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A Simple Collection System That Works
The distributor customers of Hampshire Chemical Corp. (Lexington, Massachusetts), wait until they receive their invoices from Hampshire before they bill their customers. And they don't pay Hampshire until they get paid. So Credit Manager William F. Neeb, CCE, is normally confronted with a higher DSO than most of us. Still, he manages to keep cash flowing, and his most important weapon, he reports, is consistency in contacting customers when they run late. Each Friday, the Hampshire computer system runs a list of customers who are delinquent that week.
On Monday, Neeb reviews this list and matches it with any payments that have arrived that day.
On Tuesday, he sends past-due letters to all customers who have not made payment by the day before.
If payment has not been received by the following Tuesday, Neeb sends out a second letter.
If payment has still not been received, Neeb calls the customer the following week.
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As leverage, the company can and will hold orders on customers who are chronically slow in paying. "Since this usually doesn't work with occasional customers who don't rely heavily on us, we may require cash in advance," he continues. "At the very least, we explain that we may need to require this if the customer fails to pay in a timely manner."
Neeb's membership and active involvement in credit associations (he is on the boards of, and has held executive positions in, the National Chemical Credit Association and the Raw Materials Credit Association) also help him become aware of any adverse trends that might be impacting his customers, allowing him to take steps to cover his company's exposure.
As a result of the numerous strategies Neeb uses to maintain cash flow, the company rarely has any customers go beyond 60 days. "About the only customers who ever get into the 90-day column," he says, "are foreign customers who are slow because of conditions in their countries."
Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.
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