Saturday, October 13, 2007

My Reality vs. Your Reality

Each week, I write my entry based on conversations I had during the week with colleagues. I am always amazed how some entries create a flurry of responses and others go completely unnoticed. Last week’s entry created a wealth of feedback. I received everything from; “You don’t know the reality of the situation.” to “You hit it right on the money.” It was for this reason I wasn’t too hasty in adding another entry; I was hoping to purge the remaining thoughts from those who had something to say.

I am really pleased there are people in cyberspace who take the time to read my entries and more so to comment. Although they don’t comment in the public forum, which could trigger a debate, they do comment. This week I thought I would explore the feedback from those who took the position that, “I don’t understand the reality of the situation.”

Reality is one of those words with a very illusive meaning. Webster, in trying to give us meanings for words, tends to become largely circular with the word reality. The first step in the definition takes us to the word real. From there, real is something pertaining to fact and fact is ostensibly apparent. Reality, for me, also has a definition that my colleagues forced out of me when I was working in public accounting. Which somewhat parallels that of Descartes. However, with all of that said; reality is what is apparent. Taking this back to our situation of those receivables that have gained antique status; the reality is: some receivables do. That is it!

However, that can’t be it! That must not be it! That shouldn’t be it! If you take that position, then you have hit the road of complacency. If that is the moniker you wish to attach to yourself. So be it! However, those who were willing to push the card just a bit further, to ask the question … why? And then, why not? Those are the people able to create a new reality! However for many of us, we continue to perpetuate our existing reality. I don’t believe this perpetuation of bad habits is a result of laziness; it is simply the act of not ‘pushing the card’ enough or not knowing the direction in which to push.

Today’s professional services practices manage accounts receivable the way they have always managed accounts receivable. I believe it stems from an early time where professional services were a noble profession and asking for money was considered to be taboo. As sole proprietors banded together to form partnerships the philosophy stayed. I have spoken with many professional service firms that still believe that the ‘client’s will pay’, and that asking for payment was taboo. I recall a partner from a CPA firm in New York, who said, delinquent receivables is fine. The client will need audit and tax work soon enough, and then they will pay the outstanding bill. To that I responded, what happens if they simply change firms, then what? The look on the man’s face was definitely something to be captured. The firm worked on the premise the client will come back, so there really isn’t a problem. Law firms are no different. They ‘push’ and then they become complacent, someone assuming the belief that if the client has some ‘space’ they will have some divine revelation and then pay.

The problem with today’s firm is they are suffering with internal turmoil; they want to change but they want to maintain the status quo. More often than not, status quo – wins! Allow me to share a story, which screams how status quo wins. One of my favorite firms, a national firm, grew fairly large through acquisition. What they are left with is many cultures loosely attached to the main office. The firm has a central collections group that handles about 50% of the receivables. The firm has a national managing partner and each office has a managing partner. The collections group, as best as I can see, runs hundreds of reports each month. However, to demonstrate the perpetuation of status quo, in 2007 the firm set high expectations for cash receipts and has fallen short each month for one reason or another. Now they are into their year-end push. Oh this time, the collections manager is going into retirement. Without a specific retirement day set, the firm began recruiting. After several months, they settled in on a candidate. A top collections candidate! This person brought 25+ years experience in areas of risk management and collections, a true professional. With the new candidate set to start September 17th, the firm decided that the retiring collections manager should stay on until December 31st, to help transition the person in. The reason, although the new manager is a top grade professional, “he doesn’t know how to deal with attorneys and legal collections”. Therein is the first step down the status quo road. As I see it, the new candidate would bring in a new perspective. However, the transition stage will indoctrinate them into ‘status quo’.

I recall a similar situation from the late 1990’s, where one such professional collector started in a Texas based law firm. She was ready to take on the world; she knew credit and collections and was ready to make a change! A few months after our meeting, we were talking and she shared that the firm wanted her to be more of a reporting machine than a collector. I told her that she had difficult choices to make, starting with where her career was going to go. Needless to say, passion shone through and she left the firm! In both of these situations, and I have many more examples, firms have the opportunity to redefine receivables management in the legal sphere. Instead, they choose –status quo.

It is time that firms really look to change, if they want it. Now that billing rates have hit $1,000 per hour, one must question why. Is it because the value of the service that has driven the rate, Keynesian economics? Or, is it simply the dilution of collections realization that has taken its toll? I would like to close with an excerpt of an email I received from a friend who is a true professional collector. We have since spoken about my blog and she has agreed to an interview. Hopefully her perspective will reshape professional service reality, if not seed thoughts of a new reality.

“Someday, I want to hear about the legal side of collections…from what I’m getting…it doesn’t sound like there is a SOP in place…just collection efforts… willy nilly. Am I understanding this correctly? In a manufacturing environment there are procedures…material ships/services rendered, invoice generates with payment terms noted, collection calls begin 10 days after due date (or as close to that time as possible). If our efforts do not result in success, we will hold future orders or do no further work until an agreement has been made for settlement. If this doesn’t work…personal visit …could be by sales rep and/or me. Still not working, demand letter detailing our legal intentions if payment is not received within a 10 day time period. This usually works…less than 1% (sales) written off to bad debt…legal environment does not seem to be as simple…but why couldn’t it be? Certain protocols & ethics in volved? Just curious…we could have this conversation later …just puzzles me”…

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