Turning Doubts Into Dollars
Everyone knows it's hard to collect from relatives. And when that relative is Uncle Sam, you've got a problem that the usual collection tactics won't solve. A while back, Larry Reese, president of Reese Inc. (Nashville), was part of an industry that was holding over $640 million in overdue grocery bills from the United States Government. Reese Inc. is a food brokerage specializing in supplying the Defense Commissary Agency (DeCA). (The company has a separate division, Reese Brokerage Inc., which handles civilian retail grocery stores.) Some suppliers got tired of waiting for payment and either cut off deliveries or withdrew from the military market. Others tried to sell on COD terms, which harmed the relationship they had with DeCA. Reese didn't follow any of these paths. "I really believed that our problems with DeCA stemmed from the agency's not understanding how our business worked and from our not understanding the problems it was having," Reese says. "By the time the bill paying situation was in the hundreds of millions of dollars, it was well beyond any question of DeCA not wanting to pay its bills. The problem was in the system. Therefore, only a system change was going to make any difference." Review Your Own Actions
Reese reviewed his invoicing and billing procedures to make sure no payment problems stemmed from his own operations. His company was using a proprietary invoicing system, one of the few in the industry to be so equipped. "We thought the system worked very well, based on our military and civilian business experience," he says. "The problem seemed to be that DeCA had recently begun its own invoicing and payment system. There were never any consultations between DeCA and its creditors to be sure that terms of credit, terms of payment, or payment periods were the same for both parties. We assumed that what we expected and what they were going to do were the same thing. It never occurred to us that common terms or common practices would not be the same," says Reese. They were not. In fact, the differences were so great that Reese was compelled not only to undertake a revision in practice, but to change the way he looked at the system as a whole. He considered the system as a way of developing new business. Keep or Lose the Customer?
"When any customer applies for credit, there are certain standards that all companies follow," Reese explains. "The situation with DeCA, or any other customer, must be looked at from two perspectives. First, is the problem an error in our review process? Second, can we alleviate the problem while maintaining or growing our business?" In the case of DeCA, it was essential to maintain the business relationship. Reese Inc. was doing nearly 100% of its military business with this agency. A new management team or a new agency was not going to be created. Review Your Customer's Actions
Reese says that the nonpayment was not a question of money but of systems. "DeCA obviously was doing enough business to pay its bills, plus it received government funding. "However, the agency was having trouble matching invoices to delivery tickets, and they were trying to get immense volumes of invoices paid on a timely basis," Reese explains. "This isn't surprising. DeCA deals in a worldwide business, with stores in Europe, the Far East, and Japan, plus 300 stores in the United States. Some deliveries are made every day at every store. Often the prices are different from one delivery to the next and among different regions receiving the same products. There are allowances for discounts, credits for damaged merchandise, and special allowances for special promotions. It created an invoicing and reconciliation problem of immense proportions." For example, there were restrictions on the number of products and contracts that could be paid on an invoice; the contract number had to be exact, and prices quoted could not vary from those listed on the invoice. "When you are quoting prices on hundreds of items each month, there are certain to be some that will be different on different invoices," Reese says. "In the retail sector, these types of price quotes are almost always automatically loaded into the customers' price scanning system. The trouble was, DeCA didn't have price scanning nor did it have any type of automated data entry system, comparable to the civilian retail market. We assumed that these systems were in place, or would be installed after the agency was formed. They were not, and the result was that our normal methods of doing business were not working. From the customers' side, they were dealing with so many different suppliers, they had no way of knowing which of their systems were working and which were breaking down. Once the number of unpaid bills began to grow, there was no easy way to get the existing system back on line." Reese immediately found some problems on his end of the pipeline that could be corrected:
- Price quotes were being made too close to the cut-off figure set by the commissary system. This taxed the system's ability to get those new quotes to the stores for correct billing.
- The bills being submitted needed to be checked for correct contract and order numbers. The military system would not pay on bills with even small errors.
- Other systems were not being used to their full extent, such as the military's system for paying undisputed portions of bills while disputed ones were being researched.
Working With Customers Leads to Better Collections
The evidence of Reese Inc.'s success is not hard to identify. Payment time has decreased from nearly 45 days to 23 days. Its business with the military has more than doubled. During the same period, at least 50 companies stopped doing business with the commissaries because of the bill paying problems. "Once we found all the areas where we could be contributing to the problem, we found that we could usually pinpoint where the system had broken down," Reese explains. "We actually developed a whole new business strategy from this. "We offered other companies our system of invoicing, and we handled all their paperwork. This helped us increase the number of firms that retained us as their sales brokers for the military market. "Of course, this took some work. We invested in upgrading our system software, we refined our in-house methods of quoting prices, and we spent a great deal of time learning to understand how the customer conducted its business. Sure, you have to be careful and you have to make sure the customer meets the right standards," notes Reese, "but once it does, it's crazy to make a bill paying problem an 'us versus them' situation." Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by CollectionForum.com in 2006. This article originally appeared prior to 2000.
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