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ESSENTIALS of Credit, Collections, and Accounts Receivable
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Credit is part science, part art, and part gut-feel. The trick is to get
the right mix.While there is no one absolute right way to handle
the credit, collections, and accounts receivable functions, there are
a few that are totally and irrefutably wrong. It is the mission of this
book to identify both for the reader.
For the last eight plus years, I have been lucky enough to spend my
days talking to credit professionals and writing about their successes and
achievements, their trials and tribulations, and occasionally their catastrophes
as a newsletter editor for IOMA’s Report on Managing Credit
Receivables and Collections. Much of what they have told me is reflected
in this book. Thus, the suggestions and recommendations are not
pie-in-the-sky advice but rather practical guidance based on real life
accomplishments and failures.
Before reviewing what is covered in the book, I’d like to point out
that there are many ways these functions can be handled. Often what
works at one company will not at the next. This can be because the
second company doesn’t have the technology of the first, and because
the corporate culture is very different or can be simply due to differing
industry requirements.Thus,many of the topics in the Tips & Techniques
will cover a variety of approaches—some applicable to more sophisticated
companies and some to the less advanced.
The book starts with a look at approving credit.This should be the first
step for companies before they begin a relationship with a new customer
—although as many reading this are only too well aware, it occasionally
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Preface
occurs after the fact, after the salesperson has taken the order. Chapter 1
begins with an explanation of why business credit is so important, verifies
that a business does exist, and examines financial statements in detail.The
chapter takes a look at the way companies evaluate credit, the information
many require on their credit applications, and the references many require.
Ratio analysis, how companies evaluate new customers, and what documentation
should be in the credit file are also examined.
Many companies overlook the importance of their billing practices
in the credit and collection process. An invoice mailed late will get a
payment posted even later. Chapter 2 takes an in-depth look at invoices,
the best way to design an invoice and best billing practices. An outsider
might not realize that there are many things companies can and should
do to their invoices to improve their ability to collect in the most timely
and efficient manner and ultimately the company’s bottom line.
Electronic invoicing is one of the hottest topics in the credit arena
today. Chapter 2 takes a look at the practice and also offers details about
five of the products on the market today. Electronic invoicing is likely
to have a big impact on business in the next few years, and thus it is
imperative that credit and collection professionals learn everything they
can about it.
The book then goes on to take a look at the thankless task of collecting.
Many in the collection profession feel that at best they break
even. If they do a good job, no one notices, but the moment collections
slip, management is watching them like a hawk and complaining. Unfortunately,
many who have this complaint are quite accurate. Chapter 3
contains numerous tips that have worked for professionals in the field
today.We look at both the old-fashioned letter writing and the more
current practices of phoning, e-mailing, faxing, and whatever else innovative
collection professionals can dream up to get the money in the
bank for their companies.
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P r e f a c e
Applying cash is another thankless job in corporate America today.
However, if the task is not handled correctly it causes problems for other
professionals in the company and, in some extreme cases, can tarnish the
company’s reputation with prized customers. Chapter 4 looks at some
effective accounts receivable strategies along with a discussion of the
vaunted days sales outstanding (DSO) figures that so many credit and
collection professionals are measured against.
Unauthorized deductions, along with unearned discounts, cause
credit professionals in certain industries (mainly those selling to retailers)
more headaches than almost anything else. Chapter 5 examines strategies
companies can use to minimize this haunting problem. The chapter also
takes a look at techniques to use for timely dispute resolution as a few
customers will use a small dispute (some say, imagined) to avoid paying
large invoices.
A smooth relationship with sales and marketing can make a big difference
in the amount of Tylenol a credit professional must buy each
year. Some lucky credit professionals have wonderful dealings with their
sales force. Chapter 6 discusses the strategies used to either maintain or
initiate a warm relationship with sales. Also included are some things
the credit department can do to make the sales force’s job just a little
bit easier.Yes, you read that right—if credit goes out of its way to help
sales, it will reap the rewards.
Most credit professionals insist that customer visits are key to
completely and accurately evaluating a customer’s financial viability.
Unfortunately, some management don’t agree. This is unfortunate
because when a customer gets into financial difficulty and has a limited
amount of money to pay suppliers, after paying key suppliers, it is most
likely to pay those it has the best relationship with—and inevitably,
those are the ones where personal contact has been made with the
credit professional. Chapter 7 looks at the best ways to plan and structure
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P r e f a c e
TEAMFLY
Team-Fly®
a customer visit along with some ways credit pros can squeeze in customer
visits so even the stingiest of bosses can’t complain.
Inevitably, the sales department will eventually (or perhaps immediately)
find a potential customer who does not meet the company’s
credit standards for open account terms.When this happens, the savvy
credit pro finds a way to make the sale happen—usually by getting
some sort of security. Chapter 8 examines some of the techniques that
credit professionals can recommend in order to make the sale happen.
Some professionals think that credit professionals really need to be
lawyers first. There are a number of laws that credit professionals must
know about and avoid breaking as part of their job. Chapter 9 takes a
look at some of the legal considerations surrounding credit and collection
activity.
Perhaps one of the most fascinating aspects of credit is bankruptcy.
It is a regular part of most credit managers’ jobs no matter how good
they are. Chapter 10 describes the different types of bankruptcies, the
rights of creditors, and what creditors should do to secure their positions.
It also takes a look at what some consider one of the nastiest
aspects of bankruptcy—preferences. A preferential situation arises when
all creditors in the same class are not treated the same. If one or more
has received a payment that the courts deem to be preferential, they are
ordered to return it to the bankrupt company’s estate. This chapter discusses
some of the ways that a creditor hit with a preference claim can
fight that claim.
Without a doubt, the credit profession has changed more in the last
ten years than it did in the previous 20. Many of these changes can be
attributed to technology and the things that credit professionals can do as
a result of the introduction of many technological advances. Chapter 11
takes an in-depth look at technology currently in use in today’s leadingedge
credit departments.
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P r e f a c e
The credit profession has undergone revolution. This roller coaster
change is only at the first curve. The skill set required of the credit professional
in the coming years continues to expand. Chapter 12 takes a
look at a number of resources credit, collection, and accounts receivable
professionals can use in the upcoming years to keep themselves in the
credit game. Those who sit still will not succeed, but you’ve already
taken the first step by purchasing this book.
Good luck—it will be an exciting adventure for those who choose
to participate.
Mary S. Schaeffer - Personal Name
ISBN 0-471-22074-4
NONE
ESSENTIALS of Credit, Collections, and Accounts Receivable
Accounting
English
John Wiley & Sons, Inc., Hoboken
2002
New Jersey
1-272
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