The Credit Manager as Customer Consultant
If you're a relatively large company that sells to a lot of small accounts, you may find yourself with more invested in your customers' companies than they have. As a large roofing materials supplier, for example, we may have $500,000 worth of material in to a customer who has only $100,000 in his business. While the term "partnership" is overused quite a bit these days, you really do need to consider yourself partners in these types of customer relationships. As a credit manager, one of your primary roles should be to help these customers in as many ways as you can. The more you can help them succeed and build their business, the more business they can give to you. One way is to provide information to them that will help them with their financial picture, collections activities, and so on. By doing this, you're providing your customers with the expertise of a professional credit manager--someone they are not able to hire on their own because they are such small operations.
The way I offer this service to my customers is either on the phone or during personal visits when I'm meeting the owners. I'll leave or mail them my business card and encourage them to call me any time they have questions or problems that they think I can help them with. I also have an 800 number that comes directly to my desk, to further encourage people to call. Examples of the kinds of calls I get: "I'm trying to get my bank to refinance a loan, but I've got a problem." The problem was that the loan covenant stated that he needed a current ratio of 2-1. At the time, he had $500,000 in cash and $250,000 in receivables ($750,000 in assets), but he owed $500,000 in payables. This was a 3-2 ratio, and the customer was worried that the bank might increase his interest rate or, worse, call his loan. I explained that he could take $250,000 of his cash and pay off $250,000 of his payables. This would leave him with $500,000 in assets ($250,000 in cash and $250,000 in receivables) and $250,000 in payables--a 2-1 ratio, and the bank actually lowered his interest rate! "A customer of mine just won't pay me. What should I do?" I'm very careful to offer only options and alternatives, not advice. I emphasize that it is up to them to decide which option, if any, to take. In an example like this one, I might suggest several things to consider:
- Visit the customer and ask for the money.
- Ask for a post-dated check.
- Try to set up a payment schedule where the customer sends a certain amount of money each week.
- Offer to discount. If a collection agency is going to charge you 20%, you can reduce the customer's bill by 10% if he will pay now in cash and still come out ahead.
Larry Canada, CBF, CCE
National Credit Manager
GS Roofing Products Co. Inc.
Irving, TX
Named co-credit executive of the year in 1995 through the Dallas, Texas, association of credit management, Larry Canada is chairman of the Legislative Committee for Credit and Bankruptcy Reform through the National Building Materials Manufacturer Credit Group. An NACM member for 25 years, he is also a member of the Credit Research Foundation. Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.
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