Credit Where Due

Accent the Positive

Leaven negative news in financial reports with a thorough analysis that includes solutions and deserved praise. BY JOHN SLOAN

“The single biggest problem in communication is the illusion that it has taken place.” – George Bernard Shaw

In Greek mythology Cassandra was a princess of Troy and was cursed with the gift of uttering prophecies that were always true but which no one believed.

She was seen as a liar and always the bearer of bad news. As a result, her prophecies were ignored

Credit professionals run the risk of becoming modern day Cassandras in that many times the events that they must communicate to management are negative. Over time some may fall into the habit of communicating only unfavorable news. If the only communication with sales or operational management is of that nature, then the recipients may want to avoid the messenger and/or ignore the message.

The key to effective credit and collection communication is to establish a number of mutually agreed upon key metrics with management, create attainable goals and report on them periodically.

What should a receivable report contain?

Below is a partial list of items, the top six of which are essential: 1. Actual days sales outstanding (DSO), compared with the target DSO; 2. Year-to-date average DSO versus the average target DSO; 3. Current aging with percentages versus last month and the same month last year; 4. Actual collections versus targeted collections for the month; 5. Year-to-date actual versus targeted collections; 6. A list of the largest past due accounts (60 or 90 days); 7. A list of bad debt write-offs (if any) for the month with the reason; 8. Year-to-date bad debt write-off amounts; 9. Year-to-date invoice adjustment amount; 10. The number of new credit customers reviewed and approved/disapproved in the previous month; 11. A list of the largest outstanding discrepancies.

The report can include other receivable measurements but should not be longer than one page. Charts showing historical DSO trends, actual versus targeted collections or other evaluations will make the report more readable and interesting to nonfinancial people. (For tips on setting

realistic and achievable collection targets please see my “Credit Where Due” column in the July/August 2018 issue of TFM.)

The manner in which the contents of the report are communicated is as important as the report itself. Set up a meeting with the recipients to discuss the report’s contents. If an in-person meeting is not possible, then video or phone discussions are an acceptable alternative.

The importance of an in-person meeting cannot be overemphasized. It allows you to leaven the negative portions of the report with some positive results and solutions to resolve challenging issues.

For example, if there is a negative trend in DSO, or if the collection target is not met because of discrepancies with a specific customer, then concrete actions can be proposed to correct the issue. If sales department assistance is required to hit on the right course of action, then a plan can be formulated within the meeting.

If it is simply not possible to meet with sales and operational management in person then the report should be sent with a written narrative that highlights the positive aspects of the report and sets forth specific actions necessary to correct any negative trends that may be in it. The written narrative can also be distributed to the entire sales team so that they are fully aware of problems and successes. Regardless of whether the report is delivered in person or with a written narrative, if it contains positive results that occurred because of actions taken by non-credit personnel, then that individual or individuals should be recognized and praised. For example, if collections were increased because a salesperson or sales assistant resolved a large discrepancy, then bringing that to the attention of management will go a long way in obtaining that individual’s assistance in the future. A portion of the narrative should also focus on the targets for the upcoming month and specific areas where assistance may be needed to accomplish the goals. Mention specific advertisers and agencies that will drive the results. This is particularly important if one is experiencing collection difficulties or if large amounts are discrepant.

A concise, positive monthly receivable report is an opportunity to highlight successes as well to communicate news that is unfavorable. Credit managers need to make it an essential part of their overall communication strategy.

The manner in which the contents of the report are communicated is as important as the report itself.

John Sloan is a former executive director of credit services for Turner Broadcasting System. He can be reached at john_sloan23@yahoo.com.