Essentials of Credit, Collections, and Accounts Receivable

272 Pages·2002·1.68 MB·English

by  Mary S. Schaeffer

ESSENTIALS Y

L
F

M
of Credit, Collections,

A

and AcEcounts Receivable

T

Team-Fly®
Essentials Series
The Essentials Series was created for busy business advisory and cor-
porateprofessionals.The books in this series were designed so that these
busy professionals can quickly acquire knowledge and skills in core
business areas.
Each book provides need-to-have fundamentals for those profes-
sionals who must:
•
Get up to speed quickly,because they have been
promoted to a new position or have broadened their
responsibility scope
•
Manage a new functional area
•
Brush up on new developments in their area of
responsibility
•
Add more value to their company or clients
Other books in this series include:
Essentials of Accounts Payable, by Mary S.Schaeffer
Essentials of Capacity Management, by Reginald Tomas Yu-Lee
Essentials of CRM:A Guide to Customer Relationship
Management,by Bryan Bergeron
Essentials of Intellectual Property,by Alexander I.Poltorak and
Paul J.Lerner
Essentials ofTrademarks and Unfair Competition,by Dana Shilling
Essentials of Corporate Performance Measurement,by George T.
Friedlob,Lydia L.F.Schleifer and Franklin J.Plewa,Jr.
For more information on any of the above titles,please visit
www.wiley.com.
ESSENTIALS
of Credit, Collections,
and Accounts Receivable
Mary S. Schaeffer
∞
This book is printed on acid-free paper.
Copyright © 2002 by Mary S.Schaeffer and the Institute of Management and
Administration.All rights reserved.
Published by John Wiley & Sons,Inc.,Hoboken,New Jersey
Published simultaneously in Canada
No part of this publication may be reproduced,stored in a retrieval system,or
transmitted in any form or by any means,electronic,mechanical,photocopying,
recording,scanning,or otherwise,except as permitted under Section 107 or
108 of the 1976 United States Copyright Act,without either the prior
written permission of the Publisher,or authorization through payment of
the appropriate per-copy fee to the Copyright Clearance Center,Inc.,
222 Rosewood Drive,Danvers,MA 01923,978-750-8400,fax [phone],
or on the web at www.copyright.com.Requests to the Publisher for permission
should be addressed to the Permissions Department,John Wiley & Sons,Inc.,
111 River Street,Hoboken,NJ 07030,201-748-6011,fax [phone],
e-mail:[email protected].
Limit of Liability/Disclaimer of Warranty:While the publisher and author have
used their best efforts in preparing this book,they make no representations
or warranties with respect to the accuracy or completeness of the contents of
this book and specifically disclaim any implied warranties of merchantability or
fitness for a particular purpose. No warranty may be created or extended by
sales representatives or written sales materials. The advice and strategies con-
tained herein may not be suitable for your situation. You should consult with a
professional where appropriate. Neither the publisher nor author shall be liable
for any loss of profit or any other commercial damages,including but not
limited to special,incidental,consequential,or other damages.
For general information on our other products and services,or technical support,
please contact our Customer Care Department within the United States at
800-762-2974,outside the United States at 317-572-3993 or fax [phone].
Wiley also publishes its books in a variety of electronic formats.Some content
that appears in print may not be available in electronic books.
Library of Congress Cataloging-in-Publication Data
Schaeffer,Mary S.
Essentials of credit,collections,and accounts receivable / Mary S.Schaeffer.
p.cm.
ISBN 0-471-22074-4 (pbk :alk.paper)
1. Credit—Management. I.Title.
HG3751 .S334 2002
658.8’8—dc21 2002005070
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
For my princess,
Larissa Mary Noelle Ludwig,
my wonderful, beautiful, gifted daughter

Contents
1 The First Step: Approving the Credit 1
2 The Second Step: Billing 29
3 The Third Step: Collecting the Money 49
4 Accounts Receivable Issues 81
5 Handling Deduction Issues 103
6 Interacting with Sales and Marketing 115
7 Customer Relations and Customer Visits 133
8 Letters of Credit and Other Security Interests 147
9 Legal Considerations Surrounding Credit 163
10 Bankruptcy 183
11 Technology in the Credit and Collections Department 215
12 Professionalism and the Future of the Credit Profession 241
Index 253
vii

Preface
C
redit is part science,part art,and part gut-feel.The trick is to get
the right mix.While there is no one absolute right way to handle
the credit,collections,and accounts receivable functions,there are
a few that are totally and irrefutably wrong. It is the mission of this
book to identify both for the reader.
For the last eight plus years,I have been lucky enough to spend my
days talking to credit professionals and writing about their successes and
achievements,their trials and tribulations,and occasionally their catas-
trophes as a newsletter editor for IOMA’s Report on Managing Credit
Receivables and Collections. Much of what they have told me is reflect-
ed in this book. Thus, the suggestions and recommendations are not
pie-in-the-sky advice but rather practical guidance based on real life
accomplishments and failures.
Before reviewing what is covered in the book,I’d like to point out
that there are many ways these functions can be handled.Often what
works at one company will not at the next.This can be because the
second company doesn’t have the technology of the first,and because
the corporate culture is very different or can be simply due to differing
industry requirements.Thus,many of the topics in the Tips & Techniques
will cover a variety of approaches—some applicable to more sophisticated
companies and some to the less advanced.
The book starts with a look at approving credit.This should be the first
step for companies before they begin a relationship with a new customer
—although as many reading this are only too well aware,it occasionally
ix
Preface
occurs after the fact,after the salesperson has taken the order.Chapter 1
begins with an explanation of why business credit is so important,verifies
that a business does exist,and examines financial statements in detail.The
chapter takes a look at the way companies evaluate credit,the information
many require on their credit applications,and the references many require.
Ratio analysis,how companies evaluate new customers,and what docu-
mentation should be in the credit file are also examined.
Many companies overlook the importance of their billing practices
in the credit and collection process.An invoice mailed late will get a
payment posted even later.Chapter 2 takes an in-depth look at invoices,
the best way to design an invoice and best billing practices.An outsider
might not realize that there are many things companies can and should
do to their invoices to improve their ability to collect in the most timely
and efficient manner and ultimately the company’s bottom line.
Electronic invoicing is one of the hottest topics in the credit arena
today.Chapter 2 takes a look at the practice and also offers details about
five of the products on the market today.Electronic invoicing is likely
to have a big impact on business in the next few years, and thus it is
imperative that credit and collection professionals learn everything they
can about it.
The book then goes on to take a look at the thankless task of col-
lecting. Many in the collection profession feel that at best they break
even.If they do a good job,no one notices,but the moment collections
slip,management is watching them like a hawk and complaining.Unfor-
tunately,many who have this complaint are quite accurate.Chapter 3
contains numerous tips that have worked for professionals in the field
today.We look at both the old-fashioned letter writing and the more
current practices of phoning,e-mailing,faxing,and whatever else inno-
vative collection professionals can dream up to get the money in the
bank for their companies.
x