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Hearing What's Not Said Can Prevent Costly Credit Mistakes
By Steve Becker
"Our liquidity is fine. As a matter of fact it is better than fine, it's strong..."
Ken Lay, CEO Enron 9/26/01
(Not said...the only available source of liquidity was a $3 billion line of credit.)
Sometimes it's not what's said that's important. It's what's not said that can be critical!
Think about it. How many credit accounts say their company is in good shape, and then out of the blue they go bankrupt leaving you hanging out to dry. Or customers who say they can't pay right now but go on a long vacation (with your money). Or, vendors who knock themselves out to favorably describe their service, only to learn later there are unexpected fees and very costly misunderstandings.
The function of credit was established in the first place because a small percentage of customers don't have the best payment record and your purpose is to keep an eye on this potential danger in order to protect your company's assets. Let's examine three areas of your job; evaluating creditor's creditworthiness, collection calls, and vendor services.
Evaluating Credit Applications: When a salesman brings you a new credit application, they are optimistic and hopeful you will approve the highest possible credit limit.
Imagine if you received a credit application from Enron on Sept. 26, 2001 prefaced by the CEO'S statement, "We have record operating and financial results and the balance sheet is strong." (Not said was the fact Enron was preparing to announce a significant overall quarterly loss for the first time since 1997 and had committed a $1.2 billion accounting error.)
Not unlike Sherlock Holmes, you seek the obvious and not so obvious clues to guide your decision. Being wrong can be catastrophic so the margin of error is too thin to make a mistake. Sometimes the financial data looks good but something tells you to look further for less obvious information.
As an NACM member you can attend extensive courses, workshops, and peer discussions to improve your analytical skills and learn ways to better extrapolate and interpret the available credit data. The result: a more professional accurate assessment that benefits your company interests.
Collection Calls: When making collection calls you hear every possible delay tactic.
Business is slow, my customers haven't paid me yet, etc. Again, as a trained professional, you have to gauge what information is being volunteered and what is not. Are they really short on cash or are they simply paying other vendors ahead of you because they are putting more pressure on them than you are? Are they really going to pay you next week or are they on the verge of bankruptcy?
Attending NACM Industry meetings can be like a GPS "Global Tracking" device on part of your client's financial health. That's one of the places you can hear the information your client is not saying. Knowledge is power, and the smallest piece of information might help you avert a major disaster.
Vendor Services: Salesmen are notorious for putting a positive spin on their services. Services that can fall into this category can include credit card programs as well as check guarantee.
Always be sure to get clarification on quoted rates vs effective rates. Don't be bashful about making a list of "what if" questions, such as… Are there additional fees you haven't told me about? Are there options I have available to me that can lower my costs? Are there procedures I need to be aware of that can come back to haunt me if I don't follow them? In the event of a problem what provisions are there to correct them and how quickly do you act on them? Does the vendor have specialized knowledge about your industry and if so are there other clients in the NACM you can call to get third party feedback?
In the credit card world it is common to be told you have a particular rate, for example, 2.2%. Then when you receive your bill you do the math and much to your chagrin, you realize you're actually paying a much higher rate. What was not said, was that there were numerous plus, plus fees and that 2.2% rate only applied to point of sale transactions. Since most of your transactions are "card holder not present", you are assessed an additional 50 basis points driving your rate up to 2.7%. Furthermore, if you are not set up for Level Two of Three Data (this is the extra information included on a transaction) you could be missing significant rate reductions. Not being aware of this can cost your company thousands of dollars per year!
Like credit card companies, check guarantee services are not all the same. A "too good to be true" rate can be very tempting, but be sure to get the whole story. Many times, what is not said is that the quoted rate is different than the actual effective rate. Other "not said" facts may be that there are monthly minimums, or additional monthly fees, extra transaction fees, or phone call charges or that the rate is low because they deny a large % of the checks in the first place or that they charge their regular rate on denied checks as well. More costly would be if they find questionable reasons not to pay claims. Even poor customer service can cost you unnecessary time and distraction.
So when evaluating any situation in the credit department, be it credit applications, creditor's excuses, or prospective vendor offerings don't assume that everything you are told is all there is to know. What's not said can be the missing piece of the puzzle to help you make the best decisions for your company as well as your career.
Steve Becker is a National Account Executive for American Check Management (www.acmeft.net). ACM specializes in cash management tools to increase efficiency and productivity in credit departments including check guarantee, EFT, and credit card merchant services. He can be reached at steve@acmeft.net or 678-488-0341.
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