Too Good to Be True
This credit manager has an advantage we'd all envy: an owner/boss who also runs Sales and who listens to her concerns. But even with that edge she's been caught with her receivables up. It happened when one slick customer figured out a way of looking like a prompt pay when they were only a partial pay. One way you might rank credit applicants is poor, fair, good and too good. Too good? That's right. That's when you get the sense that maybe you're getting a snow job. The financials just seem too strong. Business prospects, maybe reported by your own sales person, seem way out ahead of where this company should be in its industry. That was the feeling Bonnie Paiva, credit manager of Tasty Seafood Company (Marion, MA), had about a new customer not long ago. The sales person was ecstatic, the trade reports showed no delinquencies, and underwriters for EULER/ACI credit insurance, having done due diligence, had given their go ahead. Paiva had a hunch that not everything was as great as it was cracked up to be, but faced with all of this positive "evidence," she okayed the account for the normal 14-day terms. Six months later, Tasty Seafood was looking at having to settle for half of the amount the customer has outstanding. What happened? The Tactic
It turned out that this customer had a tactic of paying its invoices on time; then, after the supplier became comfortable with the relationship, to begin paying 25 cents on the dollar and disputing the balance. Since trade reports do not show disputed balances as delinquencies, these passed under credit analysts' radar. They also passed under insurance company underwriters' radar, since the insurers do not cover partially paid invoices that are disputed. "We learned something on this one," notes Paiva, who, with one assistant, handles all credit responsibilities and most collections for the company's sales of fresh seafood nationwide to wholesalers, distributors, and major store chains. She gets some help on the collection side from the three member sales force, one of whom is an owner. "When I tell him someone is delinquent, he'll fax them a demand that they Fed Ex a check out 'today,'" she says. "They'll call right away with a check number. If they don't, I put them on hold." The other sales people don't have owner clout, but Paiva is diplomatic when she has to turn down an order. "When I say no, I mean no," she says. "But I always try to give them a reason. I don't withhold information, unless, of course, it's extremely confidential. If they understand the reasons for adverse credit decisions, they're not going to take them personally." Long Talks
She also concedes that her hunches and gut feelings are not always right. In one case she became concerned that an account was trying to grow too fast and was headed for trouble. There had been some delinquencies, and she expected more. But the sales person was very supportive, and she was willing to listen. "We had several long talks," she says. "The customer promised that all invoices would be paid within 30 days, and they've kept that promise for several years now. They'd been having problems, but they got over them."
Paiva's most treasured collection resources are her personal acquaintances in customers' accounts payable departments. These often grow out of routine collection calls. She might phone to ask if a check has been sent and find herself talking to an extremely harried A/P manager. "She might say, 'I'm having a rough day. I had three kids screaming when I left the house this morning.' That's an opening. We talk about kids and families. Pretty soon when I call, I'm asking about the kids by name and how they're doing in school and sports. I send first communion and birthday cards. It builds a relationship. And it gets our invoices to the top of the pile."
In one case a chronically delinquent account went to prompt pay and stayed there for five years after Paiva developed a personal acquaintance with the A/P supervisor. The downside is that this supervisor recently left the company, so she has to start all over again. Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.
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