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Our Subscribers Say...
I think Credit Today is fantastic. You cover many practical topics in the credit field that I use regularly. Just one recent example—a conversation on the ListServ about preferential payments—gave me tips that I used in an actual case. The specific information I picked up from this one discussion saved me $10,000, enough to cover my membership for many years!
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Manager of Credit & Collections, ASSA Abloy Americas Division, New Haven, CT
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Justin Brands, Inc. (A Berkshire Hathaway company)
Fort Worth, Texas
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Thales Navigation, Inc.
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The Right Combination
"We have automatic dunning cycles. We call customers, and we write to them. We try to stay on top of slow payers as much as possible. The biggest credit challenge," continues Steven A. Fistel, director of credit for Trans Apparel Group (Michigan City, Ind.), "is to make good credit decisions and work as efficiently as we can to keep accounts current."
To minimize risk and keep accounts current, he concentrates on:
Terms and conditions. Trans Apparel Group, a division of Hartmarx, manufactures men's slacks, golf shirts, and other apparel sold under different labels. Customers are small specialty stores and large department stores. The company offers a wide variety of credit terms based on various factors including geographic area. There are no discounts.
New customers submit a credit application with trade references and a bank reference. Fistel also gets as much information as possible from the sales rep that makes the sale. In addition, he asks for financial statements. "If we don't get a financial statement," he says, "we rely on the D&B report and the information we get from trade suppliers and the bank."
After reviewing the credit application and checking references and other information, Fistel sometimes requires cash in advance or a personal guarantee. "It depends on the account," he says. "Some are sole proprietorships or partnerships and we ask for a personal guarantee when it's a reasonable size order. Sometimes we get the guarantee and sometimes we don't. In some cases, we ask for cash in advance--most of the time for full amount. We also accept credit cards."
Orders are both seasonal and on a regular basis. "Customers order seasonally for delivery during a certain portion of the year," according to Fistel. "However, before and after that, they order on a regular basis to fill their stock. "We don't have any huge accounts for department stores. Your basic retail specialty store doesn't order a huge quantity that could put them behind the eight ball if they had to pay in advance."
Letters and phone calls. The dunning cycle flags accounts that are one day past due. Fistel then determines which accounts will be mailed a past-due notice. Customers who normally pay on time are not sent a notice. Those who are constantly late not only get a notice, they may also be called.
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You'll learn what's working at credit departments ranging anywhere from Fortune 50 operations to those with just one (overworked) person. Just a few of the world's leading credit departments featured include Campbell Soup Company, Georgia Pacific, BJ Services Company, USA, VF Jeanswear, USXpress, and Canon USA.
Check out Credit Today's
Credit Department Profiles
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"The notices are in four stages and they get a little stronger as they go along," he says. "The first notice says, 'You're past due. Please send a check.' The second one says, 'We previously sent you a notice. You haven't paid. Please send a check.' And the last one says, 'We must insist on immediate payment.' Between notices, the department also calls customers and sends letters.
Payment arrangements. When customers are past due, Fistel tries to arrange a payment plan. For example, a customer might pay a monthly account with a credit card.
"If customers cooperate, we work with them," he says. "We try to help them get through as best they can. But a lot of times, they don't respond. They don't come through and they don't make any promises so we place them for collection. After that, we would not even consider any merchandise for them until their account is cleared up. I'm not at all reluctant to lose customers. If it's not a good account, I have no problem not selling them."
Deduction resolution. The company has no formal policy on deductions. Each is handled on an individual basis. When a check comes in with deductions, the credit department starts the resolution process.
"With department stores," Fistel says, "it isn't credit issues that we worry about. It's deductions. They may say we sent the wrong merchandise, the packing slip wasn't enclosed, we didn't send it the right way or there are shortages--all kinds of things.
"We work with other departments within the company depending on what the deduction is for. If it's an advertising or markdown allowance, we work with the sales department because they're the ones who authorized it. If it's routing, we go to traffic. If it's a shortage, we go to the claims area. It depends on what it is."
Last year, bad-debt losses were .3% of sales. Fistel doesn't track DSO because the company has so many different credit terms. Future plans include enhancing the current automated cash application systems. "Minimizing risk and getting customers to pay on time is always a challenge," he says. "The right combination of decision-making methods and collection techniques make the process more manageable."
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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Outlook 2012
This month's survey explores...
- What the top problems are facing credit execs currently, and
- What the top improvement initiatives are.
Click here to participate!
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February 2012
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