The Monogement of Credir

(Continued, lrom Page 2) amount of $30,000.00. The dealer's mark was, "There goes my profits a yeat.

He was another business man blinded by the pressures from consumers for easy credit. He had ir.radequate control o{ his credit selling function.

The purpose of being in business is to make profits. Writing off bad debts writes off profits.

Danger Signals

\Arithout controls, credit department outstandings can easily pyramid to the point where it becomes necessary to dip into reserves, as many retailers in as many different types of industries have had to do. It is peculiar to me that so many retailers I have assisted in the last decade are more intent on making a sale (cash or credit) than they are in finding out when they can expect payment. What good is a customer without his money? Wouldn't it be more profitable to make a sale, thenwrite up the sales ticket and quote the full amount of charge and solicit cash payment and let the customer ask for credit?

A cash sale is a completed sale. In my opinion, a credit sale isa fictitious sale posted to a ledger card or ledger sheet, a sale to be completed sometime in the future.

Accounts receivable outstanding should never be more than I to lrl times the total monthly charge sales. Statements should be mailed every month as soon as the receivable ledgers are closed.

Immediately following the statement mailing, all receivables that reveal a balance, or any part of the balance 30. 60, 90 and o.'ei g0 days delinquent should be properly aged. If you are not ageing receivables every month, you should. There is a definite loss ratio of dollars to delineuency. What better way is there to determine the status quo of your invested clollars ?

A 30 day account is 30 days delinquent if not paid in full by the end of the following month, if you close at the end of the last day of each calendar month. If, for example, you close earlier-the 2sth-that date isto be considered the end of the month.

Accounts receivable in the average building supply outlet should tuin over no less than 80 to 85% each month. This includes those accounts being carried until completion of a building project. perhaps to be paid off with a bank improvement loan.

Believe it or not, there are dealers rvith over 60/. of their receivables delinquent. In my opinion, a dealer is treading on thin ice if he allows such a condition to exist. Retail and consumer credit is most sensitive to shifts in the national econolny. Credit men know that our nation is healthy financially as long as our national economy stays far enough ahead of the total debt load carried by the American consumer. It's anybody's guess what would. happen in the event of a recesston.

There is a right and a wrong way to grant credit and collect receivables. During my professional career I have been amazed at the little regard for public relations existing among retailers I have been asked to assist. The sales force grants the credit, and everyone side-steDs the collection work in191ved in any credit sales program. Finally, the dealer becomes -hard pressed for cash. He decides to collect some of his outstanding money. He calls on his sales force to go out and collect. In fact, he joins them. Unless they are all skilled in sucl-r matters, and I find far too many of them untrained in the area of "catching more flies with sugar than with vinegar," this effort can only result in destroying good will that cost the dealer so dearly to build up among his customers.

If a merchant wants to use his sales force to collect his accounts, he should hire experienced credit men and collectors and train them to be salespeople. It is easier than training sales personnel to collect, because the natural bent of the average sales person is sales, not collections. Too many lack, the training. tact an<1 diplomacy needed to deal with a customei unable to pay. The majority of customers do not like a collector calling by phone or at the door. If the debtor is l-rard pressed for money, his resentment is tripled. He is usually emotionally distrrrbed and seldom forqets the inciderr t.

Another rvrong u'ay to collect is often used when a customer comes in to pay a bill. One of the office personnel. inexperienced in credit departrnent cashiering, steps up arrd asks, "Ho.iv much clo you want to pav ? "This, in my opinion, is like sayir.rg, "You don't have to pay the bill if yorr dor.r't rvant to." Why encourage a debtor to pay less than the balance u'hen it's iust as easy to ask for the balance, iniluding any current charges reflected on the customer's ledger. Ask for it all, and take what you get.

Credit Merchandising vs. Discount Houses

Although the discount house has already made a lasting imprint on American retailing, the average credit merchant seems to plod along with no serious effects on his credit buying trade.

Cash and carry selling techniques aren't new, only some of the methods. Serve-yourself and cash-take merchandising has been a part of our national distribution scheme for manv vears.

Building supply dealers on the West

Coast have asked me for an opinion as to what effect disconnters are going to have on their trade. I'll admit that the influx of cash and carry discounters has. surely caused many retailers in various areas to re-examine their nrethods of doing business. The old time "dyed-in-the-wool" merchant is probably most affected since he always has found it difficult to change his philosophy of doing business from time to time.

If a "cash and carry" discounter opens up in your trade area, it is difficult for me to believe that he u'ill not gain acceptance from the public. The building material dealer carrying a line of hardware, paints, etc. will be affected. Small easy-to-carrv items rvill be bo,ught from the discount house, especially by the do-it-yourselfer if he can bry from them evenings and Sundays.

Larger items of merchandise, such as quantities of lumber, will not only be more difficult to haul arvav. but will cost more in many cases than the customer has the ready cash for. There are more credit buyers than cash buyers. Consequently, a systematic credit operation that invites good credit business to your store is, in my opinion, an excellent way to compete.

Among the multitudes of credit buyers, most are installment buyers. X{any types of installment accounts can be offered the credit buyers in your trade area. Budget accounts, revolving accounts and contract accounts can be exploited, provided adequate controls are established.

I have been in discount houses that appeared t,o be run by "hot shot" prornoters. Certain loss leaders were offered. Sales "gimmicks" were obvious, plenty of parking space was available, salespeople were friendly and courteous, and an air of informality \\'as e\rerywhere. I have visited several tluring the week and sarv few customers as compared to Sunday when I returned. They have no patellts on their sales promotion schemes. It might be well to learn some new ar.rgles from them.

Credit Managers Have Many Jobs

The resoonsibilities of the credit department are many. Trained credit managers sh'ould be able to assume duties directly related to sales, advertising, and to gain and maintain the cooperation of the staff. In the small operation duties may include office manag'ement, bookkeeping and accounting. They should have enough ability to take a leading part in all issues pertaining to the economic structure of the business.

If they are not trained to become staff executives they should be given that training. I have met far too many owners and managers with a natural

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