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Your Collections "Service"
Credit is a service you offer your customers. What about collections? That's a service too, according to Ralph J. Rimualdo, who is vice president of Case Supply Inc. (Syracuse, New York) and who welcomes new customers with the following letter (accompanied by a combined credit application and personal guarantee form):
To our future customers: We are pleased to present you with this account information and credit application form. Our success over the years is attributed to a high level of service to our customers. We feel it is our responsibility to deliver quality products at competitive prices, when our customers need them. In order to maintain this high level of service, we must also maintain a strict credit policy, which we consider an additional customer service. We maintain the attitude that nothing moves material faster, be it from our supply source, or to our customers, than a paid account. On the following credit application and guarantee form, please be sure to read and answer all questions and sign in the appropriate places. There should be no delay in processing your account application as long as all information and signatures are completed properly. Thank you for your interest. We look forward to serving you.
"Before we started using this approach, we had a very difficult time getting personal guarantees," Rimualdo admits. "Now, almost all our customers are willing to sign personal guarantees."
Approximately 90% of all applicants now complete and sign the personal guarantee. The 10% who don't get a second letter saying:
 Now almost all our customers are willing to sign personal guarantees.
We need to constantly remind them that their obligation is to pay their business bills first, before they pay their personal bills 
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-- Ralph J. Rimualdo
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"All we are asking you to do in completing and signing the personal guarantee form is to show the confidence in your business that you want us to show in your business by delivering product to you on credit."
Again, the results are "magic," with approximately 90% of the remaining 10% of the applicants returning a completed and signed personal guarantee form.
Those customers who haven't signed at this point get a phone call from Rimualdo that convinces all but the "most obstinate" to complete and sign the form.
"If a customer still refuses at this point," he says, "we really have no choice but to set him or her up as a cash account."
Accepting Blame
Rimualdo came to the realization that collections are as much of a service as credit about 20 years ago when talking with a credit manager from a competing company, who had just been burned by a customer (a construction contractor) who had gone bankrupt. The other credit management noted ruefully that the customer's wife had visited her the day before and blamed her (the credit manager) for her husband's bankruptcy. The wife's rationale: "If you had kept after him better and told him more often he had to keep his account up-to-date, he would have gone out and worked harder. He would have finished his jobs, and he would have made the effort to collect from his customers."
Rimualdo thought about the situation and realized that, yes, indeed, suppliers do have an obligation to keep their customers current so that they don't get into trouble.
"The man's wife was right," he says. In many construction companies, according to Rimualdo, as in many other small businesses, the biggest financial problem, it seems, is keeping books up to date and collecting from customers. "As credit professionals, we need to help them understand, and then constantly remind them, that their obligation is to pay their business bills first, before they pay their personal bills."
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To extend this kind of collections service to customers, particularly to marginal accounts, Rimualdo relies heavily on two strategies:
1. Keeping close tabs on marginal accounts. "We need to be able to work marginal accounts hard and fast in order to protect our interest, as well as to protect them," Rimaldo explains. To do this, Case Supply uses a computerized job accounting system that keeps track of the financial details of each job. "It provides us with information on the first day we sold the job and the most recent day we sold the job, and it also projects out our lien rights," he says. "So we're always prepared to file a lien."
When a collector talks with a customer who makes a promise to pay by a certain date, that date is also logged into the computer system. On that date, the customer's name, as well as everyone else who made a promise to pay, is printed out, so the collector can make the call. "In most cases, it's the marginal accounts that are printed out each day," he notes.
2. Pairing up individual collectors with individual customers. This enables collectors to become familiar with the personalities and tactics of the customers. "One of the keys to collecting from marginal accounts is to know how to handle the individual personalities," Rimaldo explains. "It doesn't take long for a collector to learn the best approach to take with each customer."
On occasion, a customer and collector may experience a personality conflict, which can ultimately hinder the collection process. "Just as in sales, where people like to buy from people they feel comfortable with, in collections, people like to pay people they feel comfortable with," notes Rimualdo. If a customer reports a personality conflict with a Case collector, Rimualdo won't immediately make a change, but he will keep an eye on the situation. "If it becomes obvious that collections with that customer are beginning to slow down, then I'll probably reassign that account to a different collector."
Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.
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