"Nobody knows everything," observes Philip D. Roach who is corporate credit manager for Grand Rapids, Michigan-based Behler-Young Company. "But the two areas of knowledge you really need to concentrate on are your industry and the people in the industry." To illustrate how radically what you need to know varies from industry to industry, he cites these examples from his own experience:

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

• When he worked for a manufacturer that sold products to wholesalers, he relied primarily on customer financial statements and D&B reports. "I found that a realistic line of credit was about 15% to 20% of a customer's net worth," he recalls.
• When he worked for a signaling systems manufacturer that sold products to Fortune 500 customers (who, in turn, worked on government contracts), he found that the best barometer of creditworthiness was the customer's ability to extract timely payments from the government.
• When he worked for a frozen foods company, creditworthiness was based largely on cash flow. "Our terms were 10 days," he explains. "Our best customers could discount us for years and even discount their last check to us before they filed bankruptcy. It was really a 'roll of the dice' in order to determine creditworthiness."

Behler-Young sells air conditioning and heating equipment to dealers of all sizes -- from the very largest to the smallest "mom and pops." "In this business, creditworthiness is based on the customer's ability to generate revenue -- to schedule a large number of installation projects throughout the year," he continues. Net worth is not particularly important. "Some of our customers can even have a negative net worth. They pull all the money out of the business at the end of the year for tax purposes and reinvest it early the next year. Their ability to generate cash flow is far more important for a credit line than any financial statement might support."

What's the best way to become intimately familiar with the nuances of your industry so you can develop the best strategies for credit and collections? Roach strongly recommends membership in local industry trade groups (see Credit Today's benchmarking study entitled "Credit Group Participation ROI Averages More Than 100 Percent Per Week (No, that's Not a Misprint)"). He belongs to the NACM, the West Michigan Heating Association Credit Managers Group, and the Bureau of Credit in Detroit.

"We not only identify customers who are in trouble, but, just as importantly, we share effective collection techniques with each other," he says. "Hearing a collection technique from a professional speaker means less to me than hearing one from a competitor who really knows the business.

"In my current industry, personal relationships with customers are very important, very meaningful, and very personally rewarding," reports Roach. While the importance of personal knowledge of customers varies from industry to industry, it is important, to some degree, in all industries.

And while there are several things it is important to seek in personal relationships, Roach considers two of the most important to be building a relationship based on trust and openness, and in which personal friendship does not get in the way of professional objectives.

Trust. "I tend to have a steady personality, and I try to train steadiness into my employees," he explains. "I like to be straight with my customers, and I want them to be straight with me. I want to make sure we tell each other the truth."

For example, Roach will work a lot more closely and cooperatively with a customer who initiates a call to him when he gets behind and offers a plan for getting caught up. "Usually, that person will also follow up with another phone call and/or payment," he adds. "I also work closely with customers whom I have to call for payment, but who are sincere and work with me." To determine sincerity, Roach works on developing day-to-day relationships with customers -- before collection problems occur. "In this way, I can determine sincerity levels before we might have any problems," he explains.

Professionalism. While it can be very helpful to develop personal friendships with customers, doing so can increase the risk of compromising professional objectives. While this deterioration can occur via frequent telephone contact, it is most likely to happen during customer visits, where you meet face-to-face with customers. "It is very important to rise above 'personal chatter' and be professional during your visit," he emphasizes. "You have to get to the root of the problem and let the customer know that you mean business--that you are there to protect your company's assets and that you need to work something out with the customer."

What can get in the way of this objective? Often, there is a tendency to become too friendly with customers and to allow conversations to drift off track. "If you and the customer want to share some jokes, that's fine.

However, make sure that you joke about things other than the reason for your visit, which is to make payment arrangements."

The danger of becoming too friendly can be especially prevalent if you visit customers with your salespeople. "A lot of salespeople like to operate with the 'good old boy' network, and they can encourage you to be the same way," he cautions.

What can happen in such situations is that the customer begins to think of you as an easy-going friend he can "string along." If this happens, Roach suggests that you not be surprised if you call such a customer for payment after having made a personal visit, only to hear something like, "That will have to wait awhile, good buddy, because I have some more pressing things to take care of."

As a result of Roach's commitment to learning about his industry and his customers, he has been able to see a sizeable reduction in bad debt in each of the years he has been with Behler-Young. "I'm at the point now where I don't even want to see a further reduction," he adds. "If you don't have some bad debt, it's pointing to the fact that you're not taking enough risks with marginal accounts. If you're reducing bad debt to zero, it means that you're turning down a large volume of sales that could be yours."

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

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