4.28.04
Credit Scoring & Portfolio Management
Dun and Bradstreet Receivable Management Services – National Accounts Conference

6.01.04
Take the Holistic Approach to Improving Collection Performance
Distillers, Vintners, Importers Credit Management Association (DIVCMA) | Phoenix AZ

6.01.04
"SOX Compliance" Panel Member
NACM Credit Congress | Phoenix, AZ

7.18.04
Take the Holistic Approach to Improving Collection Performance
Disney Company Global Credit Management Conference | Anaheim, CA

7.22.04
Quote to Cash Integration of the Credit Risk Analysis and Collections Functions
eCredit Webinar Series | Boston, MA

9.22.04
How to Say No
CFDD, Los Angeles | Commerce, CA

10.15.04
Strategies and Performance Measures for Your Credit Department
NACM Western Region Credit Conference | Las Vegas, NV

2.16.05
Quote to Cash Management
Cforia National User Conference | Universal City, CA

6.10.05
Take the Holistic Approach to Improving Collection Performance
Riemer Credit Reports – National Audio Group | Dana Point, CA

7.11.05
Take the Holistic Approach to Improving Collection Performance
Warner Brothers Home Entertainment | Burbank, CA

9.12.05
Increasing Your Credit Department’s Value Through Automation and Process Improvement
Riemer Week, Reimer Credit Reports | San Antonio, TX

10.06.05
Credit People are Sales People Too!
Distillers, Vintners, Importers Credit Management Association (DIVCMA) | Las Vegas, NV

12.01.05
The Keys to Structuring and Managing Successful Outsourcing Relationships
Twentieth Century Fox Home Entertainment | Century City, CA

2.08.06
Increase Your Value Proposition
BMC West National Credit Management Conference | Las Vegas, NV

7.16.06
Credit People are Sales People Too!
Credit Management Association CMA Los Angeles Credit Professionals Group | Los Angeles, CA

10.6.06
Improve Your Value Proposition or "So Who Needs the Credit Department?"
NACM Western Region Credit Conference | Las Vegas, NV

3.19.07
Credit and Collections Management Overview
Thomson Corporation | Camarillo, CA/Paris, France

4.16.07
Credit and Collections Management Overview
Kellwood Company | St. Louis, Mo

10.23.07
Employee Development, Recruitment and Retention in the 21st Century
Credit Research Foundation (CRF) Forum

3.13.08
"So, How Do I Convince My Boss The Credit Department is Worth the Cost?"
GAIN/PACE Industry Trade Group | Albuquerque, NM

6.2/3.08
Facilitated: CMA Board Retreat
Credit Management Association (CMA) | Costa Mesa, CA

6.04.08
Credit Department Value Assessment and Strategic Talent Management
SunGard User Conference | Chicago, IL

6.17.08
"So, How Do I Convince My Boss The Credit Department is Worth the Cost?"
Blakley and Blakely LLP Client Webinar Series | Irvine, CA

9.19.08
Frazzled, Floundering and Frustrated "How to Manage Time and Stress"
Furniture Manufacturer’s Credit Association | Savanna, GA

11.21.08
Frazzled, Floundering and Frustrated "How to Manage Time and Stress"
Credit Management Association (CMA) Los Angeles Credit Professionals Group | Los Angeles, CA

1.16.09
Collections Workshop
Technicolor | Burbank, CA

2.12.09
"So, How Do I Convince My Boss The Credit Department is Worth the Cost?"
Distillers Vintners and Importers Credit Management Association (DIVCMA) | Las Vegas, NV

3.17.09
Frazzled, Floundering and Frustrated "How to Manage Time and Stress"
Credit Research Foundation (CRF) Forum | Manhattan Beach, CA

6.5/6.09
Facilitated: CMA Board Retreat "Think Tank" Conference
Credit Management Association (CMA) | Las Vegas, NV

9.15.09
Frazzled, Floundering and Frustrated "How to Manage Time and Stress"
Printing Industry Credit Conference | Grand Rapids, MI

10.15.09
Frazzled, Floundering and Frustrated "How to Manage Time and Stress in a Tough Economic Environment"
Distillers Vintners and Importers Credit Management Association (DIVCMA) | Chicago, IL

3.9.10
Credit and Collections Management Today "Creating Value with Limited Resources, In a Risky World"
Credit Research Foundation (CRF) Forum | San Diego, CA

5.19.10
Frazzled, Floundering and Frustrated "How to Manage Time and Stress"
NACM Credit Congress | Las Vegas, NV

5.19.10
Looking Beyond the Bunker "Become a Driving Force Maximizing Liquidity, Revenue Opportunities and Profit in a Tough Economic Environment"
NACM Credit Congress | Las Vegas, NV

7.21.10
Looking Beyond the Bunker "Become a Driving Force Maximizing Liquidity, Revenue Opportunities and Profit in a Tough Economic Environment"
Blakley and Blakely LLP Client Webinar Series | Irvine, CA

8.27.10
Looking Beyond the Bunker "Become a Driving Force Maximizing Liquidity, Revenue Opportunities and Profit in a Tough Economic Environment"
Credit Management Association (CMA) Los Angeles Credit Professionals Group | Los Angeles, CA

9.23.10
Increasing Your Credit Department’s Value Through Automation and Process Improvement
Cforia Webinar Series | Calabasas, CA

11.22.10
Collection and Negotiations Workshop "Closing the Deal"
Burkhart Dental, Inc. Webinar | Seattle, WA

12.02.10
Looking Beyond the Bunker "Become a Driving Force Maximizing Liquidity, Revenue Opportunities and Profit in a Tough Economic Environment"
The Food Industry Credit Bureau | Quebec City, Quebec

1.21.11
Do More Than Just Make Your Numbers
Credit Management Association (CMA) Orange County Credit Professionals Group | Anaheim Hills, CA

1.24.11 - 1.25.11
Facilitator: "Credit Executive Symposium"
Credit Management Association (CMA) | Burbank, CA

9.19.11
Looking Beyond the Bunker "Become a Driving Force Maximizing Liquidity, Revenue Opportunities and Profit in a Tough Economic Environment"
Canadian Food Industry Credit Bureau 10th Annual National Conference | Quebec City, Quebec

9.20.11
Frazzled, Floundering and Frustrated "How to Manage Time and Stress"
Canadian Food Industry Credit Bureau 10th Annual National Conference | Quebec City, Quebec

10.7.11
Performance Measurements Even Your Sales Reps Can Understand
NACM Western Region Credit Conference | Las Vegas, NV

10.7.11
"Ask the Credit Experts" Panel Member
NACM Western Region Credit Conference | Las Vegas, NV

12.5.11
Collections Workshop
Cascade Orthopedic Supply, Inc. | Chico, CA

The “Credit and Collections Tune Up” is offered by Q2C as a cost effective solution to this problem. Q2C will provide a world class analysis and recommendations, scaled and priced to the needs of clients with limited budgets but a need for improvement.

The attached Overview explains the program, the benefits and how to get more information.
CLICK HERE for the: Q2C Credit and Collections Tune Up Overview

By Sherry Schlossnagle

Paul B. Beretz is the managing director of his own consulting firm Pacific Business Solutions, located in Alamo, California. A graduate of NACM’s Graduate School of Credit and Financial Management, he is an active member of the FCIB Advisory Council.

(Reprinted from the September 2000 issue of Business Credit magazine with permission of NACM.)

I asked Beretz to comment on the current changes occurring in the international credit industry.

“The key word here is consolidation — both international and in North America,’ he replied thoughtfully. ‘More and more credit jobs are being consolidated. As a result, the role of the international credit manager is not only becoming more decentralized with those managers outside the country reporting back to the chief credit manager, but it is also evolving more into the role of a risk manager that may include insurance and cash management along with the credit function.’

Beretz believes that it is imperative for all credit managers to begin to develop international skills. In light of this necessity, he emphasized the value of participating in FCIB. “FCIB can play a very important and pivotal role in the development of the international credit professional’s career. It not only attunes the credit manager to an awareness of international business; it also provides tools, and educational and networking opportunities.’

If you have not had the opportunity to read Beretz’s publication, “How to Prepare for a Systems Application Installation or Upgrade,’ or his”Country Profiles‘ on how to handle credit and collections issues in South Korea and Singapore, then put them at the top of your To Do list. Not only do these articles offer a wealth of valuable information to professionals in the credit management field, they are also thought provoking and extremely well written.

As a member of the Advisory Council, Beretz discussed some of the challenges that FCIB faces at this time. ‘Our primary focus should be how we recruit and retain our membership. FCIB is in the process of investigating a variety of new products that will address the needs of global clients. It is also discussing the development of new educational projects, as well as how to revitalize the existing ones. The issue of `time commitment’ of members is another very important consideration — more important even than cost, I think. We must be very accurate in targeting those products and services to meet membership needs since professionals are becoming more selective in attending meetings and participating in programs.

The second challenge we face has to do with the issue of `global awareness.’ As businesses continue to expand globally, it is critical to their success that they understand what their international customers need and how to conduct business in the customer’s own environment. FCIB can play a role in assisting members who want to achieve an expanded level of awareness.

The third challenge is the continued development of the Internet application to link members to more new products and services, as well as to facilitate and enhance the online communication process. It is important that FCIB continues to update its Internet applications and solutions and expands its web site to meet membership needs.’

Regarding the value of the FCIB Certified International Credit Executive (CICE) designation, Beretz believes the new professional designation has provided an excellent vehicle to recognize and reemphasize that international credit management is a very specialized area of knowledge critical to business.”The CICE not only adds to the professional’s credibility within the company and the industry, it is respected in other cultures as well.’

Beretz began participating in FCIB in 1983 while he was working for the forest products industry. He has continued his FCIB membership in the semi-conductor and telecommunications industries in the `90s. “I knew next to nothing about international credit management when I first started out, so I went to FCIB for help. Of the many benefits available through FCIB, the two I value most are the networking and the educational opportunities. The professional network that I have developed through my participation in FCIB over the past 17 years is invaluable. I can call any number of people at any time and say that I have a client doing business in, let’s say, Ethiopia and ask them about the credit situation there. These resources have the most current and accurate information available.’ Beretz was also quick to note that he utilizes the FCIB Country and Customer reports that are unique to the industry and provide very specialized information.

“I try to attend as many FCIB-sponsored regional and global meetings as I can. There is a tremendous amount of knowledge and wisdom shared at these meetings. Being privy to this very specialized information makes me more globally aware than I could possibly be otherwise. If international credit managers intend to operate successfully within a country, it is imperative that they be aware of and sensitive to the differences in cultures and customs.’

As Managing Director of Pacific Business Solutions — a consulting firm that evaluates and creates opportunities to improve cash flow for global manufacturing, distribution and service companies — Beretz has successfully capitalized on more than 30 years of business experience.

For start-up to middle market sized companies, he has initiated tactical and strategic processes, guided management to evaluate the market place and competition, established personnel performance measures and utilized budgeting and forecasting tools. For middle market and larger companies, he has formulated “best practice’ strategies, reorganized departments, and re-defined and authored “desk procedures’ for worldwide operations. On the international level he has provided guidance to several multi-billion dollar companies in the recognition of economic, country, and cultural issues fundamental to selling products and services internationally, particularly in Pacific Rim countries.

Beretz received his BBA from the University of Notre Dame and an MBA from Golden Gate University. He has been an adjunct faculty member at the University of California, Berkeley and currently is an instructor in management and finance for St. Mary’s College, Moraga, CA and the University of Phoenix. In addition, he speaks frequently covering a wide range of topics from cash flow management techniques to customs and practices in international business. He has written articles for trade magazines such as IOMA’s Report on Managing International Credit and Collections and NACM’s Business Credit, authored a book for the American Management Association and edited books on financial management.

I remarked that a business background such as his own was probably one of the major criteria for hiring someone to work in the credit profession. “On the contrary,’ Beretz replied, “I place great value on a strong liberal arts education. It is becoming increasingly more important for credit professionals to have well-developed verbal and writing skills, as well as an acquaintance, if not a familiarity, with other philosophies and cultures. A good liberal arts education should provide all of these. I can educate bright employees on the technical side of the business, but I can’t teach them to be articulate or good writers or make them critical thinkers. If I can have both, then I have the best of both worlds.’

Regarding his greatest professional challenges, “Two immediately come to mind,’ he replied. “First is the constant `selling’ of credit within the organization to make certain that it is understood. The astute credit manager will always keep going back to ensure that upper management understands what the credit manager is doing with the receivables. You can’t take that understanding for granted. It is an ongoing challenge to keep the appropriate people educated.

The second challenge deals with the issue of isolation. Credit people are often very alone because the company in general doesn’t really understand what they do. There is this `shroud of mystery’ surrounding the credit operation. To address this isolation problem, management should support credit managers in their desire to join professional associations where they can network, share problems and discuss common issues. FCIB, of course, is the perfect example of an association that offers such networking and education opportunities for credit professionals.’

Over the years Beretz has been a speaker at numerous FCIB and NACM conferences and meetings. He will be leading a panel on International Credit Scoring at the FCIB Global Meeting in New York City in November 2000.

Sherry Schlossnagle is a freelance writer based in Laurel, MD.

The program he had outlined gave immediate results. Sales increased dramatically from $100,000 in December to $150,000 by January 2002. As indicated in the very simple summary income statement below (also known as “operating statement” or “profit and loss statement”), the higher revenue generated $15,000 in earnings the first month:

LIV-HI Inc., Cash Flow 1/1/01-1/31/01

Sales $ 150,000
Cost of Sales (105,000)
Gen. & Admin. Exp. (30,000)
Net Income $ 15,000

However, Dan Dapper (known as “Dandy” to his friends) was not in a position to enjoy his success. While the company showed profits, the big jump in sales lead to a $25,000 cash flow deficit. By the end of January 2002, the company was out of cash.

Note:

1. The cash flow deficit was not the result of any unusual event - it developed from the relationships that would impact Dan’s cash flow.
2. The deficit was a surprise to the owner (and maybe creditors?). He thought that a profitable operation meant positive cash flow. What is more important - profits or cash flow?

What Mr. Dapper forgot was that the income statement is an accrual statement - it records sales when they occur, not 30 days later, when the business collects the accounts receivable. In addition, expenses are accrued as incurred, although a company may pay those obligations later. Some expenses, such as depreciation and amortization of prepaid items, represent prior cash payments and this even adds more mystery (smoke) to the picture of cash flow - to creditors and the owner.

What Dan Dapper should have recognized in his cash flow is that:

1. A/R, the only source of cash for LIV-HI Inc., may turn (or may not turn) in an average of 30 days.
2. Dan bought $105,000 in inventory in December to meet January’s sales forecast and to maintain its credit rating, they had to pay in 30 days.
3. Dan pays all operating expense as incurred, with non-accrued for payment in the following month.

So with these facts in mind, Dan’s projected and actual cash flow for January would be

LIV-HI Inc., Cash Flow 1/1/01-1/31/01

• Beginning Cash (in bank) $ 10,000
• Collections (Dec. sales) 100,000
• Operating Expenses (30,000)
• Payments (December purchases) (105,000)
• Cash shortage $ (25,000)

Conclusion:

What appears to be a $15,000 profit for the month of January is a $25,000 cash flow deficit. The $40,000 difference emphasizes the difference between accrual and cash accounting.

Solving the Mystery:

Dan Dapper could have filled the funds gap with external financing, additional investment or accelerating collections of accounts receivable.

What is the Moral of the Story?

Credit managers beware: look for the “hidden card,” the smoke, the mirrors: watch the flow of cash!

This requires an understanding of, and direct involvement in, every aspect of the quote to cash process. Ultimately cash flow is affected by how well different parts of the organization work together. As any credit professional knows, the Aged Trial Balance is a window to all the upstream mistakes and successes in the order, delivery and collections cycle. It is essential to achieve an integrated process and organization structure supported by proactive systems and automation.

The credit professional is now much more than just a credit grantor. We must look beyond the Four C’s of Credit - Extension and consider how to be effective managers in a broader sense. For starters consider an additional “Five C’s of Credit - Management”.

The Five C’s of Credit Management:

· Customer interests are criticalUnderstand your customer’s needs. Spend time in the field with both customers and your sales people. Listen carefully. Use what you learn as a road map to specific areas needing improvement.

· Customer related processes and systems take priorityTake care of your customer first. Review and continuously improve all systems and processes connected directly to the customer. Efficient handling of these areas is a top priority. Benchmark competitors and ensure your company compares well.

· Coordinate and integrate for efficiency
Consider the downstream affect of each quote to cash step. The process chain starts when your sales people structure price and terms quotes and ends when undisputed cash payments are deposited and posted. If deals are too complex, they are hard to administer. This leads to more errors and exceptions. If processes and the organization are properly integrated, the result is shorter timelines, fewer exceptions and improved dispute management. That equates to improved Accounts Receivable and financial results.

· Compensation plans and incentives
Establish metrics defining successful performance for each of the quote to cash process steps. Everyone involved should have a clear view of individual and group goals. Goal achievement should directly impact compensation and incentives. Yes, this includes both sales and administrative operations.

· Cross-functional approach
Many parts of the organization impact payment delays, disputes and exception processing. Focusing on priority issues, the credit professional can initiate a cross-functional team approach to analyze and attack root causes.

Facilitate a cross-functional improvement process

As a credit manager you can take the lead in establishing an effective cross-functional improvement process. It is amazing how much can be accomplished. First, determine the key individuals who impact a problematic business process. Then organize and conduct a meeting of all involved. Focus on a well defined, priority, issue. Follow-up, communicate progress, implement changes and report results.

Process improvement teams can meet on an issue-by-issue basis or as standing cross-functional meetings. Ongoing meetings provide each department involved an opportunity to communicate new organization, process or systems initiatives that affect other areas. Regular meetings also provide a forum to focus on specific issues requiring cross-functional cooperation.

Following are thirteen ideas to help you take the first step towards a successful cross-functional improvement process:

· Inclusion - Include managers and stake holders from each area affected. For example, some complex issues require involvement by sales and marketing, customer service, operations, information technology and credit and collections.

· Ask for input - All invited should be asked to provide input on the agenda in advance. This is particularly relevant to standing meetings.

· Set priorities - If multiple issues are identified, get a consensus on the top three. Attack the number one first then number two etc.

· Clear communication - Once the agenda is complete; send it to all participants and senior management in advance. Be clear on the meeting’s objectives.

· Professional approach - Be sure the meeting room is well organized and prepared. How many times have you gone to a meeting where everyone showed up late, the door was locked, the room was freezing and there were no marker pens for the flip chart. Were you impressed?

Equipment such as PC’s, projectors, white boards and flip charts should be in the room in advance. Electrical equipment and PC connections should be tested before the meeting starts. Provide refreshments, particularly for meetings that exceed an hour. A well-prepared, professional meeting environment will yield professional results.

· One individual needs to be the facilitator - Take the initiative and do it. This is an excellent role for the Credit Manager with the unique perspective the position provides. The Credit Manager is one of few in the organization who has a sense of how it all ties together.

· Adhere to a schedule - Emphasize punctuality, allocate time slots for each topic, stick to the schedule and keep the discussion on the subject at hand. Remember, time is valuable. If you gain a reputation for running efficient meetings participants will be more willing to attend.

· Facilitate the discussion, seek input from all meeting attendees - The key here is to be fair and open. As the brainstorming progresses and ideas are presented, cut criticism short. A composite of ideas will result from the meeting that no one individual could have developed alone. This will only happen in a non-threatening atmosphere, where everyone feels comfortable with the interchange. Pride of authorship must be left outside the meeting room. If someone is quiet on a topic, ask for their opinion.

· The discussion must be action oriented - At the conclusion of the meeting, clearly define next steps. Assign responsibility. Set a time-line for completion of tasks.

· Review and summarize the meeting - Go over next step assignments one more time before adjournment. Loose ends will be identified and resolved at this stage.

· Set a next meeting date and time

· Make attendees accountable - Document actions and task assignments. Publish minutes. Be sure to copy management, at least one level up, in all relevant functional areas.

· Communicate success - Keep everyone posted on progress. Each success case will add credibility to your efforts and will increase continued support.

Summary

The “Five C’s of Credit Management” are critical to continuous improvement of each step in the quote to cash cycle. By being involved the Credit Manager enhances his or her value to the organization and becomes a leader in the company’s improvement process.

Errors and exceptions can be reduced, manual efforts can be automated and collections can be handled more efficiently. The resulting quote to cash time cycle reductions have a positive effect on cash flow, the balance sheet and operating expenses. Improvements in your company’s financial condition and improved customer satisfaction provide a competitive advantage in the marketplace.

The credit professional is in a unique position to orchestrate the cross-functional approach needed to bring these results.

The author, Paul Beretz, is Managing Director of Pacific Business Solutions, a company based in Alamo, CA, which identifies and implements strategic planning opportunities and cash flow improvement solutions. He shares his business experience in working through the business processes involved in ERP installations and upgrades with Fortune 100 companies. This article is taken from Paul’s presentation during the November 1999 FCIB Global conference in New York.

Have you found yourself in the position of being advised that your company is either installing or upgrading an ERP (Enterprise Resource Planning) application from a company such as SAP, Oracle, PeopleSoft, Baan, or JD Edwards? All of a sudden, you meet IT people from your company that you never saw before; consultants contact you and want to set up appointments; steering committee and action-group meetings are created to add to your already impossible meeting schedule: all the while, you are supposed to be managing your business and keeping staffing levels under control!

What are the various ways to manage the impact of the install or upgrade project in your department? How do you get your staff to maximize the features of the tool that is supposed to solve all your business process problems? How can you anticipate customizing issues that you may have to face? How do you keep your sanity? Most importantly, what are the post-install and upgrade solutions to issues that will maximize your opportunity for success?

Whether an Install or Upgrade, It Will Be a Long Trip

It would be a perfect world if you had the people with the combined qualities of both understanding your business processes and experience in all facets of an ERP cycle. What’s clearly evident in any installation or upgrade is that there is never the proper level of resource allocation or a clear identification of business requirements or comprehensive training programs that exist. Just as important, the best people in the department will be called upon to lead and be involved in the project.

Time management of the regular workload becomes critical - not just to achieve the business performance expectations, but to acknowledge the stress and morale problems that the ERP event creates. Experience shows that ERP, whether a first time installation or an upgrade to an existing system, is a time commitment of one year or more.

Additionally, without the confirmed buy-in and support from senior management, the project has little chance of being entirely successful. Throughout the entire project, remember that ERP is not just “new software”, it will change the way business is executed!

Who actually owns the ERP project? It should not be the IT (or IS) department. While they are critical to the success, it is the business unit who needs owners or “champions”. The magnitude and weight of the daily work activity that must continue while the ERP is underway usually suggests the need for a clear definition by phases of the project. Rather than trying a “Big Bang” approach (where the entire ERP and its applicable modules are scheduled for the same time delivery schedule), the total strategy should be scoped, with time lines, milestones, team structure and identified final deliverables. The Wall Street Journal carried a number of front-page stories during the past year related to the problems associated with trying to implement and execute completion of the entire order through delivery, finance and manufacturing cycle on the same date.

Establish an employee reward system that will be presented on completion of the project. It should be consistent with all departments - cash, stock and similar recognition. The awards should be given selectively to those who have gone “above and beyond” during the project phases.

What about your time commitment? Even if you are the director or manager of the department, plan to allocate 20 to 33 percent of your total time to the project. Do not make the mistake of delegating the leadership, for example, to a manager in finance who agrees to lead the A/R, A/R GL process - you will need to be pro-active as the manager of your specific discipline. Without an early, hands-on approach, you will not be equipped to recognize and understand the areas that break down or that require direction. At the onset of an initial ERP installation, I had worked long and hard with my staff to define what we needed for the proper accounts receivable aging report. However, I later learned that I did not get specific enough with the consultants and IT group. The result for the first six months following the installation was an aging that did not properly reflect cash or credits and brought unwanted attention to our group. In the early stages of the project, the manager needs to understand and document the business needs of the organization, emphasizing its strengths and weaknesses, both functional and informational. By working with the IT organization, project plans with specific design and implementation schedules should be agreed upon.

Building The Team And Planning Effective Communications

How do you select the right people? I have always sought out the busiest. These are the same people who will say “but I already have too many priorities!” You should be able to determine who they are in your own organization. What about those who will be assigned from IT or the major players in the other organizations that will interact with your function? Too often, the VP, director or manager initially gets involved but delegates to those who are not decision makers or to those who don’t have the level of dedication to liaise with your own group. The ERP process will transform your business and people’s careers. This is inclusive of how orders are taken, how invoices are generated, how collections are accomplished and what people want to do in the company after the project is completed.

Effective organization of the project means the team has to be identified by major stakeholders (e.g., business and IT project leaders, and one leader in each discipline finance, manufacturing, sales) with functional leads within each specific discipline. At this stage, specific resources - people who are technical experts - need to be identified and assigned roles in the project. The IT organization may have the right people in place, but it is more likely that outside contractor consultants will be hired to work with IT and the functional groups. I made it a requirement that my organization had input in the selection criteria of the consultants. I personally participated in interviewing prospective consultants to gauge their fit with my organization. As the team is developed, so are the communication vehicles, frequency of meetings, published minutes and most importantly, conveyed project status to management. As with the rest of our daily business activities, senior management wants no surprises whether they be in cost overruns or unanticipated resource needs. They will want specific dates for project phases, milestones and a clear understanding of the steps that lead to final implementation of the ERP.

Be sure to maintain an attitude of “over-communicating” to senior management so you can eliminate the uncomfortable need to explain unexpected events that will require their approval of more people and additional training dollars. By effectively communicating with your own group, IT and those organizations that impact your process will you have a chance to succeed. A well-planned initial “kick-off” meeting sets the proper tone. Responsibilities and roles are defined, cross functional issues are addressed, the lobbying for availability of a “war room” or separate testing facility begins and various reporting templates and forms for tracking issues are developed.

In addition, director-level team meetings, super-user meetings, and functional and track lead meetings are defined. Questions need answers. When will the cutover occur from the legacy system to the “new” system? What about date for completion on the business impact of the time of month or quarter? Consider rescheduling vacations and advising the staff of required weekend commitments, particularly in the testing phase. Always remember the regular production of current business information will be impacted. What about the effect on your overseas offices? Even if the project is in North America, don’t ignore the off-shore locations and bring them in at the end, especially if a world-wide ERP approach is in the cards at some future date.

Customizing Reports

You probably have customized reports in your system, whether you are already on ERP and upgrading or moving into the world of SAP, ORACLE, or PeopleSoft for the first time. How do you convert the reports that you “need” to run the business? Do you replicate everything or trash what you have because you believe that ERP will solve your problems? Most experienced implementers of systems recommend that you establish a list of all your customized reports and categorize them as “critical, need to have and don’t know.” Evaluate and question your staff on the content. Test the reports you currently utilize and don’t assume that customization will be available in the upgrade or install, or that it is cheap. This is a great opportunity to develop reporting improvements by combining and eliminating reports. This also means employing the management concept that avoids accepting responses such as “we’ve always had this report”. This is one of those times you’re paid to be a manager - don’t leave it to an individual or departmental vote to determine which reports stay or go. Use your judgment based on asking questions about the output and actual need for the report. Democratic principles do not always work in the world of effective management!

Testing, Testing and More Testing

Experts say that testing is probably the key to the outcome of a successful project. At the beginning, it may be difficult to get your IT group and your department together on defining the needs. Often, the tendency is for the business unit to abrogate responsibility and, by default, IT provides facets of the testing criteria. Do you want IT to determine that because a screen looks the same as before that it hasn’t changed?

Management support, at all levels is critical for the commitment to testing. The manager also has to be aware of the daily work requirements that will prevent a user from moving to the training room for the scheduled testing. An “Issues Tracking Logo” becomes a critical tool to determine how successful the testing process works. This report, which usually is developed with guidance of the IT group, indicates the status of each issue identified in the testing process, and can be traced by date, action and when it is closed.

Cathy Cakebread, a consultant who founded Agate Systems in San Mateo, CA, has an excellent approach to testing. She was a key developer in the original A/R module with Oracle more than a decade ago. She stresses two levels of testing in any ERP system: “Break It” and “Simulated Close”. “Break It” has two aspects, to confirm that the product works as expected and to try out the new features and ways of doing things in an uncontrolled environment. This means running every report, scenario and process until they work. This is where all interfaces should be tried.

All multi-step processes can be tested along with defining what a successful test is. The “Simulated Close” tests everything in a controlled setting replicating period end and validating reports and system interfaces while looking for glitches. The simulated close usually starts after you have identified and resolved all the bugs in the “Break It” test. It’s also an opportunity to determine the major basic reports you need to run your business. It is usually recommended to keep three to five in number. These reports will contain balance and transaction data so that the accuracy of the detail can be measured. Copy all the details and run the reports against the upgraded data. Compare results - they should be identical!

Report the Bugs

“Bugs” are those programming glitches that create user problems within the application. Often the manufacturer will catch the bug and issue a patch until a “new, improved” version is worked on. However, the user will recognize the bug and note the transactions and interfaces causing problems. Usually an astute IT organization will have a form available to log the problem. I’ve always been an advocate of assigning specific “exterminators” who are responsible to both log and track bugs in each business group. Once trained, the “exterminator” can log what, where and the situation or event that occurred when the bug was discovered. This process includes use of screen shots and examples of the problem. The IT organization should get a list of patches available from the ERP provider and check the known bugs and related patches, using the patches in a test environment only. As the business user, don’t ignore the bugs. They can create major production problems unless detected and reported early in the testing process.

Training

Start training early in the ERP process and understand that training needs to continue beyond the life of the ERP project. An effective ERP training program means dollar commitments as well as time and facility availability. All users, regardless of job level, need to schedule training time. Ideally, a “war room” has been previously designated with posted schedules. The time slots include access to specialists and consultants who know the program. Training in the branch offices can take on interesting dimensions.

Once, during an ERP installation in a company’s Asia Pacific office, it was discovered early in the process that despite the availability of personal computers on each desk, 50 percent of the staff did not have a basic understanding of the system - including how to turn the unit on. Needless to say, this put a severe crimp in the training plan! Consider creating your own training manual. This should encompass a write-up of the “big picture” so current and new users understand the scope of the project in addition to specifics about what screens are used in the department. Description of the modules that are to be implemented, with a list of in-house personnel support and consultants, should be shown.

An effective training program is future-oriented as well. It anticipates additional upgrades and enhancements that will undoubtedly take place. This means that the manager has to commit resources to ensure his or her staff makes adequate time for training throughout the year, even after an installation or upgrade is completed.

Are You Ready to Sign-off on The Project?

If you’ve ever wanted to feel like an NFL quarterback at a pressure-point in a football game, your opportunity will arrive along with the sign-off date. You are requested to acknowledge that everything works to your satisfaction in the ERP process.

Who do you trust? Have you completed enough testing and was it thorough? Has everyone been trained to your satisfaction? Have the other groups who impact your operation done their job so that the information and transaction flow will give you the data expected to run a better business? A final functional review of the components in your area is always appropriate prior to signing off. Make sure people are scheduled to begin the install or upgrade. Do not change variables. Use the same parameters that were used in the testing process. Compare results and don’t forget to run back-up reports.

Most importantly, celebrate! Plan an all-hands dinner, distribute t-shirts and meet with the other directors to determine how much, in the way of financial rewards, should be distributed. Publicize on the company Intranet. Get senior management involved and let them cook at a barbecue for the employees.

Life After the Installation or Upgrade of an ERP System

An enterprise re-source plan is just that, a plan. It is not so much a project, because it is never really finished. It’s a true journey, with constant change inclusive of upgrades, testing and people.

People will often want new assignments - returning to the “old” world of entering orders or calling customers for money may not be enough. Headhunters thrive in the post-world of ERP. Managers must prepare for the fact that they will likely lose people unless they keep them challenged. Many companies establish permanent ERP teams who assist in the process when acquisitions or overseas locations are at the stage of an install or upgrade. A national consulting firm recently said that companies should be ready for a drop in performance after an ERP project goes live. Their survey indicated one in four companies, 25 percent, could document a decline in individual and company performance. Why? Because everything is different now. What can be done to deal with the change in performance and to ensure that the company remains up to date in maximizing attributes of the system? Most of the ERP user companies belong to “User Groups”. Unfortunately, they tend to be driven by and directed toward technical folks. While the meetings deal with specific topics such as accounts receivable, the actual users who face the screen everyday, are poised to enter orders, collect money, schedule manufacturing and shipping. They have little or no exposure to these organizations.

In Northern California, I’ve had success in spearheading the formation of a Special Interest Group (SIG), specific to Oracle_the Bay Area Oracle Receivable User Group. By coordinating administration with the local Credit Managers Association, quarterly meetings are held, with the agenda determined by a volunteer steering committee composed of other local Oracle users. A key to success of the group is to locate a consultant willing to participate and who is knowledgeable of the modules.

Additionally, the vendor in this case also happens to be located in Northern California, which has resulted in participation by the ERP supplier. We have invited their developers and experts in the order through collect modules to participate in the meetings. There’s nothing like networking and sharing ideas with a group of companies who work with the same ERP tool. We’ve held six meetings since 1998, with as many as 98 people from 40 companies in attendance. Participants include credit and receivable managers, order administrators, general ledger and IT experts. When someone says “I can’t write notes on my screen for collection follow-up” and a user from a different company explains in 30 seconds how that activity works, the value of the organization is more than validated.

Topics have included how to use the various screens, reporting, forecasting, bolt-on reporting tools, e-commerce, cash application, credit tools, invoicing and billing. In general, the goal is to share “best practices” of the members to others who have the same ERP.

In summary, be committed to the ERP project or you may feel at some point as if you will need to “be committed”. Apply all those manager attributes to the project. Plan, lead, organize and control. Train, test and do more training and testing. Consider getting involved in a special interest user group. You are not alone!

If you are in Credit and Collections, you sell concepts to people within your company and to customers. Internally, policies, procedures and good business practices must be followed. Your sales staff must be continuously sold when a credit extension may be impossible, will require special conditions or cash in advance. Some sales people and customers must be sold on the idea that credit limits are not just advisory. They are intended to effectively manage your company’s risk.

Credit professionals sell customers on the expectation that terms must be adhered to and payment prompt, even when the customer is attempting to delay.

There is a pattern that successful sales people follow to close business. Collectors who follow a similar pattern can be successful. In summary:

• Be prepared with background information and anticipate objections.
• Know your goal: What is the end game
• State your value proposition
• Ask for a commitment
• Listen carefully to all objections
• Address each objection and offer a solution
• Ask for a commitment
• Resolve any additional objections
• Ask for a final commitment
• Know when to walk
• Once there is agreement: Verify both sides have the same understanding
• Make the other side feel good about the agreement then SHUT UP!
• Document results
• Make sure all commitments are met as agreed

Collectors should try the following approach to improve their success

Be prepared with documentation, understand the debtor’s account, payment history, history of disputes, financial status etc. Anticipate possible objections and have documents and an answer ready. If you are better prepared than the debtor, that is powerful and gives you the edge!

Know your goal and “assume the sale”.

You should have both a primary goal and your final position planned before the call is made. For example know the amount you want paid by a given date and the amount that must be paid by a date certain.

Assume you will get agreement, “assume the sale”. Have you ever met a successful salesperson who went into a sales call assuming the customer will say NO and they will leave empty handed? This will bring confidence to your voice. It will help you control the conversation.

State your value proposition.

What could the “value proposition” possibly be when a collector is demanding payment. First, your company most likely has a product or service providing profit opportunity for the debtor. The deal is outlined in a contract, purchase order or other agreement. This agreement included the price and terms of sale.

If your company kept its commitments it delivered on time, at the right place, with the right product or service. The product or service was invoiced accurately, to the right location, in a timely fashion. The terms, amount owing and remit to information are clearly stated on the invoice. If applicable, the EDI transmission was complete, timely and accurate.

You met all your commitments. All the debtor needs to do is meet one commitment. PAY Completely and immediately.

That is the value. Here is the proposition. If you, the debtor, pay on time, you continue to get our product and we can make profit together. If you do not pay as agreed our shipments or service will stop. We may then refer the matter to a third party collection agency or at some point litigate. In the event we have to take either of these actions, we will report our experience to our trade interchange group of industry peers, and trade credit data bases for use by other trade creditors in making their independent credit decisions.

The value proposition is continued product or service flow, profit and creditworthiness
The consequence of slow payment or non-payment can be catastrophic. In the end, it is all about alternatives and consequences.

Ask for a commitment

State clearly what you want from the debtor: Complete and Immediate Payment. Set an expectation. If the debtor clearly understands what you expect and why, it will focus the conversation and result in a focused and more structured response.

Then say nothing

The silence can be deafening. Wait as long as it takes for the debtor to speak. Whoever speaks is likely to make a concession or agree to the proposal. However, more objections may be identified.

Work through any and all objections

Remember, debtors tend to hide behind bushes. Think of yourself as armed with a chain saw and a weed wacker and go after every bush until the debtor has no where else to hide.

Listen to every word.

Effective listening can be far more important than what you say. Take notes and be prepared to address every objection. What is the root cause of the objection. Is it a customer issue or your company’s issue. Some objections may be “self-inflicted”. The debtor may be right!
Some objections are pure stalling tactics or may even signal serious and dangerous issues with the debtors credit worthiness. It is critical for these to be identified and dealt with quickly.

Separate the objections into two categories as you determine what actions to take:

Is the risk involved one of only delay in payment: need documents, short term cash flow issues etc.
Or is there a risk of loss. Will this end up as a bad debt: are there serious financial issues, have there been business reversals such as loss of the largest customer, fraud etc.

Determine what the “REAL” problem is.

So much collection effort is focused on the symptom not the issue. Get to the REAL problem or the underlying cause for slow payments. An invoice that is past-due is a symptom. There are many possible causes, ranging from legitimate disputes, to a debtor with serious financial stress.

Ask probing questions

A probing question is one that can not be answered yes or no. Think before you speak, formulate each question to force the debtor to tell you a story.

Then listen carefully.

Think of the following as an example of how asking probing questions can turn a yes or a no into a picture of what is really happening with the debtor:

D: “I can’t pay you this week” (a symptom not the problem)
C: Why can’t you pay me this week?”
D: “Because we are having cash flow issues”
C:What is causing your company to have cash flow issues?
D: “Our largest customer just filed chapter 11″
C: What is the financial impact on your company in the short, mid and long term?
D: In the short term we are not going to be paid a large portion of our A/R; in fact our bank is threatening to pull our credit line, in the mid-term we are seeking to restructure our bank debt and will continue doing business with our customer during the chapter 11 process. In the long term who knows.

Respond to every objection.

If the debtor needs an invoice copy send one, if the debtor can not pay in full, determine the maximum they can pay immediately.

Ask for a commitment once all the objections have been discussed.

Always remember your goals, what you ask for and what you have to have.

Be prepared to say NO. Know your point of no trespass.

If there are additional objections, start the weed whacking process again. Focus on the easy issues first and try to gain resolution. This establishes a record of success. From the simpler issues work towards the harder more contentious ones. Many times, the resolution of less complex issues chips away or eliminates issues that seemed insurmountable at the beginning of the conversation.

This track record of success will help if you reach an impasse. You explain, “We have made so much progress today. Certainly we can get through the rest of this together too. Remember your value proposition!

If you are at an impasse and the conversation becomes circular or is not going your way, make an excuse to take a break. After cups of coffee and a lengthy discussion this doesn’t take a lot of imagination and can be quite effective. A break in the discussion allows time for emotions to subside. It provides time to regroup.

Reengage and go back through the open issues. Try to break the hard issues into chewable bites.
Example D:”Even after you issue all the credit due my company I can’t pay the remaining balance this week”
C: How much can you pay or I expect at least $_____ this week.
D: Nothing can be paid this week.
C: OK let’s talk about a payment arrangement. I can accept payment over then next 90 days with an interest bearing Promissory note spelling out the details. All new shipments will be cash in advance. Let’s start with the first third the 1st of next month.
D: I agree to a 90 day payment arrangement. However, I can not start until the 15th of next month. I want normal credit terms on new shipments.
D: The 15th of next month is an acceptable start date but the debt must be paid in full no later than 60 days from that date. We must ship cash in advance for new shipments. I will review the situation after the first payment is received and with additional facts we may be able to negotiate resumption of normal terms. Etc.

Ask again for a commitment.

State clearly what you want from the debtor and what you have agreed to do. Then pause and be silent.

Once there is an agreement: Restate what actions you are responsible for and ask the debtor to restate their actions and responsibilities.

Listen again

Many times there is a disconnection between your understanding of the verbal arrangement and the debtors understanding. Restate your understanding and clear up any differences. Repeat the process until both sides are clear and in agreement. Then it is important to assure the debtor that the agreement is good for both parties.

Then SHUT UP! Don’t say another word, don’t open up any issues, and don’t say anything that will start the negotiation over again. Good Sales people know many deals are lost at this stage.

Document the agreement.

Depending on the magnitude of the issue and history with the debtor, send a written confirmation. This could be as simple as an email or may be best with a formal letter.

Update your debtor notes and if appropriate complete a “letter-to-file” detailing the issues and agreement.

Mark your calendar to include all commitments that you and the debtor made.

Meet your commitments. Do what you said you would do on time. Follow-up with the debtor on the day you said you would. If you have communicated an expectation and then do not follow through, you have just lowered the bar and have lost credibility.

In summary: There are great similarities between the approach taken by successful sales people and collectors. Both are trying to state clearly to the customer, their value proposition or offering. They listen for objections, address them systematically and then ask for a commitment. Once the commitment has been obtained, they reassure the other party the deal was a good one. Files are updated and if appropriate they send confirming correspondence.

If collectors take similar steps to “sell” what they need and expect to both internal and external customers, results will follow.

As busy as we all are, it is hard to plan and take action towards our professional development. However, plan and act we must. If you don’t plan for the future any progress made is probably by accident.

When it comes to professional planning and development, two things come to mind. First, every CMA member should be aware of the ongoing efforts of the CMA to provide better services, networking opportunities and information. Secondly, the Western Regional Conference in Anaheim this September 24-26 provides great opportunities for those planning to grow their professional skills and knowledge.

The CMA Board of Directors has been actively working on the CMA’s strategic planning process. We recently conducted a weekend retreat where the Board and CMA management focused on the CMA’s Strategic Plan and the four broad initiatives it contains:

• Leveraging technology to increase the value of CMA services
• Maximize and communicate the value of the credit profession
• Improve credit group services
• Promote the education and certification of credit professionals

The most exciting thing about implementing the CMA Strategic Plan is the high level of involvement by CMA staff. Staff activities are being fully integrated into the plan’s objectives using a “Balanced Score Card”. This will establish specific staff priorities and goals to meet plan objectives. It is amazing the progress made to date on goals we set last year.

As a Board participant I can tell you a lion’s share of Board activity is spent on planning for the future. As you can imagine, there are many specific projects underway to accomplish the initiatives, each of which will expand the services and value provided by CMA. If you are interested in participating please contact either your group secretary or any Board member.

Now think about how the Western Regional Conference can help you. What are you doing to plan for your future as a credit professional? Too busy? In the long run this can be a major mistake that can limit your job scope and income potential.

The Western Region Conference offers an accessible opportunity to turn plans for future career growth into action. However, to participate requires each of us to set our own growth as a priority. We need to break out of our already busy lives to set the time aside to go.

In going through the thought process on whether to attend a conference, many people find it easier to think about the reasons why not to go. Taking the lead from a favorite night show host of mine, I thought it might help to list the Top Ten Reasons why NOT to go to the Western Region Conference.

So here they are. The Top Ten Reasons why NOT to go to the Western Region Conference:

10. I checked the Almanac and it might rain in Anaheim on September 24th through the 26th.
9. If I attend I may have to learn about products and services that may help my company address credit and collection issues. I’d have to buy a new pair of walking shoes to take advantage of the vendor display area.
8. If I leave the office they may lock the door and not let me back in.
7. Where is Anaheim anyway?
6. I know everything there is to know now about credit, collections and legal issues affecting my daily responsibilities and industry practices.
5. Who wants to network with other people that do what I do?
4. If I go my family may want to come along and actually go to some of the many tourist attractions in the area. Being at the office beats that.
3. My boss thinks I’m perfect just the way I am.
2. Credit and collection challenges? Who has challenges?
1. I like my current job, income and job security just the way they are.

The top reason why you should go to the Western Region Conference is obvious. Plan your future as a credit professional, act on your plans and improve your chances of success.

I hope to see you at the Western Regional Conference.

As a credit management consultant and trainer I have the opportunity to meet credit professionals at all levels in many different companies and industries. They all seem to have at least several things in common. There are too many priorities, too few resources and a lot more to do than time available in a normal workweek. Sound familiar?

Part of the problem is just how to balance priorities that seem to constantly change. According to the Webster’s Dictionary, the word “priority” is based on the Latin word “pri” meaning first, preceding in order, time or importance and “ordo” meaning a straight row, a regular series.” A priority therefore is the first thing that needs to be done.

The challenge is to have a plan on how to approach and order multiple priorities so the right things get accomplished first. The real difficulty comes when something that seems to be the top priority one minute is overshadowed by a new problem that seems to take precedence the next. Your day is planned until your boss walks in with the first fire drill.

Credit professionals today have a much deeper problem than just priority setting. We have to deal with multiple constituents as well. There is your boss, sales, operations, customer service and of course the customer. If you supervise a staff add that responsibility and of course there is family. How do we establish our value to the organization and manage all these competing priorities and constituents.

In his book “The Seven Habits of Highly Effective People” Stephen R. Covey starts with the concept that in the end, the only person you can control is yourself. It is up to you to take responsibility to develop your capabilities and exercise the effective habits necessary to become successful.

It all starts with perceptions. For a credit professional, the perceptions we have of our supervisors, workplace, and co- workers determine how we approach our jobs and appear to others. We each have the ability to rethink our habitual perceptions and as Covey puts it, “change the paradigm”, our interpretation of the world around us.

Covy suggests the following seven habits:

Be proactive:

Make your own choices on how to respond to a business decision or challenge. Take responsibility for your own actions. Do not be reactive. Let your own values drive your decisions. Too many times we can be influenced by the opinion of others and lose sight of our own values and our value to our company. A credit professional’s value starts with the ability to make independent well informed decisions rapidly.

Begin with the end in mind.

All things are created twice. First determine what you want to accomplish, and then create a plan to get there. By focusing on what you want to accomplish first you can be a leader. Covey uses an example of a group charged with the task of cutting a new trail through a dense jungle. The leader is the one who climbs the tree and announces to the group, this is the wrong jungle while the others are heads down drawing plans and starting to chop their way through. It doesn’t matter how hard you work if you are in the wrong jungle.

Stay informed on business conditions and new techniques affecting your job responsibilities.

Organize Your Time Around Your Priorities.

Practice good time management. What is really important? How urgent is an issue? Does it require your immediate attention? Top priorities are both important and urgent. Some things are important but not urgent and some things may seem urgent but are not really important. Look at the work on your desk. Are you spending a lot of time on things that seem urgent but are really not?

Think Win Win.

Your success in any business interaction should not be at the cost of someone else’s success. Do not feel that the only way you can succeed is by “beating” the other person. This could give you a shallow victory in one situation but create bad will going into the next. This concept applies to negotiations with customers as well as how you deal with your boss, coworkers and subordinates.

Realize that sometimes no “deal” is possible and both parties are better off just agreeing to walk away.

Seek First to Understand, Then to be Understood.

See the solution to a problem from the other person’s point of view. This will give you a new perspective on your viewpoint. It will also help you better communicate your concerns, priorities and solutions. Listen first with the intent to understand, not just to convince the other person. Don’t fall into the trap of proposing a solution before you understand the situation. Covey calls this empathic listening. You are giving the other person “psychological air”. By listening first, you enable others to get their points across and create an atmosphere of trust. There is an old saying, “We have two ears and one mouth. Listen twice as much as you speak”

Synergize.

This is based on the concept that the whole is greater than the sum of its parts. Creative cooperation will bring the best results. Often times your role in tough business situations is to initiate new alternatives that did not exist before. This is where you as a credit professional can bring real value to your company. You can provide insight and alternatives through professional training along with access to useful resources and information.

Take Time to Sharpen the Saw.

Covey uses the example of a person who observes a neighbor sawing down a tree. The neighbor looks totally exhausted and has made little progress over several hours. The observer suggests the neighbor stop for a few minutes to sharpen the saw. The reaction is “I don’t have time to stop, I am too busy sawing”.

Take time to sharpen your saw. This makes all the other six habits possible.

Covey explains there are four dimensions of these seven habits of highly successful people. He suggests you work on each of these an hour a day, every day.

All four of the following dimensions are interrelated. Anything you do in one area has an impact on the others. Work on all four dimensions in a balanced way.

• Physical: Take the time to eat right and exercise
• Spiritual: Evaluate your end goals, principles, and your personal “mission statement”. Continually renew a commitment to your personal values. Take time when you are off work to recharge your batteries with personal activities and family.
• Mental: Write down the issues at hand and prioritize. Keep on top of your professional game, read, attend training, and take advantage of networking opportunities to learn from others.
• Social Emotional: See relationships as win win. Understand others first, be empathetic, strive for synergy.

Each of the points raised in Covey’s book are leads into how the CMA can help you as a credit professional. Our decision making process is based on our own principles and frame of reference. To be effective we first must be well informed and well networked with people who are both informed and networked. The CMA is a great conduit to these things through its various services, trade groups and www.anscers.com Encyclopedia of Credit and Community Bulletin Board.

The seven habits above may seem utopian or theoretical in the midst of our busy work day and pressures. Remember however that these are the habits of “highly effective people” not “highly ineffective people” Do the things that less successful people avoid doing. This is a journey you will never finish.

They say a truly honest man is one you can play craps with over the phone. Today’s headlines make us wonder where the honest people in business have gone.

We are all familiar with the basic facts surrounding the Martha Stewart case. If you are like me, you found her recent conviction on all charges both startling and baffling. How could someone so revered and trusted in the public eye suddenly be convicted of crimes of deception. Why would she risk so much for a relatively small gain.

More importantly, what lessons can we take from this to our daily life as a credit professional? Who can you trust? How can the CMA help?

There are many lessons here and they are more relevant today than anytime in the past.

Why Should I Care?

The National Association of Credit Management (NACM) Asset Protection Group (APG) estimates the following costs of fraud in the U.S.:

• Business identity theft grew 70% from June 2002 to June 2003.
• Suppliers take in more than $18 billion in bad checks annually.
• Fraud cost American companies $400 billion in 2003.
• The U.S. Chamber of Commerce reports that $50 billion is lost annually due to employee theft and fraud.

Do you really know what the cost is for your company?

What is Fraud?

Fraud comes in many forms. It can be an internal issue precipitated by a trusted employee, or committed by an organization or individual purchasing your company’s products or services. Fraud occurs when the perpetrator intentionally misleads the offended party into a false sense of confidence. (i.e. “con”) Once a fraud is discovered, it is typically of great surprise to the victim. It is typically the employee you least expect or a company you trust. As a result there is lax adherence to the processes and controls that can effectively deter fraud. The door is open.

Even more alarming is the extent that fraud may occur under our nose and it is not discovered. For example, does your company have appropriate internal controls? When a debtor files for bankruptcy protection do you pursue the debt through the bankruptcy process or, is your company writing off balances where deliberate fraud may have occurred? Does your company pursue small balances or, do you have a threshold under which you just write-off the balance, with no efforts to collect? These policies may seem like the most practical approach to an overworked and understaffed organization, but are they inviting the opportunity for your company to become a victim?

Aside from check, or credit card fraud, there are three categories of fraud of premier importance to the credit professional:

Organizational identity theft: The perpetrator assumes the identity of a legitimate company.

A “Shell” Company:A shell company may have a website, sophisticated promotional materials, be registered as a business, have a telephone listing with directory assistance, provide fake bank and trade references and can be found on credit reports based on false information they provide. Once they have established credit with the victim company and receive product, they close their doors and disappear, bills unpaid.

“Bust Out”:The perpetrators seek to establish a significant credit relationship with victim companies. They may either acquire a company with a good reputation or start a new company. A target could be a family business being sold after the retirement or death of the long term owner. The product line changes to goods that are easily sold. This has been made easier in recent years with the coming of on-line auction services. Products sold may have no relation to the traditional business of the company or its name.

Months may go by. Product is ordered, bills are paid. Then a large order is placed, shipped and billed. You guessed it, the debtor disappears.

How do Seemingly Honorable People Commit Fraud and Get Away With It?

The “Three E’s”: Error, Ego and Economics give insight into how fraud is allowed to happen. What motivates an individual to commit a fraudulent act, even if, from an outward appearance, it seems unlikely they would do so?

Errors Enabling Fraud

To “Error” is human. People in business make mistakes. Decision making is about choosing among alternatives and taking risks. In today’s fast paced environment choices have to be made rapidly, sometimes with minimal time for research and thought.

The credit decision making process can either prevent or open up the possibility of fraud.An honest mistake is one thing. However an ill informed mistake could cost you your credibility and even your job. It is more important than ever to be honest about what you do and don’t know. If needed, seek out reliable resources that can rapidly keep you informed. The CMA Trade Credit Groups and Anscers are available to help you. On-line Requests for Information, “RFI’s”, give you immediate access to your industry peers to clear accounts. The Encyclopedia can help you keep informed. The Community Bulletin Board offers you an opportunity to post questions and receive immediate advice and comparative approaches from other credit professionals.

Credit professionals today have a serious dilemma. On the one hand there is tremendous pressure to help our companies build market share and increase revenues. On the other hand, we must manage reasonable risk with minimal staff and resources.

Fraud is facilitated by the perpetrator’s knowledge of these pressures. They also know many creditors are not trained to recognize the danger signs for fraud.

In today’s competitive environment, credit decisions commonly focus on three elements: the financial viability of a debtor, the documentation provided and the projected revenue stream expected from sales to the debtor. The fraud victim may not take the time or have adequate processes to confirm either the accuracy of the information provided, or the honesty of the debtor. This opens the door for a fraudulent debtor to alter information sufficiently to secure credit approval. Unfortunately credit professionals must maintain a healthy degree of skepticism toward a new or problematic customer and any information they provide.

The second “E” is “Ego”. This can blind us from the facts and consequences of our actions. “Ego” oriented decisions are relevant to credit professionals from two perspectives. Don’t let your ego get in the way of a tough decision. It is a changing world out there. Realize the facts may change surrounding a position you have taken on an issue in the past. The circumstances may have changed for a debtor company you have supported. Step up to the facts at hand and do the right thing.

Also, watch out for principals of customer companies who let their “Ego” get in the way. The executives now being tried and convicted for their misdeeds are poster children for this one.

I once sold to a medium sized distribution company with an owner who felt he had the magic touch. After some successes he started buying smaller competitors with borrowed money. He felt he could do no wrong. Well, the obvious happened. He made some bad choices, couldn’t meet his obligations and filed Chapter 7. His decisions were blinded by his “Ego”.

The third motivator is “Economics”.The desire for personal gain along with a blinding ego is a great formula for deceptive business practices and fraud. WC Fields once said, “A rich man is nothing but a poor man with money.” Don’t let someone in expensive clothes, an elaborate office, or a seemingly prestigious company deceive you.

Unfortunately, the recent conviction of Martha Stewart and other top executives is an example of a growing problem in business today. Business fraud is something all of us will face at some time in our career. It could manifest itself as check fraud, a misstatement of a company’s financial status, a break out operation, a catastrophic embezzlement by a trusted employee or in many other forms. We have to be constantly on the look out and aware of when a fraud is a possibility.

The “Triangle of Fraud” helps explain how a fraud friendly environment can exist.

On one side of the triangle is “Pressure”. This can be economic pressure, an individual or company has desperate financial problems. Perhaps an individual or a family member has severe health problems, a substance abuse issue or gambling debts. This leads to the pressure needed to motivate, even apparently honest people, towards fraud.

The second side of the triangle is “Rationalization”. “My company is small and I am defrauding a large company. Anything I get from them will be immaterial.” Or, “I will just do this once and never again”, or “just once more and never again.”

For fraud to be successful, “Pressure” and”Rationalization” must rest on a base of “Opportunity”. There is “Opportunity” for fraud and deception when a company has lax controls, no checks and balances, or bases credit and collection policies on a belief the “unbelievable” will never happen.

This is another inherent value to the CMA. The CMA is your professional association. It is an organization that is in the game for YOU. It provides access to timely information to keep you informed. Comparison among your peers on “best practices”, the Lien Filing Services, the Collection Division and the Adjustment Bureau can all help you keep informed and swiftly react to the growing fraud issue.

CMA Business Credit Services is managed for and by credit professionals to provide a credible resource. This will not eliminate those situations when the “unbelievable” happens, but it will provide you the best tools available to minimize the impact on you and your company.