CoatingsPro Magazine

NOV 2015

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20 NOVEMBER 2015 COATINGSPROMAG.COM collection standpoint, the three most important elements of a credit applica- tion to provide leverage generally are as follows: 1. Legal Identity: When processing a lawsuit, it is imperative to determine the correct legal composition of the customer to ensure a judgement obtained will be enforceable. If shipments are made to more than one company, branch, or subsidiary, full disclosure on each company's status and location is essential. 2. Bank References: The most widely used method of judgement recov- ery is through bank attachment or garnishment. A company might maintain three of four different accounts at various banks. Since all accounts would be subject to an attachment, it is important to verify location of both operating and payroll accounts. Also, you will need to know if your state permits bank levy and garnishments for this to be an option. 3. Interest and Attorney Fees Provisions: Once executed, the credit application can pave the way for recovery of collection expenses, as well as interest, above the normal amounts awarded by the courts. In recent cases, we have seen courts award full contingency fees paid to a collection attorney as long as the creditor furnished the court with a signed credit application with this provision. In these cases, personal testimony from the credit execu- tive was also required to obtain the awards. A recommendation to consider including in your credit application would be to specifically add the following statement: "In case of default, debtor will be responsi- ble for any and all collection agency fees, attorney's fees, court costs, and filing fees." Warning Signs to Review Tere are a few items to consider before agreeing to provide credit to one of your customers. Consider whether they have ever: • Fluctuated from the industry average of 60–90 days past due. • Had cash flow issues; this indicates receivable collection problems where they can't make payroll. • Broken commitments. • Had non-sufficient funds (NSF) checks and/or had to stop payment. • Been irritated at collection calls (abusive). • Failed to submit financial state- ments when requested. • Offered voice mail — even for sales. • Changed ownership; this may indicate a breakup of partnership. • Been out of covenants with the bank and secured lender. • Changed banks frequently and had turnovers in the accounting depart- ment. • Offered derogatory industry input. • Received an unusually large order without offering to clear delin- quency. • Pushed sales to override credit approval on orders. • Had other creditors asking for rating on delinquent customer. W hether all is in order or not, if a prospective or existing client ends up in default at any stage, once an account is turned over to a collection agency, the credit manager's responsibility has not ended. He or she must be able to cooperate continuously with the agent and notify his or her sales department of their actions. Once an account is placed for collection, unless requested, the sales department should no longer communicate or solicit future business with this customer until the entire matter is resolved. It's also wise not to send any additional account state- ments to a customer who has been placed for collection as that might confict with the collection agency's eforts. For example, if the account has made an on-account payment to your agent and the check still has not cleared, it will not be posted to your account. Terefore, if a "current monthly" statement then goes out to the customer, he will be quite confused as to his/her correct balance, and this might cause a complete breakdown of communications between the agent and your customer. Te credit execu- tive should attempt to answer any of the collection agent's inquiries as soon as they are received as time is of the essence. Once the credit executive has chosen a collection agent, coopera- tion w ill benefit the sales department w ith future sales when the temporar y obstacle has been overcome. T he credit department w ill have a better portfolio on the customer as well as a more complete histor y on what options would be available in future business dealings w ith that particu- lar customer. Listen to Your Gut It takes not only both the sales and credit departments but the entire organization to interact and exchange ideas in order to continue to be success- ful in today's marketplace. Te credit executive must secure and use information that is available to him or her from sales, order entry, customer service, and the CEO. You must also determine when an account is entitled to receive credit and when an account should be placed for collection. Follow your gut: W hat do your instincts tell you? Listen to your intuition and utilize every available resource! Remember: Do your homework prior to making the credit-ofering decision! CP Al Dias is act ive v ice president of Consu lt ing for Commercia l Col lect ion Consu ltants (CCC), a commercia l col lect ion f ir m operat ing since 1980. He consu lts w it h companies f rom a l l over t he world and has del ivered educat iona l seminars, g iven webinars, and w r itten ar t ic les for severa l associat ions. Ment ion t his ar t ic le to receive a 5 percent d iscount f rom CCC, no matter t he si ze of t he account. For more infor mat ion, contact: CCC, (817) 570-9155, ad ias@ccc-worldw ide.com, organi zed mg mt@aol.com Money Matters

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