SCORE Luncheon Remarks

Devin D. Hollands, Principal,
New England Consulting Partners, LLC.

11:45 A.M., Friday, September 14, 2007
Oak Hill Country Club

The Tenacious Collector

  A simple collections system developed to bring companies out of bankruptcy
This system can be established in most companies to keep collections under control

Forcing Collections to the forefront

• Company’s Lender cuts line of credit or freezes line
• Vendors lower credit line demanding cash payments
• Credit line maximized

• Many situations can arise that throw off the normal business cycle in such a way that immediate/sustained/on-time collection of cash is needed to sustain operations

• Because normal operations never had to focus on immediate/sustained/on-time collection of cash a new environment needs to be developed to get the job done

• If this system works when the chips are down why not implement it all the time and benefit from improved collection of cash?

• Extreme case where the Tenacious Collector came through:

Situation

• Company Filed Chapter 11
• Company created a Reorganization plan
• Plan fails to work
• Secured Lender will not loan additional funds

• Consulting firm arrives and takes over operations per court order

• Consultants discover owners were floating company through:
• Fraudulent Check Kiting Scheme
• Loans from ‘extreme hard money lenders’
• Draining employees pension fund and other trust funds
• Offering customers large discounts for quick payment of invoices

• Can I use the same techniques to keep the business afloat while our team tries to craft a new reorganization plan?

Down to basics

• To have a sustainable company we needed to:
• Sell
• Build
• Ship
• COLLECT  (without extreme discounts) 
• Our only source of cash was collections from accounts due and from new sales
• The secured lender did not want to put money in and only desired to secure as much principal repayment as possible

Tenacious Collector - attributes

• The unsung hero behind many successful turnarounds:

• Does not shy away from making inquiries that many would consider to be too direct or confrontational
• Often has an Alpha personality – is confident in making demands and accepts no excuses
• Loyal to their companies
• See situation as black or white  - “did you send the check as promised or not?”
• Can become stubborn when situations demand it
• They show a distinct lack of compassion when making repeat phone calls – asking why a check did not arrive or requesting proof of payment
• Usually a woman

Tenacious Collector – System

• Typical customer with 30 day terms
• Tenacious Collector places a call on day 20 or 25 to ensure that the customer’s payment clerk has the invoice in the system and is ready to pay on day 30

• This is NOT a collection call nor is it designed to pester anyone
• Its purpose is to ensure that the customer
  has all the paperwork in order
•             is happy with the product
•             Is ready to pay
• This simple system short-circuits most typical excuses for slow payments:
•             “We never received your invoice”
•             “I have not received delivery or shipping confirmation”
•             “The wrong item came in”
•             “We did not get you on the check run”
• A series of simple phone calls – “Hi, Marge, Are we on next week’s check run?” can go a long way to ensuring that your company has a future

• The calls and questions made to customers by the Tenacious Collector are just routine
• They don’t consider their actions as being over-aggressive nor do they hesitate to call the next day and repeat the exercise if a check does not arrive as promised.
• The Tenacious collectors simply ask for “their” money, as it is due
• Once a tenacious system is implemented customers learn if their check does not go out they will be having an uncomfortable chat with the tenacious collector
• NOT uncomfortable for the collector just for the person who was supposed to pay
• To avoid this many will start to pay invoices as they become due
• Friendly but no-nonsense relationships are built between the collector and the paying party at the other end

Tenacious Collector – staff member is best

• In many small businesses the tenacious collector’s main job will be in an unrelated department
• Shipping clerk
• Warehouse assistant
• Some other role that allows them time to work the collections
• Someone at this level is a good candidate as they can easily possess the personality traits needed for success and they will be on a similar level as the person on the other end arranging for a check to be cut for payment

• This also allows the tenacious collector to kick up a situation to a higher level or authority:
• A/R Manager, controller or sales manager
• This higher authority can take up issues with the stubborn company
• Finally the CFO or president can intervene if the issue can’t be resolved

Tenacious Collector – Executives beware

• Executives are often not as effective as they simply do not excel at the tenacious routine required to tame a customer into on-time payments
• Executives tend to be too understanding and “feel the pain” of the other party
• Traits lacking in an ideal tenacious collector!
• Executives will give their counterparts a break rather than risk future business
• At the executive level a person receiving a collection call typically has influence on awarding future business
• Employees at the lower clerk or finance level that we expect the tenacious collector to handle do not usually have authority to change vendors if the tenacious collector upsets them

• If a contact raises an issue or a problem the collector has time to address it before the invoice is due
•            All required paperwork can be faxed over
•            Calls can be made to obtain shipping confirmation
•            Confirmation can be obtained that the proper item was shipped
•            Confirmation can be obtained that required changes were made
• Issues do not have to be handled by the tenacious collector, but depending on the issue can be handed off to the appropriate department
• All the minutia required to ensure the payment is made on time are handled BEFORE the check is DUE
• When the invoice is due the customer has no excuses or stalling tactics to fall back on
• The Tenacious Collector has nailed everything down
• Remember: if the checks do not come in the company HAS NO CASH
• Paperwork for such a system can be simple
• The CFO, controller or collections manager should generate a daily list from the A/R aging report showing:
•            Customers to contact
•            Contact names/numbers
•            Balances due with date due
•            Previous contact information
•            Comments

• This simple list provides the collector with a detailed outline of exactly what is expected that day.  It drives the collection activity
• Because management will review the list each afternoon the collector will clearly recognize it as being important
• In the afternoon the completed report on the day’s calls should be distributed to management as needed.
• A quick daily meeting to review the results allows management to identify cases that require higher-level attention
• If executives see broken promises and unwarranted delays they can pick up the phone and call their contacts before the end of the day
• Such additional follow-up must be recorded on the sheet so the collector knows about any new development or promises

• CONTROLLER
• Make Calling List

• TENACIOUS COLLECTOR
• Make calls or e-mails  * Before the Check is Due *
• Hand in the report  - talking through any difficult situations with controller

• MANAGEMENT  and STAFF
• Follow up with issues  -  resolve every problem
• Make calls to difficult customers

• REPEAT the above daily

• Take the cash to the bank!