The credit management challenges associated with mergers, acquisitions, and buyouts among customers get most of the attention today. But the issues Credit faces when its own company merges with another can be equally as challenging. These were faced by Credit Manager Kenneth Covington, CCE, of Pelikan, Inc. (Franklin, Tenn.) when Pelikan merged with Nukote to Nukote/Pelikan, Inc.

The transition wasn't easy for anyone. Covington's department ended up taking over cash application and receivables for the entire organization. "We all put in a lot of overtime," he says. When it was all over, however, the department was able to handle the additional workload with no additional staff. How did they manage to do it? Covington delineates four keys to success.

1. Develop and maintain the right attitude. This, in fact, according to Covington, is the single most important factor, even more important than the specific work and processes that had to be accomplished and developed to make the transition. "Actually, there are two components to developing the proper attitude, the first one being the acceptance of change as a regular part of business life," he says. "In these days and times, almost nothing stays the same. Once you accept that, it's a lot easier to accept change when it does occur. For example, there are no longer any guarantees that you'll have the same job year after year in the same company with the same owners.

   "This is especially true if your company is profitable, as Pelikan was and is," he continues. "Profitable companies are the ones that other companies are looking to buy or merge with. If you remember that all companies are subject to being sold or merged at any time, you're on the right road to a positive attitude that will help you get through such a change."

   The second component is to be positive and optimistic about the change once it begins to take place. "You may wonder if you're still going to be around when it's all over, but experience has shown me that it's the people who maintain the best attitudes throughout a merger who tend to survive it," says Covington. "Those with less positive attitudes tend to either leave on their own or be let go. Encourage your staff to maintain a positive attitude."

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   Covington accomplished this with formal staff meetings that he held at least weekly and informal daily communication with individual members of his staff throughout the merger. During these encounters, he would emphasize a number of things that helped keep staff morale high and attitudes positive. Although not always worded exactly like this, these are the main messages Covington continually relayed to his staff:
   • "Just do the best you can."

   • "I really appreciate all of the hard work you've been doing."

   • "Work hard to keep your attitude positive."

   • "Remember to give this transition some time."

   • "In a few months, we'll all be better off for this."

   • "When this is all over, we'll be bigger and better."

2. Prioritize work. "While a pervasive and persistent positive attitude was the most important element to succeeding through the merger, the department also adopted some nuts-and-bolts strategies. One was to pay special attention to work priorities. We all set priorities and then made sure we stuck to these priorities," says Covington. "The last thing you want to do during a change like this is to get sidetracked on unimportant issues."
   For Covington's department, emphasis was on the 5% of the customers that represented almost 90% of the company's business. "We have some very large and financially sound customers, and we made sure that we serviced them properly throughout the merger," he explains. "By adopting this strategy, we placed ourselves in a position not only to maintain their existing business, but to eventually gain even more business from them."
   Smaller customers were certainly not ignored, but Covington notes that had he or his staff becomes sidelined with many of these accounts during the transition, relationships with the larger accounts would have suffered. "We spent most of our time with the chargebacks, deductions, and other challenges associated with the larger accounts," he notes. "And by maintaining a good rapport with their accounts payable people, we were able to maintain a strong cash flow throughout the process."

3. Focus on teamwork. While the department always had a strong sense of teamwork, Covington sought to strengthen it even more with a cross-training program. "Our primary emphasis in cross-training was in the area of cash application," he explains. This was where the most effort had to be concentrated, and where all the employees needed to become familiar with the process.

4. Make the transition in phases. The credit department brought in the work from Nukote one step at a time. First is cash application for Nukote's accounts, which took approximately 60 days. Next is credit and collections. "To initiate this phase, we called Nukote's customers to introduce ourselves, discuss the merger, and explain to them that very little would actually change for them in terms of credit and collection policies and procedures or with customer service issues, such as returns and chargebacks," says Covington. "By managing the transition in phases, the department was able to assimilate the work a bit at a time."