centre Park Dr., Columbia MD 21045, or call (301) 740-5499.
* The biweekly "Credit Manager's Letter" offers eight pages of nuts-and-bolts tips on collection strategies, bad-debt solutions, time management, cost-cutting measures, and so forth. Articles are blissfully short and, above all, practical, making this a worthwhile expenditure for any credit manager, despite its $119.40 annual price tag. To order, write Prentice Hall Professional Newsletters, 200 Old Tappan Rd., Old Tappan NJ 07675, or call 201-767-5059.
* The SBT Accounts Receivable package, produced by SBT Corp., wins high marks from corporate users. The software program can display or print such vital information as accounts-receivable aging schedules and order/payment patterns, individualized by customer over a 24-month period. Available for $595, SBT's software works on most major computer systems, including IBM-PCs and compatibles, Macintosh, and Unix. To order, write SBT Corp., One Harbor Dr., Sausalito CA 94965, or call (800) 227-7193.
