Following Up Internally

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"It's our philosophy that if a customer owes us money, it's the credit department's responsibility to clear it up," says Credit Manager Sam LaMargo of Praxair/Gastech (Hillside, Illinois). "If we're not following up with the customer, we better be following up with somebody internally." The departments that LaMargo works with include:

Sales. Praxair/Gastech is a distributor of industrial and medical gases and welding supplies. Customers are both large and small and include municipalities, steel companies, building contractors, hospitals, nursing homes, and maintenance departments. There are 9,000 active accounts. Terms are net 30. There are no discounts.

About 15 salespeople service the Chicago area and north western Indiana, and LaMargo works with the sales department by phone, in person, and by visiting with sales reps. He also communicates with the sales rep if the initial investigation shows a new customer is a slow payer.

"I tell the sales rep we should put the customer on cash or we shouldn't sell to him," he says. "However, Sales may really want this account so we come to an agreement. One of us will talk to the customer about paying when invoices are due. In some instances, the sales rep will actually go to the customer and collect."

In addition, he works with sales reps on resolving disputes regarding shipments, pricing, or rented cylinders. If something is happening at a customer's facility that could cause a slowdown in payment, sales reps are encouraged to inform LaMargo. They also sometimes help with collection but their primary responsibility is still sales.

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"I send reps a report every month listing all their accounts and where they are creditwise," he says. "If I see a customer slowing down, I may tell the sales rep that if I get an order from that customer, I can't release it."

Distribution. LaMargo makes sure Distribution picks up empty cylinders so customers aren't charged rental fees. He may also ask Distribution to pick up a customer's check or, if a customer's orders are on hold, he makes sure Distribution doesn't release them.

Billing. Customers typically call the credit department if they have a problem with invoices or shortages. If prices are incorrect in the system and a customer short pays or calls to ask about charges, LaMargo talks to the billing department about pricing. He also makes sure the sales rep responsible for pricing makes the necessary corrections.

In addition, LaMargo communicates with the billing department to ensure invoices are printed and mailed on time. He also informs Billing to send him invoices that involve special handling.

Retail stores. The company has stores where customers can purchase items such as tanks of oxygen or welding supplies, and the company bills them. When customers' orders are entered into the system, if the orders put them over their credit limit or they have a past-due balance, the order kicks out. The credit department monitors orders that kick out five to seven times daily. LaMargo then calls the customer's office to ask when he can expect payment.

Depending on the agreement reached, he decides whether to release the order.

"Orders are our number-one priority," he says. "If an order has to be released, everything else comes to a stop because sales are what keep the company going. A customer might be past due but it could be because of a dispute.

"With big accounts like municipalities or steel companies, there are always invoices that get lost in the shuffle. We just release these orders. We don't hold up Bethlehem Steel because they have a thousand dollars in skipped invoices. Our job is to get copies of invoices to customers and keep this down to a minimum."

Accounting. LaMargo compiles month-end data and meets with the accounting manager to compare his data to the official numbers in the general ledger.

"By putting together my own numbers," he says, "I also see where my problems are. I might find a customer isn't paying because we're billing him for 100 cylinders and he says he doesn't have 100 cylinders. Or, maybe the billing went bad on a block of customers, or the amount we wrote off is different from what the books say we wrote off."

LaMargo and the accounting manager also discuss sales, budget, bad-debt reserve, and other matters. "The more I'm involved with the company," LaMargo says, "the better the decisions I make. You can't operate in a vacuum and be effective. You have to do more than just approve orders and collect."

Purchasing. Although LaMargo works with Purchasing much less frequently than other departments, it is still sometimes necessary. For example, the company is a distributor so it may occasionally order a big-ticket item for a customer. In such cases, LaMargo discusses with the purchasing agent the amount of risk involved, including:

the cost to the company,
whether the customer pays on time or this is a marginal account,
whether the company should require a down payment from the customer, and
whether the vendor will take the item back if the customer has a change of heart.

"If it's a very good account, I won't even talk to Purchasing before they order the item," he says. "But if it's a marginal account, we may be ordering for a customer who won't pay. We could have this big-ticket item that nobody wants and the vendor might not take it back. We want to know what kind of risk we're taking."

The division manager. LaMargo talks to the division manager on a regular basis to keep informed on whether sales are up or down or whether the company plans to expand to new markets. "It helps me make good decisions," he says, "if I know that sales are up or down or that we have to sell to a certain market. For example, we're trying to get more medical accounts so now we'll probably sell to slower paying medical accounts. I know that because I communicate with the division manager each and every month. I worry not only about my numbers, I also have to think about what's good for the company. I don't have a problem with trade-offs as long as everybody is in agreement."

LaMargo also attends monthly staff meetings and is heavily involved in settlements and issues regarding rented cylinders.

Results. When LaMargo took over the credit department, DSO was over 80 days and 30% of receivables were over 90 days. Now, DSO is 48 to 50 days and 7% of receivables are over 90 days. Writeoffs are usually less than 1%, although this year there were two large bankruptcies.

To be more effective, LaMargo maintains good relations with all departments. He also informs everyone if he makes any change in policy.

"You have to talk to people," he says. "The bottom line is, if everything that is done in the organization isn't done right, the customer won't pay. If Distribution doesn't deliver it right, if Billing doesn't bill right and if the sales department gets the order wrong, the customer won't pay until it's right. I communicate with all these departments to fix 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.