A Firm but Helping Hand
Do you ever visit former customers whose credit lines you had to cut off? Mark Horn does. He is district credit manager with Hughes Supply Company, Chamblee, Georgia, a construction materials supplier, and he's a firm believer in letting customers know he's concerned about their welfare. "If customers know that you have a genuine interest in their success, they will cooperate with you as much as possible," says Horn. This statement sums up Horn's overall basic philosophy in the area of credit and collections, especially as it relates to the small percentage of customers who are experiencing problems that could benefit from individualized arrangements. This philosophy has helped Horn negotiate several win-win deals over the last few years with these customers.
"You have to let customers know that just because you're in credit, it doesn't mean you're the enemy," he continues. "You need to let them know that you understand their situations and that you are willing to do what you can to help them out." A Small Percentage
Certainly, if you had to adopt this approach with every customer, your head would soon be spinning. For most credit managers, though, only a small percentage of customers have problems serious enough to warrant the kind of individualized attention of which Horn speaks. (In his territory, which includes Georgia and Tennessee, he reports that he is utilizing special arrangements with fewer than a dozen customers.) The need to consider special arrangements with customers can, of course, occur during the credit-granting process as well as the collections process. When customers are unable to meet basic requirements for credit extension, one option Horn favors is asking them to agree to a letter of credit. "You can go to the customer's bank and get a six-month letter of credit," he says. "Then you can extend credit to them during that six months for the amount of the letter of credit. "During that six-month period, you can see how they handle payments, and at the end of the period, you can decide whether you should ask to extend the letter of credit another six months (given a less-than-ideal payment pattern) or agree to work with the customer on an unsecured basis (given a solid payment pattern)." Collections Arrangements
Many collectors are interested in only one thing: collecting the full amounts of all accounts on the due dates. Indeed, you can play hardball, but in this economy, it's easy for customers to take offense at such tactics and take their business elsewhere. If you take the time and make the effort to understand customer situations, and if you are willing to work with them, you will probably not only get what is due, but you will build customer loyalty in addition. "I was a contractor before I began working for Hughes Supply," explains Horn. "I know the expenses that contractors have, and I know how significant they are. For example, if a customer is having a hard time paying us because he has to make his workers' compensation and general liability payments first, I try to work with him. I know that if he doesn't make these payments, he won't ever get around to paying us, because he will be out of business." Avoiding Litigation
Anytime a customer gets into trouble, Horn steps in to try to address the situation and work with the customer. "My goal is to get customers to pay us eventually, rather than having to go to litigation," he explains. The first step is to visit the customer if possible and discuss the situation firsthand. During these visits, he asks a lot of questions and does a lot of listening. "If they're 'telling a story,' it eventually comes out," he notes. "You have to watch and listen to everything they say to make sure they're being honest with you." If you find a customer who is experiencing problems and wants to make an honest attempt to work things out, it's usually in your best interest to meet him or her halfway. Horn cites some creative examples:
- A customer owes you $100,000, but has had a bad year and is only able to pay you $60,000. "You could cut the customer off and turn the problem over to an attorney," observes Horn. On the other hand, you could do something that would benefit both of you: Consider a third-party loan for the $40,000 that is due. That is, you arrange to make a loan of $40,000 to the customer through a third party. You end up with your money right away, and the customer makes payments on the loan over the next several months.
You can even continue to work with the customer on new jobs as he is paying off the loan, securing your interest via bonds, liens, and/or joint check arrangements. - A customer owes you almost $300,000, and you're being advised to take him to court. The first step, according to Horn, is to make sure that customer is in full agreement about the amount due. "You may find that there are some disputes about the amount," he notes. "For example, there may have been shipments that were inadvertently overpriced, returned materials that were not credited to the customer's account, or disputes on back charges.
"Once you come to agreement on the amount that is actually owed, you can continue to supply the customer on his existing jobs. In this way, he doesn't go 'begging' to other suppliers, who may overcharge him, knowing that he is 'over a barrel.' Furthermore, you're ensuring that he remains in business, so he can eventually pay you. Customers appreciate this kind of assistance." It all comes down to a matter of taking the time to understand customers and their problems. "When they believe that you understand them, they're usually willing to make the effort to understand your situation too, which keeps the line of communication open," observes Horn. "For example, if you ultimately find yourself in a situation where you feel you must cut a customer off (C.O.D. order only), what you don't want is have the customer say 'Don't call me again; we'll pay you when we can!' and slam the phone down. "If you shown understanding right along the customer will realize that you have a genuine interest in their success, and they'll cooperate with you as much as possible--even if they have to go on C.O.D." What about those visits to former customers? "By maintaining professional relationships with them," he says, "we're often able to help them reestablish their lines of credit once they've worked through their problems." 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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