Penny Wise and Pound Foolish
Here's a case of top management wanting to save money on travel. And the end result is probably the loss of a LOT more money elsewhere in the budget! Recently, I received a call from a credit manager asking for ways to benchmark the length of time it takes for those in her industry to process a credit application. A few years ago, she explained, it took them 8 days, but they worked at it and got it down to 4 ½ days. Now she's wondering if they shouldn't be even better. In particular, she was curious as to how well she stacks up compared to others in her industry. First, I told her that our next survey is going to be on just that topic, so we'll have some answers soon. In the mean time, I suggested calling someone from her industry group. She said that she wasn't in a credit group. Times are tough, so management doesn't want to spend the money for her to travel to the meetings. She is in construction, obviously facing very hard times these days. Her previous company was local, so she was able to justify going to local credit group meetings to learn about common customers. But now her company is national, so the credit group meetings require travel. "How big is your firm's A/R?" I asked, wanting to get a sense of the scope of her company. "Well, it's half of what it used to be, about $18 million," she replied. It's not often you hear a credit manager say their receivables are HALF of what they were, so you know they're really feeling the pain when you get that kind of answer. "Of that $18 million, what kind of bad debts do you typically experience?" was my second question. "We're projecting about $1.2 million," she said. "So," I asserted. "Management is saving about $5,000 a year by not letting you travel, but putting you in the dark about $18 million in receivables, leading to over a million dollars in bad debts? Think about those numbers." I advised her to explain to management that the bad debts they're experiencing are every bit as much a cost of running A/R as the travel budget. And certainly, with numbers of that magnitude, credit group participation, even with the travel costs, ought to be a no brainer. "Even if you save just 10 percent of that $1.2 million due to better intelligence about your customers, the travel component of credit group participation is still a drop in the bucket. By cutting yourself off from the very best information about your customers, it's incredibly 'penny-wise and pound-foolish.'" "Just try it for a year," I pointed out. "If the results aren't fantastic, you can just cancel your membership." That might help management give it a go. We talk a lot about the value of credit groups, and for those already involved with a group, this week's letter is certainly 'preaching to the choir.' But it can't be emphasized enough. In times like these - ESPECIALLY in times like these - there's no substitute for the intelligence gained from exchanging information in a controlled setting with a group of credit peers who have a common customer base. As we often do, we referred her to our study: Credit Group Participation ROI Averages More Than 100 Percent Per Week (No, that's Not a Misprint). If you need help justifying travel, this is something you should incorporate into request with management.
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