In the News

January 16, 2020

 

Picture it. You’re at a holiday party with some friends, dressed in an ugly sweater, listening to Mariah Carey, champagne in one hand a plate of hors d’oeuvres in the other, and you’re introduced to some of their friends and co-workers. “Hi, I’m John, and I work with your friend Jane. What do you do for a living?” “Great, it’s always the weather or work,” you think to yourself as you fumble the plate of food from one hand to the other. “I’m Jack. Nice to meet you. I’m a credit manager,” you say, battling “All I Want for Christmas Is You” over the speaker. “What in the world is a credit manager?” asks John.

Every scenario might not look like this, but they almost always end in the same result— someone asking what credit managers do with very puzzled looks on their faces. This is where a short, concise elevator speech comes in handy. So, the next time someone asks what a credit manager is you can be ready, just like David Trejo, corporate credit manager with Hirsch Pipe & Supply Co., Inc. in Van Nuys, California.

Trejo’s entry into NACM’s Elevator Speech Contest was selected by the editorial team as the best submission, earning him a free registration to NACM’s Credit Congress & Expo.

“I decided to submit this year—in the past I’ve looked but my busy schedule got in the way,” Trejo said. “Also, (1) it’s a contest (credit managers are very competitive) and (2) I wanted to show that credit management is not just reviewing past due accounts and approving or denying credit applications. You  have to utilize skills as a customer service person, salesperson and also someone that has to look at it from a 30,000-foot view when it comes to strategizing and managing credit.”

Trejo has been in credit for some time and started as a collector. He saw the way to improve himself was through education. He earned his BA in Business and Accounting then went for his Master’s in Finance and Management. “I have been a member [of NACM] since I started in credit in 1994,” Trejo said. “Since being promoted to credit manager in 1995, I have been consistent in attending group meetings and participating in Credit Congress. I also benefitted from peer acquaintances.” Through those credit peers, Trejo asks best practice questions to determine how they shine above the rest. Recently, Trejo has taken advantage of as much information as possible that’s out there including webinars. He’s started looking into the designation process as well. As far as Credit Congress, he looks forward to the breakout sessions. “If the session is of great interest, I go up to the presenter and pick their brains. I’ve been to about 15 Credit Congresses.”

One thing that has always—"this is going way back to when someone was training me in credit management”—followed Trejo is K.I.S.S. “I like to keep it simple. Credit management doesn’t have to be complicated, but it can be complicated if you make it.” He needs to take educated risks; if he doesn’t take risks and provide open terms, then he’s not doing the right thing for the company.

Additionally, Trejo stated, “As a credit manager, you do have to be the liaison between sales and customer service. At the top of my list in any company where I have worked has been to form a Credit Committee, an open forum for meetings with customer service and sales managers. It’s always been out

there that sales and credit are at opposite ends. I prefer to dispel that myth; we’re going to be a bigger part of that team.”

Winning Entry:

As a credit and collections manager, I am trusted by my company to handle sensitive financial decisions, take educated risks when extending credit terms to customers and analyze complex situations. My decisions can have a drastically good impact on the company, or if I make the wrong decisions, a drastically bad impact. Not only is my career challenging, keeping me on my toes at all times, but it is also rewarding. In order to stay on top of trends, I find myself constantly seeking further education (by means of Credit Congress, through NACM and webinars). I also consider myself the liaison between sales and customer service.

 

 

A company’s credit history can tell a lot about its operation, ranging from the basic account reviews and balances to in-depth information, such as payment history, bankruptcy filings and past-due accounts. When there’s a lot of red in the ledger, material suppliers aren’t shy to steer clear of the company and instead, seek business elsewhere. In an unusual turn of events, the United Kingdom’s Crown Commercial Service (CCS) went against status quo after announcing it hired a construction company known for late payments.

According to New Civil Engineer, construction company Balfour Beatty was suspended from the government’s Prompt Payment Code (PPC) in April 2019 for not paying suppliers on time. Administered by the Chartered Institute of Credit Management, the PPC was established in 2008 and requires firms to pay 95% of all supplier invoices within 60 days of receiving them if they bid for contracts worth more than £5 million ($6.5 million) annually. Balfour Beatty’s suspension will continue unless it demonstrates PPC compliance within a set timeframe.

The PPC website abides by three code signatories: Pay suppliers on time, give clear guidance to suppliers, and encourage good practice.

Despite the construction company’s suspension, the Construction Index reported earlier this month that Balfour Beatty was among 14 contractors hired to work on one lot for projects valued at more than £80m ($105 million).

“CCS construction works and associated services framework agreement is available to all public sector organizations to find companies to help build schools, hospitals, offices, universities, prisons, housing and more,” the Construction Index reported. “It is the first ever government-led construction arrangement for whole public sector. The framework is made up of 11 lots broken down into 38 sub-lots and runs for seven years.”

At Company Wrench in Carroll, Ohio, Finance and Credit Manager Kris Stephenson, CCRA, said bad credit, such as late payment history, doesn’t necessarily mean credit departments won’t work with the customer: they just need to remember to proceed with caution. Company Wrench primarily serves customers in the scrap, demolition, construction and forestry industries. Stephenson said he frequently examines trade history with Dun & Bradstreet to study how potential customers pay creditors, while also using Experian to find any derogatory records other trade creditors placed on the customer’s credit profile.

“History has proven in our industry if Dun & Bradstreet’s Paydex is below 50 and the FICO score is below 600, the customer is detrimental to our business model and 90% of them end up as write-offs down the road,” Stephenson said. “A strong personal guarantor FICO score—with significant comparable credit, and/or significant real estate—helps mitigate a low score.”

Liens on a construction and/or demolition job also help Company Wrench protect itself against loss, he added. Such security gives the company the ability to force the customer, and/or the applicable jobsite owner, to pay when payment is due. Although each case is different, Stephenson said his credit department has developed loyal customers all because they took a risk. For example, the demolition and construction segments often turn in their invoices to their customer, which they give net 30-day terms. While Company Wrench is not “pay when paid,” he said, it is customary and often a way to attract and keep customers loyal since they could easily go somewhere else.

“It is OK [to sometimes work with a customer despite bad credit] because we, as credit professionals, have to take risks to help grow our products and our company,” Stephenson said. “You must get to know the customer and especially the industry in which they operate.”

 

 

After weeks or months of trying to receive a payment from a customer, a creditor may consider a lawsuit action the next best step in resolving a pesky account. Another option may be present to the creditor before taking things to court: settlement offers.

Matthew Jameson, Esq., of Jameson and Dunagan, P.C., will be leading the session at NACM’s 124th Credit Congress and Expo titled “Evaluate Your Next Settlement Offer Like a Boss!” tackling the nuances and best practices for settlements. Jameson’s session will cover a variety of tips and styles to help creditors better understand settlement offers and how they can make the most out of settlements.

“You’re trying to make the best deal possible, so how do you improve the offer?” Jameson said. “What else can you ask for?”

A common pitfall creditors find themselves in revolves around getting enough information about the customer and the debt, Jameson said. Obtaining information takes time and deliberation on behalf of the creditor, but without enough information, making a good settlement will be difficult. Much of the settlement may revolve around the debtor’s ability to pay. If the debtor does not have the funds available, settling may be the only option—but determining the debtor’s ability to pay can only be completed with thorough research, which may take some time.

After determining what the debtor can pay, getting caught up in the figures can be a creditor’s downfall. Getting too caught up in the emotions of the decision—settling for a specific number due to exasperated feelings about the debtor, being too stubborn to agree on a certain amount, getting too angry to approach the customer with tact, etc.—will lead to poor negotiations and poor settlements, Jameson said. Approaching each settlement like a business decision can put the creditor into the correct mind space when settling.

“[Relying on strict figures] leads to bad settlements or no settlements,” Jameson said. “The goal should be to try and get 100%, whether through a lump sum or payment plan. Don’t just settle for 70%, you should be aggressive in pushing back, and if there’s a reason why they should take less, then it needs to be justified.”

Jameson’s session will approach these notions through three main driving factors for settlements. Much of what goes into a settlement involves whether the debt is collectible, if there are any other business decisions involved in the offer and if there are any legal considerations involved with the case.

Learning how to make a proper settlement can save creditors time and money by not going to court—if they approach the settlements with thoughtfulness.

“You really have to try and take the emotion out of it, in terms of you’ve already done what needs to be done; you can’t go back and change what’s been done,” Jameson said. “At this point, when you’re trying to settle it, you need to go back and make the most out of a bad situation. That’s what your goal should be: to get the best possible deal.”