Ca$h is Fact: Implementing a Credit and Collections Policy From Application to Payment and Beyond
By Michael Funk
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About this ebook
Ca$h is Fact lists various credit tools used to establish the creditworthiness of potential customers. Each tool is then broken down as the reader is taught how to interpret information provided in order to determine if a potential customer is creditworthy. The goal of a sound credit policy is to weed out companies who are bad credit risks while offering credit terms to companies who are good credit risks.
Ca$h is Fact also demonstrates proven effective collection methods a creditor can use to ensure timely payment. The reader is taught the importance of establishing good relationships with their customers and how to work with their customer when payment problems arise. The goal of an effective collections policy is to ensure prompt payment. Effective methods of maximizing payment when a customer refuses to pay or simply cannot make payment are also explained to the reader.
These tools and methods are summarized and written in a simple easy to follow format that will guide the reader in writing their own credit and collections policy. This policy will fit the culture of any company and help achieve company goals. There is no other book that details the application to payment process like Ca$h is Fact.
This book is broken up into three parts: credit investigation (gain), collections (maintain) and writing the credit and collections policy.
Michael Funk
In fifteen years working in the credit and collections field the author of Ca$h is Fact, Michael Funk has helped write and implement credit and collections policies from large Fortune 500 companies to small finance companies. Michael is a seasoned credit and collections professional who has experience working with various types of industries in America and overseas. Michael believes that strong results are an important part of business. Key components to his success are diligence, proactivity and building strong relationships. Michael has been instrumental in saving millions in potential losses while helping to increase cash flow by millions of dollars. Michael is currently in the front lines of the business world helping to rebuild the economy one customer at a time by using all of the fundamentals laid out in Ca$h is Fact. The success of of these companies will ultimately lead to a successful healthy economy.
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Ca$h is Fact - Michael Funk
Ca$h is Fact
Implementing a Credit and Collections Policy From Application to Payment and Beyond.
By Michael Funk
Smashwords edition, copyright 2012
License notes: This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please purchase your own copy. Thank you for respecting the hard work of this author. This ebook has been copyrighted.
For Laurie, Rachel and Amy
This book is dedicated to Tom Sayles who made me the credit professional I am today and taught me that no matter what Cash is Fact!
Contents
Chapter 1: INTRODUCTION: Cash is Fact
Business Today
True Story
Part 1: Gain
Part 2: Maintain
Part 3: Putting it Together and Writing Your Policy
Part 1: Gain
Chapter 2: The Credit Investigation
The Credit Application
Examining the Credit Application
Trade and Bank Reference Request Forms
Trade Reference Form
Bank Reference Form
The Importance of the Bank Reference and Addressing Red Flags.
Chapter 3: Various Reporting Agencies and Guarantors
Dun & Bradstreet
Business Summary
History and Operation
Payments
Banking and Financial Statement Section
Public Filings and Bankruptcy
Personal Guarantor
Personal Financial Statement
Credit Reports
Reviewing Credit Reports
Corporate Guarantor
Other Credit Investigation Tools
Chapter 4: Financial Statements
Financial Statements
Publically Traded Companies, Colleges, Municipality and Nonprofit Companies
Auditor’s Statement
Financial Statements as a Credit Investigation Tool
Chapter 5: The Credit Decision: Approval or Denial
Making a Good Credit Decision
Alternate Sales Terms
Secured Creditor & Unsecured Creditor
Refusing Credit and The Equal Credit Opportunity Act
Denial
Approval
The Credit Investigation Policy and Chapter 14
The Approval is now your GAIN
Part 2 Maintain
Implementing the Collections Policy
Chapter 6: Customer Set Up and Billing
The Contract
Introductory Call
Payment Methods
Storing the Customer’s Information
Invoicing the Customer
Customer Statements
Chapter 7: Building relationships through Collections, Disputes, and Chargeback’s
Collection Calls; Who and How
Collection Call Progression
Credit Hold
Alerting Management and Sales
The Default Letter and Demand for Cure
Wrapping Up Collections
Chapter 8: Types of Customers Red Flags and Working with Customers
Types of Customers
Be Pro-active and Red Flags
Working With the Customer Toward a Solution
Solutions
Chapter 9: Resolving Disputes and Chargeback’s
Disputes and Chargeback’s
Three Problem Solving Components
Customers Still Refuses to Pay
Chapter 10: Suits, Liens, and Jugements
Exhaust All Collection Avenues
The Collection Agency
Secured Creditor Filing Suit
Unsecured Creditor Filing Suit
Small Claims Court
Suits, Judgments and Liens
Collecting on a Lien and Judgment
Wage Garnishment
Chapter 11: Bankruptcy
Bankruptcy
Chapter 7 Bankruptcy
Chapter 11 Bankruptcy
Preference Payments
Reclaiming Funds on a Recent Transaction
Bankruptcy Discharge
Bankruptcy and the Collection Policy
Chapter 12: Delinquency Reporting
The Delinquency Report
Increasing Net Worth
The Format of the Report
Maintaining the Customer
Part 3
Chapter 13: Implementing the Credit Investigation Policy
Gain
Team Function and Credit Limits
Credit and Collection Department Credit Limit Authority List
Credit Tools & The Credit Investigation Checklists
Approval or Denial of the Customer
Communicating With the Customer
Chapter 14: Implementing the Collections Policy
Maintain
The Contract
The Introductory Call
Collections and Contacting the Customer
Working Toward a Solution
Resolving Disputes and Chargeback’s
Procedure for Filing a Small Claims Judgment
Procedure for Hiring a Collection Agency
Wage Garnishment Procedure
Bankruptcy
Delinquency report information
Communicating the Collection Policy
Appendix
Source Notes
Chapter 1: INTRODUCTION: Cash is Fact
Business Today
Being profitable and keeping your head above water in today’s business world is tougher then ever. As time goes on, the economy seems to get worse instead of better. The landscape of the business world has changed drastically over the last ten years. No matter what field or in what part of the country we reside, we are all affected. Receivables are slowing down and many companies can’t pay their bills at all. Companies have implemented salary cuts or reduced their work force in order to save money. Because of the economy, customer bases are dwindling and many businesses are looking to manufacture overseas because the labor is cheaper. Businesses are looking internally for ways to cut costs. Many companies hire firms that specialize in eliminating waste and increasing bottom line profit. It is the new way of corporate America. Businesses, small and large, need to keep up with the changing times. Companies need to tighten up, control costs and eliminate waste. There exists a way for any company to increase profit, lower write-offs, maximize receivables, increase net worth and minimize risk at a minimal cost. No matter what the industry, size or location any company can implement a credit and collections policy. A company with a strong credit policy will increase cash flow because they will only be dealing with strong companies who will be able to pay and pay on time. Bad debt and collection costs will be reduced because a strong collection policy will help cut down on late payments which will help avoid legal costs and charge-offs. Net worth will increase because less money will have to be reserved for customers who aren’t going to pay. Building a good relationship with customers utilizing this policy with also lead to additional sales and the cost to implement a credit and collections policy is minimal.
Just because a sale is made and money is owed, doesn’t necessarily mean payment will be made. In a perfect world a service is performed (or material sold) a customer is billed and the product or service is paid for in the agreed amount of time. This is not always the case. Some companies may not have the recourses to pay for the product or service in a set time. Some companies may not have the funds to pay at all. Many times problems arise that may delay or hold up payments. A company that does not have a solid credit and collections policy, in this case, is losing money. Period. A sale isn’t a true sale until full payment for the sale is received. A company cannot utilize money made on that sale until they are in possession of the funds. A sale looks good on paper but until payment is received it is not a true sale. Only after payment is received is that sale a fact. Full payment or cash payment is FACT. CASH IS FACT.
True Story
Don owns a print shop that employs about 30 people. Don’s Print, the shop is named, had a net income of $200K last year. Don prints fliers, pamphlets and many other forms of print media. Business in the first three months of the year was very slow. At the end of March Don got a call from the head purchaser at a company called A&J Paints. Don knows of this company as they just opened up three new stores in the New York area about two years ago. They have six stores total in the tri state area. A&J requested over 200,000 flyers to be printed by Don’s Print for a massive newspaper and mail advertising campaign that A&J plans to launch in April. They also put in an order for 10,000 pamphlets they will use as handout in each of their six stores. Don eagerly took the order, sat down and computed the numbers. It would cost Don $20K (for supplies, manpower and other things) to complete this job. Don quoted the purchaser from A&J a price of $28K for the job on net 30-day terms. A&J happily agreed. Don sent over a contract quoting the price and terms which A&J promptly signed and returned. Don was thrilled as this is by far his largest job this year.
Two weeks later the job was complete and the pamphlets and fliers were shipped. A day later the invoice was mailed to A&J.
Five weeks later Don noticed that the $28K invoice was still not paid. He called A&J and left a message for their purchaser to call him back regarding the overdue invoice. The call wasn’t returned. Business picked up and Don was pretty busy for the next two weeks and the unpaid invoice slipped his mind.
Eight weeks has gone by now and Don finally got around to calling A&J. He left 3 messages for A&J’s CFO since the purchaser was not calling him back. The CFO finally returned Don’s call. He explained to Don that cash flow was very slow and they could not pay the invoice. He asked Don to give him another two weeks to pay the invoice. Don asked if A&J could pay anything. The reply was no. Don reluctantly agreed to wait two weeks marking the date on his calendar. After the two weeks had passed Don still had not received payment. As he was picking up the phone to call the CFO at A&J he noticed on his desk a first-class mail envelope from the United States Bankruptcy Court. When he opened it up he was in disbelief. A&J, one week prior, had filed for chapter 11 bankruptcy. A&J’s lawyer was listed on the bankruptcy notice. Don called the lawyer to discuss the bankruptcy and the lawyer explained that A&J made some bad business decisions which ultimately led to bankruptcy. He said A&J hastily opened up more stores then they could handle. They expanded too fast and took on too much debt. Their liabilities were so large that they had no other choice but to file for bankruptcy. A&J’s debt was so bad and the business was so poorly run that A&J eventually had to close all six stores and liquidate their assets. All of A&J’s creditors lost money. Don did not recoup any of the $20K it cost to do this job. Don’s net income for the previous year was $200K. This job cost him $20K. That is a loss of 10% of the previous year’s net income. This loss put his cash flow for the year at a negative. This is a loss Don may not survive. Could this have been avoided if Don had a credit and collections policy implemented? Probably. If Don did his due diligence following a sound credit and collections policy he would have probably discovered that A&J was on the brink of financial ruin. He could have protected his business by selling A&J on alternate terms such as cash in advance. It is doubtful that credit terms would have been offered at all. Don could have avoided the $20K loss.
In my fifteen years of working in credit and collections, I have spoken to many people in all types of companies ranging from two employees to thousands of employees. I was shocked by how many of these companies had no credit and collections policy. They had no way of determining if customers can pay them and no set guidelines on how to collect money from customers who were overdue or who were not paying because of problems with the sale of the goods or service. A company that offers credit terms to other companies that purchase from them must have a sound credit and collections policy in place. Don’t Printing did not have a policy in place and we saw what happened to him.
Remember:
A good credit and collections policy can increase profit, lower write-offs, maximize receivables and minimize risk.
A sale