Debbie Schmucker's Page

The economy is very weak. Money is tight. What tool can make a difference in your Cash Flow? ‘INFORMATION’ is the most powerful tool in any endeavor. This is especially true when making decisions that impact one of a company’s largest assets – Accounts Receivable.
It never ceases to amaze me when profits start to diminish, and it is determined that it is time to make some “cost saving” cuts. Where do companies start looking? The first place seems to be the Finance area. This, then, usually has the “trickle down” effect which undoubtedly ends up at the Credit Department level. Why not, isn’t this more appropriately labeled the “Sales Prevention Department”? There must be some expense that can be eliminated from this department that does not have a direct influence in the Cash Flow of the Company?
What is the order management considers for cost cuts? The first seems to be Head-count. Are there more people than are really necessary in this department, can they do as much or more with fewer people? The second area evaluated for cost cutting is usually business travel – especially for credit personnel. Is travel really necessary for credit people to visit customer locations since the sales people are already visible at the customer’s location? What advantage is there to your company to have the credit person visit the customer’s offices? The main focus of a credit person visiting a customer is to develop a rapport with the customers Accounts Payable Manager and also give your credit decision maker a better insight to the business and office procedures of the customer. This visit should improve the customer’s desire to pay your invoices on or closer to the date they are due. If the customer is short on cash, after a visit you might find that your invoices are paid ahead of another Vendor, perhaps a competitor. Can a sales person be totally effective in requesting an improved payment process from the customer while asking for more business? It is rare to have a sales person that is able to perform both of these with total effectiveness. The credit professional will develop a communication with the customer that can serve as a direct benefit to your company.
Where else can a Company make cost savings . . . what about that credit association in which your company has a membership? A Company may be spending anywhere from $2,000 to $20,000 a year on a professional credit trade association – especially one that provides the ability for your company to purchase payment experience reports. Far too often management views this cost as unnecessary – unless they started their career in the credit department. But, is it? What happens when the credit association is cut out of the budget and the Credit Department is told to eliminate these costs by cancelling membership of the Credit Trade Association? It destroys the best and sometimes the only line of information on customers and education for the people in the credit department. A company should want the Credit Department to be a resource department to enable sales to good and border line customers in a way to provide a positive Cash Flow. Again, this is done by having access to proper information sources.
Let’s look at information available to Credit department personnel when involved with a trade credit organization. 1) Payment habits of customers. If this is a current, but slow paying customer, you learn how the customer has been paying other Vendors in and outside of your industry. 2) Communications on actions taking place with customers in your industry – are people starting to have problems getting paid; is the customer taking an disproportionate amount of deductions with others in your industry; is the Customer experiencing financial difficulties. 3) Are there several Alerts being entered against the customer (Alerts could pertain to accounts with the customer being sent to third party collection agencies by Vendors; a change in ownership of the customer’s company; receipt of insufficient funds checks from the customer; or a multitude of other detrimental items against the customer. These are items of information that are always available through a trade credit organization – especially if it is an organization involved in your industry.
A manufacturer or wholesaler always has the ability to contract with “For Profit” companies for credit reports. But are these reports showing what is from your industry and what is non-industry information? As a matter of fact, many manufacturers and wholesalers already have expensive contracts with “For Profit” companies – some of which require a pre-paid contract, or pricing based on a specific number of credit reports that must be purchased. Can these costs be cut or reduced? Of course they can – especially if you utilize a true trade credit association in your industry. A true trade credit association can provide payment reports that rival or exceed the quality of information received from the for profit company. And some associations are “Non-Profit”, member owned Corporations. In most industry specific credit trade associations, there are additional services that members are able to outsource to the association at nominal costs. In most instances, the cost for the outsource service is less than having a person on your payroll dedicated to perform that same task.
During these topsy-turvy economic times, study where expenses can be reduced or eliminated without creating your Cash Flow to be a victim. Consider the tools necessary to a strong and effective credit department. Don’t take the power of information away from those in your credit department. It is what can assist your staff in protecting your accounts receivable and keep your Cash Flow healthy.

This article was written by Dave Schmucker, President, BPCA – an industry specific credit trade association that has been in existence since 1875. Through BPCA, members are able to get payment reports and customer scoring. BPCA also holds meetings at which credit people are able to share information on how customers handle their accounts payable, and any present day changes with the customer. BPCA also has programs for members to outsource certain tasks, thereby allowing more time to concentrate on collections which have a direct bearing on Cash Flow. Dave may be contacted at (636) 2722-3005 or by e-mail at dave@bpca.org.Technorati Profile