Credit Decisions, Business Decisions
Collectors routinely responsible for releasing orders, even if those orders exceed the customers' credit lines? This sounds like a radical departure from traditional credit department practice, and perhaps it is. But with the training, motivation, and communications this credit manager has established, it's really working. Every Monday morning the collectors in the credit department at Viking Components, Inc. (Rancho Santa Margarita, Calif.) provide Corporate Credit Manager Wayne Smith with a summary receivables report. Smith, along with Department Supervisor Lesley Gomez, then reviews each individual collector's performance--paying particular attention to the column labeled 46-60 days on the aging report.
Smith added this column to the aging report when he joined Viking last year. "Before that we had the usual 0-30, 30-60, and 60-90 days columns," he says. "But once you go past 30 days, 60 days comes awfully fast. That extra column helps us focus attention on accounts when it will do the most good. Our day's sales outstanding have dropped from 47 days to 41 days. Business Decisions
That's an impressive accomplishment in a harsh business environment that is becoming ever more competitive. Viking is a leading computer memory manufacturer of memory boards, flash cards and modems. Some of the company products are generic, so customers know they can go elsewhere. "You have to become a customer service person and a sales backup," he says. "You have to be very conscious of our part in keeping customers." So he now thinks primarily in terms of making business decisions rather than just straight credit decisions. Of course, if risk is unacceptably high, transactions have to be rejected strictly out of credit considerations. But if there is a way of making a deal work, he's absolutely committed to finding it. "If it's a good account that needs extended terms, I want to find out why," he says. "I have to find out what they're doing with the product and what the difficulties are. If they sound reasonable, and they can't pay in 30 days but they can in 45, we negotiate that. We want to keep every customer. We want to remain their preferred vendor but not at the risk of giving away the store." Sometimes it's a matter of taking "little bites instead of a big bite." He might, for example, approve an order for COD with extra dollars added to the COD tag amount to be applied to overdue invoices. He cites the recent case of a customer with a $10,000 credit line who sent in a $160,000 order. Smith's investigation showed that the customer needed the product for a major installation. Under the arrangement he negotiated, the customer paid $100,000 on a wire transfer up front (having negotiated an advance payment from their customer). The balance was cleared up (as negotiated) five days after the installation. The Collectors' Job
There are eight collectors in the department. Four work with the small to medium size resellers with individual account bases that can range up to 750 active accounts. Three handle the Major Account Base, which consists of large resellers, retailers and OEM sales channels. These collectors handle the large dollar accounts and those that require more detailed reconciliation work. The eighth collector is dedicated to handling International accounts. "Running the receivables" each Monday is an excellent motivator as well as an accurate barometer of performance. "The collectors need to feel good about what they're doing, and this really gives them an up-to-the-moment sense of accomplishment," he says. "They can do their own 'attaboy's' because they know where they stand at the beginning of each week on their account base." After the department's credit analyst has set the customer's credit terms and credit line, the collectors then approve all sales orders for shipment with authority to exceed the established credit lines by 20%. Over that threshold they need the approval of Lesley Gomez, the credit analyst or Smith prior to releasing any orders. The collectors' bonus plan assures that they do not take this authority lightly. They can earn up to an additional 25% over salary. In order to earn the full bonus the collectors have to keep the A/R dollars over 45 days within 5% of the total A/R in their individual bases. Penalty weights are assessed on those dollar amounts out beyond 46 days, with a 50% added weight factor on the 61-90 day column and a 100% added weight factor on the 91 + days dollar amounts. Smith emphasizes, however, that the bonus plan does not fully explain the remarkable commitment the collectors have to their work. "Here at Viking we have a very special corporate culture," he says. "People are treated very well, and we're an employee driven company." The Right Stuff
In selecting collectors he looks for an even temperament and a sense of fair play, but also the ability to ratchet up the level of intensity when necessary. All of the collectors are keenly aware of the importance of developing and maintaining rapport with customer accounts payable people. They try to get on a first-name basis, learn about their families, and remember them with cards on birthdays, graduations, and other occasions. "It's by nature an adversarial relationship," Smith points out. "It's the accounts payables people's job not to pay too quickly. What we have to do is try not to make our calls in an adversarial manner. The days are over when we could routinely say, 'I'll hold your order.' A/P personnel have the obligation to their employer to ensure that a vendor is paid only on product that has been received and that the pricing accurately matches the prices on the purchase order. In many cases the reason an invoice is not paid is because the A/P person does not have all of the necessary information. We take the position that it's our responsibility to determine the exact information they require that will allow them to pay us in a timely fashion. Establishing personal communications with the A/P person on each account is the key for the collectors. When the A/P people know that you are making their job as easy as possible for them and you approach them in a reasonable and courteous manner, they will respond in appreciation and they will see that your Invoices are taken care of quicker than others. Simply stated, collectors' payables contacts can make or break them. Sales Connection
Viking's 70 salespeople are paid commissions when orders are shipped but lose them if payments are not received within 80 days--an arrangement that motivates them to help with collections as well. Smith encourages a continuous dialogue between collectors and salespeople. It's a matter of balancing the priorities of these different business functions for the overall good of Viking. "Salespeople have the obligation of understanding that if we don't get paid, the sale is not completed," he says. "And collectors have to understand that we need to find a way to do business even when approving an order might have the effect of slowing their collections. "Partnership is sometimes viewed as an over used word in today's business climate," Smith continues," however, it means exactly that at Viking. Our success as a company is directly linked with our customer's success. We here in Credit need to continually support this idea with positive can-do attitudes. We need to see the big picture. "By the very nature of our business, we're always in a rush to ship product, so it's important that we are as proactive as we can be in each sales situation." This requires that, as a team, the department supervisor, the Credit analyst and Smith work very closely with the channel sales managers, taking the time to understand the sales strategy for each individual customer. "It becomes our ultimate responsibility," Smith says, "to find a way to provide a large enough credit facility to support our customer's needs." 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.
| 
Webinars
