A recent article began “Engaging the services of a
commercial collection company is about safeguarding the assets of a
company”. What caught our attention was it was not talking about a
commercial collection agency where one would assign past due accounts but
rather outsourcing the entire collection function. The article was actually
a press release by a large credit insurer. The press release included the
following statement “many companies – whether large or small – do not
have the staff with the necessary expertise to effectively manage the
commercial collections function”.
SINCE WHEN AND WHY NOT?
Has something changed that commercial business can no
longer effectively manage its own receivables? We know of several concerns
that think they are doing a fine job and their portfolios reflect that
We often get calls from commercial credit department
managers bemoaning the fact that there is a lack of experienced credit
professionals in the market place. Although experience counts for something
one has to realize that the experienced credit professional also brings a
sufficient amount of baggage with them. Many of us have experienced all too
often upon hiring an experienced credit professional the refrain “Well
when I was at Amalgamated we did it this way”.
The fundamentals of credit and collections like those
of any other profession can be taught. What cannot be taught are personality
and character attributes. What cannot be taught is company culture.
Undeniably, one of the outstanding U.S. companies is Southwest Airlines.
Southwest is renowned for their employer – employee - customer relations.
One of the attributes that contributes to Southwest’s success is that they
do not focus on the position they are looking to fill as much as the
individual who they are looking to fill the position. That person has to
have the ability to communicate, get along with others and most importantly
have a work ethic that is compatible with the Southwest culture. Often is
the case, Southwest will hire an individual who does not have experience but
does have the character, attitude and work ethic that Southwest is looking
for. Once hired, Southwest trains the individual to perform the job – the
way Southwest expects it to be done. Southwest understands that once you
have hired the right individual training is the easy part. Too often we hire
people with experience who are not compatible with our organization,
employees or customers. They do not fit into our organizations culture. You
can teach people to do the job but you can’t change personality or
We have heard and read elsewhere that credit
departments need members with specific skill sets to achieve results but
that most credit departments are staffed with “generalists”. These are
people who know how to do a little bit of everything but are not skilled in
any particular task. In many instances these people possess identical skills
and do not compliment each other. A properly staffed department is one where
first and foremost the people compliment each other as individuals. This
means their personalities are compatible; they get along not only with each
other but also with both internal and external customers. Secondly, they
possess skills that compliment each other. The most efficient way to achieve
this is to first hire the right individual and then provide the training.
OUTSIDERS SHOULD NOT BE CONTACTING CUSTOMERS
The article continued; “By using an established
provider of accounts receivable management, a company can keep its internal
credit management staff focused on the function for which it is trained”.
Huh? We had to read that several times to make certain what we read is what
they wrote. The function of credit is to support the organization and more
specifically the sales department. Credit was never intended to be a line
function. It is a staff function created to support sales. Credit, in many
venues, continues to be promoted as a function of finance and it is not. You
do not need credit to sell your product or service if it is recognized as
having quality and reliability. Too often today the credit function is being
promoted as a line function because quality no longer is a priority and it
is credit that is being sold and credit professionals are being encouraged
to abandon the principles of credit; character, capacity and capital to
become more engaged in non-credit activities. If the credit management team
is not being trained in investigation, risk analysis, collections,
legalities and customer relations what are they being trained in?
One of the ways to support sales is not only through
investigation, risk analysis and due diligence but also developing a
relationship with the customer. It’s relationships that produce payments
from customers during downturns in the economy and/or industry.
We have heard credit professionals (?) describe
collections as a “low value” function. When did the functions of credit
and collections fall into value categories and and who determined whether
they were high or low? Collections is and should be the
primary source of the organizations cash flow and not delegated to
outsiders. Outsiders do not have equity in our receivables and are not
concerned with the continuing relationship between seller and buyer. Their
focus is on producing results for their organization but at whose expense?
Collections is more than sitting in front of a computer screen eight hours a
day dialing for dollars. It involves gathering and updating information,
understanding the customers business, customer visits, when to contact the
customer for payment and knowing the key personnel. When we outsource the
functions of the credit department to outsiders we no longer have a
functional credit department and thus we are no longer credit managers as
there is nothing left for us to do as we have delegated our
There are very few differences today between consumer
and commercial credit. Technologies, attitudes, legislation and fulfilling
customer demands has contributed to merging the two so that it has become
difficult, in some cases, to determine if we are involved in a consumer or a
commercial transaction. However, one of the significant differences is that
commercial credit departments, in spite of technology and legislation,
continues to maintain a relationship with the customer that assists the
sales department in obtaining new customers and maintaining a profitable
Commercial credit is approaching a crossroad. The
question is which way will it turn. If it follows its sibling, consumer
credit, then it will fade away to massive call centers in places like
Nevada, South Dakota and Iowa. If it turns in the opposite direction it
continues to be an integral part of its organization supporting sales and
contributing to the organizations profitability. Which way are you planning
to turn your organization?
I wish you well.
The information provided above is for
educational purposes only and not provided as legal advice. Legal advice
should be obtained from a licensed attorney in good standing with the Bar
Association and preferably Board Certified in either Creditor Rights or