Monday, November 26, 2007

Your Political Correctness is Upsetting My Freedom

Anyone living in the U.S. will know today, Monday November 26, is a very significant day. Today is the day that retail outlets post the outcome of “Black” Friday, the day after Thanksgiving Day. Over recent years the economic barometer has been carried by

Wal-Mart. If the Big Box retailer said Black Friday was great, the economy rages forward, if not, it tanks. How this day ritual came about is probably lost in the annals of time. I hope that every collector out there will be eagerly awaiting the release of this very important information, as it will shape your year end.

As I await the outcome of what is in essence consumer confidence in the economy, two thoughts run through my mind. First and foremost, what the outcome will be – boom or bust. (I already have a fair idea where the gavel will fall). However, the second thought is how it will be presented; will they call it “Black” Friday? One thing I have always known is you can always get what you want if you make infinitesimally small changes; you will get what you want while the other party doesn’t realize what is going on. The English have a mantra that speaks volumes to this “Slowly, slowly catch yee monkey”.

Last week, for some reason, I was reflecting on my adult life and came to realize how radically the world has changed since the last century- when I was a child. As a child in the 1900s, we had very old people, old people, parents and children. Today we have grouped them into: Mature, Baby Boomers, Generation X and Generation Y. Recently I attended a lecture that focused on how to get these groups of people to work together. However, back in my generation – they seemed to just ‘work together’, but they were called old.

In my adult life I have witnessed many changes in how we communicate with one another. These small changes that have been insignificant through the years have now been entrenched into our daily lives. According to my Human Resources person, one must not ask about people’s weekends as that can be a form of harassment. In one company I know of, they have legislated what employees can have on their desks and can’t have any pictures or posters. As some displayed trinket ‘could’ be offensive to someone else. In the five years, one country has banned the Children’s Nursery Rhyme… Ba Ba… Black Sheep. It has been since re-released as …Ba Ba Sheep. Just this week in the news, the television series every North American child grew up watching, Sesame Street, is not considered politically correct. That big Yellow goofy bird said things in the 1950-1990’s that by today’s standards cannot be said! Oh…my all time favorite, one country has mandated their Store Santa to say “Ha Ha Ha”, instead of “Ho, Ho, Ho”.

All of this political “correctness” has really impacted my collections. I spend too much time trying not to offend someone that the message of what I am trying to get across gets lost in the rhetoric of today’s communication requirements. I was recently privileged to read communication from a managing partner to a senior partner about the position of the person’s work in progress and accounts receivable. In the 150 words of verbiage, I was left wondering what was going on. The fact of this partner’s sloppiness in managing his practice got lost in the words. So how effective was that correspondence in motivating results?

In the past decade I have met some of the most “politically correct” professional services practices that I could ever imagine. I would like to take this opportunity to share a few of my favorites. The firm, a large west coast firm, invited me to meet their revenue partner, CFO and collections manager to discuss collections strategy and to look at the integration of technology. At one point in the conversation, I said “you should send statements to your clients”. With that the room went silent and the partner said “we can’t send statements to our clients, it will upset them”. What? Informing clients what they owe will upset them! I get statements every month from credit card companies, public utilities and I never get upset. However, in this firm’s mind, their clients would get upset should they receive statements.

However, my favorite firm that tops the political correctness ladder is a Midwest firm that took 5 years to agree to send their clients statements of account. Within 3 months of sending statements a senior partner put the brakes on the whole project, the partner’s reason, lack of “correctness” in the statement. In this person’s reasoning the title ‘Statement of Account’ represented a full account of what the client owed. However, the partner reasoned the caption was a misnomer, for the client owed the amount in AR and the amounts in WIP. So it was back to the committees to deliberate on what to do. The result after 90 days of deliberation was to change the caption to “STATEMENT*”. Where the asterisk lead the reader to the end of the correspondence where the term ‘STATEMENT’ was defined in several sentences. What!?

Back to reality, in a business transaction both sides should benefit. Someone received goods or services and someone is due payment. If the originating side received what they were to receive then they should make payment, whether they receive a bill or an invoice. Payment is due! It is the right of the providing party to receive payment. Very simply, these transactions are people processes. I think we should ‘can’ the political correctness get a copy of the Fair Credit and Collections Act (get the rules for your jurisdiction) learn what you can and cannot say. Then pick up the phone … say it… and collect the amounts due and banish from your mind whether it is a bill, an invoice or a statement! It is money due to your firm….so get it!

Tuesday, November 20, 2007

Evolve me back to the Serengeti

Human anthropology has always been of interest to me. As long as I could remember, I have spent a large portion of my reading time focused on human evolution and the origins of sociological structures. This weekend I had an extraordinary opportunity to hike with the Phoenix Park Rangers and a renowned archeologist to the top of Shaw Butte Mountain to examine Indian ruins. Here was an opportunity to look back into history – those civilizations that shaped the American Southwest.

The hike was extremely difficult with steep slopes and often very unstable footings. However, at the top of the mountain history gave up her story. What to the untrained eye was nothing more than a pile of rocks came to life through the voice of the guides. It seems that the Shaw Butte Mountains were first discovered in the early 1930’s. It wasn’t until the 1950’s that the archeologists determined that the high degree of pilferage of the artifacts warranted government involvement to secure the area. Since then, the entire area has been closed to the public and is monitored by local law enforcement.

For anyone who has visited Arizona in the summer, they would be hard pressed to believe that Phoenix was not under the dominion of Hades. The 120F temperatures become worse with the lack of shade and the presence of some of the worst life forms, all seeking a means for survival. Yet, native Indians called the Hopi inhabited the entire area. These tribes originated from the base of the Grand Canyon and migrated to the Sonoran Desert and beyond; some of the harshest environments in the Southwest.

During their stay in this harsh land, some 2000+ years ago, they learned to become one with nature. These tribes of 75 or so people knew that survival meant clearly defined roles within the tribe. They were hunters, gatherers, sentry, homemakers, builders, planners and astronomers. By means of carefully studied celestial behaviors, these Indians were able to determine what time of the year it was and therefore shape how they would survive. The key to survival was everyone had a role. Each person’s unique skill was required for the continuance of the tribe!

As history unfolded, the survival of the ancient peoples was a result of them forming groups and working toward the survival of the tribal unit. In today’s society, the bonds of teamwork are less important for human survival. We no longer need to take up our sentry post for protection, while our comrade stalks dinner. For us, meals are often a phone call away – and it is delivered! However, through each of the services we need for our survival there is some degree of teamwork. There are people at the public utilities commission that ensure our basic needs are met, and there is a huge infrastructure that ensures our food supply.

With that, there are teams of people all working, somewhat together, that ensure our survival. The basic difference between the Hopi of centuries ago and us today, is our survival is based on our contribution to the economic engine, which recognizes our efforts with a medium of exchange. The sad part of it is the glue that bound our ancestors together is almost non-existent today. This is grossly present in the poor work ethic of today’s workforce. Today, we are in the ‘me’ era, while our ancestors were in the ‘us’ era.

Amazingly enough a tremendous amount has been written on these eras, as it relates to human development. Essentially there are three phases of human development: dependency, independency and interdependence. The dependency era is the ‘I need you’ era. This is the time from infancy to adolescence. The independency era, is the ‘me’ era. It is all about me and I can take care of me. The highest level, is the interdependency era, the ‘us’ era.

In moving off the Serengeti, humans have devolved from interdependency to dependency. I sense we are in a position stuck somewhere between the two. It is in the allusive position that, I feel, impedes us from accomplishing great things. We no longer focus only on what we do best for the betterment of the team, we put 70% focus on our skill and 30% on trying to tell someone how best to do what he or she have to. This behavior is most prevalent in the professional services, and specifically in the practice of accountancy and law.

In today’s firms, partners behave as if they are running their ‘own’ practice; they are not acting as part of a much grander entity – ‘the tribe’. It is all about ‘me’. They manage their own client relationships, bill and for the most part are responsible for collections of the amounts. They do all of this under the guise of client ‘relationships’. They are essentially focusing 70% of their talent on what betters the organization and 30% on things they know nothing about – like technology, billing, and collections. Just recently I had a meeting with a large firm Managing Partner, the CFO and the Billing and Collections Manager. I came to realize that half of the partners in the firm act as if they are sole proprietors! The firm had a true ‘eat what you kill’ mentality. You work it, you bill it, you collect it… it is yours. I thought, "What would Darwin make of this devolution?"

However, this isn’t unlike many firms throughout North America. Today’s firms are so full of ego that money is simply flying out of the window! Consider just how much billable time is wasted on ‘billing’ and ‘collections’. And the humorous part is lawyers know nothing about collections! All of this is done because firms are stuck in the ‘me’ era and they feel they can do it all. The corporate world has gotten out of this mode, simply through market pressures. However, today’s legal firms are stuck in the ‘me’ mode. The only excuse they can fathom up is…“our profession is about ‘relationships’”.

Professional services are built and maintained on relationships, as is every business. However, the reclusive ego-driven nature of law and accountancy represents the blinders by which these organizations are stuck in the ‘me’ era. It is amazing how much more these professions would achieve if each partner focused on what they did best, the practice of the profession. The medical and dental fields have recognized that they can achieve more through interdependency. The practitioners maintain relationships with their clients, at the same time focusing on their expertise. All I can say is that my dentist has never called me about payment on my crowns, nor has my surgeon for fixing what was wrong – now that is a higher form of business! Interdependency!

Saturday, November 10, 2007

Why Fish, when you could Farm?

Last week, I had the opportunity to spend my time at a CPA managing partner conference. It was a great opportunity to meet with some managing partners and to gain an understanding of the major issues they are facing. As it turns out, CPA firms are very much like law firms in their organization and practices, so much so that their WIP and AR management issues are almost mirror images of each other. After two days of meetings, and round table discussions it dawned on me that the problems faced by law firms and CPA firms, are deeply rooted in their organizational structure.

As we all know, law firms are built of varying legal acumen of the practitioners. At the bottom rung are the students who must learn the ropes; higher up the tier are varying levels of senior associates. The top of the firm is made up of department heads, non-equity partners, equity partners and the managing partner. In the accounting world, the names are different but the structure is somewhat the same. As I can deduce, the role of the managing partner is basically to manage the firm based on direction of the various committees. Now, depending on the firm, the managing partner may have their own practice; which really doesn’t lend itself to ‘managing the firm’. Then one must question, what really requires ‘management’ in today’s firm?

In his book, Collecting your Fee, Ed Poll makes a very blunt statement that law firms are the product of their own actions. They have no one to blame but themselves for the slowness of collections of their bills. I believe Ed is very accurate in this conclusion, however, I must take it a step further. The managing partner of the professional service firm is solely responsible for all of the delinquencies associated with collections of outstanding receivables. The managing partner must face the reality that they and only they can make a change.

You must be wondering how such a bold statement can be made without some support. Support really isn’t needed, as the managing partner is responsible for the ‘management’ of the firm. So having garbage receivables and poor cash flow is directly their responsibility! I feel that the managing partner is either spread too thin or simply doesn’t have enough power in making a change. Therefore, the firm continues day-by-day, month-by-month and year upon year to have sloppy accounts receivable management practices.

If you take a moment to examine how law and accounting firms are built you will begin to see where the flaws exist. It is these core flaws in the structure that leads to an ineffective managing partner. These firms come about principally by mergers, acquisitions or organic growth. For the most part, M&A activity has lead to large national and global firms. During these activities, small firms become bigger firms, which become bigger firms and so on. However, with each M&A activity different cultures are forced together. It is the failure of these, often heterogeneous cultures to meld that is the basis for all of the problems.

Following an M&A event, there is the existing culture and the new culture. Well both cultures have ‘always’ done things a certain way. Who is going to change now that they are a single firm? The problem is exacerbated when the new culture is in a different location. It is much more difficult to discern if the cultural differences is a necessity of the local economy, the firm exclusively or some combination of both, therein lies some of the challenges. Post M&A activity, often the cultures don’t gel and the firms now have the essence of two companies under one name. As the firm continues in its expansionary plans each successive M&A activity increases the number of cultures that continue to do things ‘their-way’, all the while; operating as a single entity.

On a macro-level there can be several cultures, by virtue of the M&A activity, but what about firms who have grown organically? Firms also fall victim to micro-cultures. In the organically grown firm and also the M&A grown firm, all the partners make up the ownership of the organization. To that end, they each believe in how they should manage their practice and how the firm as a whole should operate. After all, they do own a piece of ‘the pie’. The compensation of the partnership structure acts to create an information hording mentality, where each partner is more focused on his or her own practice, through billable hours and client intake, rather than on the overall well being of the organization.

It is the presence of these multitudinous cultures that makes the managing partner completely ineffective. Essentially the managing partner is faced with the task of managing (depending on the number of partners) his or her own peers; who like them, have a practice and must generate revenue. So the difficulty of the task to keep all the partners playing the same game is almost impossible. All of this is compounded with the many active committees in the firm, each pushing or pulling for their own political agenda.

An example of this came to light during a recent conversation I had with a colleague, I found that the managing partner has no control on his firm; it simply continued as it had for decades. My colleague is the managing partner of a national firm. His firm has grown principally by M&A activity and with 10 offices across the United States the culture is radically different between offices. In each of the offices there is an office managing partner, to whom all local partners report. However, the situation that I used to bring reality to light is in the firm’s practice of expert witness in accounting/financial litigation.

In the firm, one partner in the head office manages a practice of expert witnesses for white-collar crime litigation. This partner has agreements in place with insurance carriers for this type of work and all such work throughout the firm goes through this partner, except for their west coast office. This head office partner sets her own rate in which the insurance company sometimes fails to pay. She then seeks compensation from the insured. The reality of the failure of the firm to act consistently was a bit of a surprise to my colleague; however, he didn’t want to address the issue, simply because, the ‘cultures’ are different. As dinner progressed, I brought to light how the firm was basically acting as two different firms when it came to this practice group. At the end of the night I closed with, if a single practice group is so heterogeneous, what is going on between all office practice groups and within practice groups? To that, I received a blank stare. It is no wonder that they have AR issues in the various practices in the organization.

With firms’ blatant failure to ‘gel’ and have one codified practice throughout the organization, the managing partner becomes nothing more than the tour guide for a group of fishermen; someone who simply makes ‘suggestions’. Each partner simply fishes in the sea of revenue to get his or her own catch. Instead, firms could reap tremendous rewards through leadership, direction and focus. All the partners must be focused and operating under a single codified set of rules. Once that is achieved, the managing partner now becomes the leader of the firm’s destiny; a farmer. As a fisherman, each person takes his or her chances. As a farmer, the foundation is laid; the rules are in place, everyone is in lock step together, and the end result – a bountiful harvest. Sadly, in today’s practice most partners are casting their lines into the sea of revenue, when they could be harvesting from the fields of profitability!

Saturday, November 03, 2007

Collections, the Currency of Communication

Have you ever noticed how people communicate with one another? Often they don’t realize the messages they are sending through body language. Human communication is the most advanced and complex of any species on the planet. Effective communication requires a sender, a receiver, a medium and an understandable code; language. The most amazing thing about human communication is that people communicate in many different ways at the same time, they could say one thing and their body language is saying something else. Body language or actions, speak louder than words. As an example, think ‘no’ and try to nod your head ‘yes’. It is very difficult; your body will react to what your mind is thinking. Next time you are in a meeting, look around the room, shut your hearing down and let your eyes “listen” to those in the room. I will venture to bet you will quickly identify people’s receptiveness to the topic and the speaker.

Effective AR collections is so bound to communication it is unreal. There are many forces surrounding communication that will determine your effectiveness in your task as a collector. In previous discussions and webinars I made the statement that there are only three reasons people don’t pay bills: bill related issues, relationship issues and economic issues. For today’s conversation, we will assume that billing issues are non-existent and we will examine relationship and economic issues.

“… a client who genuinely respects you and the work you did will pay your bill in a timely manner.” ED Poll (2003)

In meeting Ed a few years ago and having the opportunity to speak with him on several occasions, I can’t help but say that those few words embody AR collections. Not just law firm collections, but all collections. When we communicate with our clients, we need to keep in mind that every communication either gets us closer to payment or further from a payment. Our motivation, if you haven’t already seen it, should be closer to receiving payment!

There is a complex dynamic in communication when the collections person first makes contact with the client regarding the outstanding amounts. At this point the client has already made up their mind about the payment of the account. The client, by virtue of their interaction with counsel, has already determined the value of service provided and as such has affixed a price tag on it. It is the counsel’s responsibility to communicate to the client in such a way to demonstrate the value of the services provided and therefore moves the relationship closer to payment. I have addressed the importance of counsel communication in my study Collections after Billing, a Bit Late.

Now that counsel has failed to communicate the true value of the work, it us up to the collector to finish the job! The problem is now much more difficult than it was prior to billing and immediately after billing. The culprit to this increased difficultly in collections is the passage of time. Any MBA student studying the softer skills of business will tell you the range of emotions a buyer goes through before a major purchase, at the time of purchase, post acquisition and thereafter. The longer the passage of time following the acquisition of the item that the buyer has, they begin to lose the euphoria of the purchase. The buyer begins to question the value of the acquisition and essentially a reevaluation of the product or service takes place.

In the collections world, the collector is making a call for payment where the client has either already begun the reevaluation process or is in the midst of the process. In addition, other things have begun to happen; economics. Recall I made the statement that what goes on in one’s mind determines ones actions. Well, how the client feels about their economic situation hastens the reevaluation process and also sets the priority for payment of the account.

Recently a colleague and I were discussing AR collections and he expressed how in his circle of collectors, outside of professional services, other organizations are having difficulty collecting outstanding receivables. To that I responded, of course! Just look around. How consumers feel determine their buying and payment habits. If consumers feel that the economy is great, they will be more apt to spend and leverage their position. Whereas, if they feel that the economy is on shaky ground they will begin to be much more cautious with their resources. No matter where you are, consumer confidence drives the economy. It is the lowest denominator that fuels national and global economies!

Isn’t it amazing how the job of the collector has just become exponentially more difficult! With each call the collector is faced with, the client that has already revalued the services, prioritized the payment plan and has done so because of the current economic situation of their company, municipality or country. Now you Joe Collector – need to get that bill paid; before December 31!

I have always professed, the collector who only focuses on the bills outstanding, operates in isolation. Today’s professional collectors must see the entire picture! They are the ones who must repair broken relationships, open the lines of communication, and demonstrate to the client the value of the services provided. They must reverse the mental reevaluation process and prioritization process that the client has already undertaken. And they must do all of this within the realms of the current economic system! Of course, Joe Collector cannot change consumer confidence. However, in his capacity as a professional he can demonstrate the true value of the product or services received so much so that the client sees payment as a priority.

AR Collections is a very difficult task with the odds stacked against collectors. However, diligence and effective communication will get your bills paid before someone else’s. Remember, everyone calling the client is vying for the payment of their bills- communicate the value in paying you first!