Accounts Receivable Collections; Get with IT!

Lately I have been pondering why AR collections in the professional services have been lagging behind their commercial entities. Over the past few weeks I have given insight into some of the major reasons. It wasn’t until reading the article, “Watch These Fast Growing Technology Trends”, in the March 2008, Credit Today magazine that I began giving more thought on the finer details of the causes for delinquent receivables.

The last 50 years have brought more technology to the market place than all preceding history. Each day more companies are bringing better and faster tools to the market than currently available. With the onset of electronic commerce, technology built on the other side of the planet becomes easily accessible by organizations in small towns. With all of this influx of technology, why aren’t organizations reaping the benefits? For the most part they are, however not to their full potential! The gap in productivity between potential gains and actual gains plagued me during my early years as an accountant. I saw the rise of technology and I myself assimilated it into my professional life as fast as it was available. I adopted technology quickly, but it seemed that the rest of the world did not realize the same gains. As I moved from public practice into a law firm, I realized that the problem was even worse than I had experienced previously. It wasn’t until my first few years in the technology field, that the problem became blazingly more pervasive.

My fascination with this ever growing gap between potential gains and actual gains due to the introduction of technology began to become the focus on my thoughts. I often wondered if I was the only person who saw this problem so clearly. In the late 1990’s, I speculated that the gap was the result of organizations simply failing to put in the 3rd and 4th most important element in the assimilation of technology. I reasoned that organizations spend a fortune on hardware, software, and then go lean on training and almost nothing on business process reexamination. Here were organizations that were spending a fortune on the latest tools, but they reaped only marginal productivity gains. The result, a faster way to undertake the old processes!

Interestingly enough, through my quest to understand this phenomenon, my research, and ultimately my thesis, lead me to the Productivity Paradox. Although first identified in the mid-1960s, it didn’t become a concept of intense study until the mid-1970s. The concept in research literature is defined: As new technology is introduced into business, worker productivity decreases. Turban et al (2008) redefined the stance as the “discrepancy between measures of investment in information technology and measures of output at the national level.” Suffice it to say that this topic is vigilantly debated by economists all the time.

Whether the underlying reality of the paradox is solved or not, should not impact our here and now! We need to understand the role of technology in our environment, and realize that it is always changing. What we need to be very cognisant about is to not only understand the new tools, but most importantly take the time to reexamine our business processes so that we do more than simply speed up our old processes.

On that note, I will leave with you one of my favorite quotes. In speaking to Ed Poll on the same topic, Ed said “technology is only a tool for collections, never to replace the human element”. A substantive quote was made in his book, Collecting Your Fee. Tools without knowledge of their use and more so the lack of insight into new ideas, simply aligns new tools with the functionality of old tools.

In receivables management, Getting with IT, should have you focused on getting with Information Technology – all the new tools available to you. In addition, getting with IT should be getting the Intellectual Training to understand the value of the tools, but more importantly the Insightful Thought on better ways of undertaking current practices.

Good Luck!

Through the Looking Glass

You all must remember the novel; it is the sequel to Alice in Wonderland. Oddly enough, author Lewis Carroll denied the novel was a sequel but rather a work to stand on its own. Although characterized as literary nonsense, I realized this week that, from an economic perspective, the novel carries tremendous merit.

This week I spent a significant amount of time in conversation with some of the most astute business minds in banking. Here was a group of people who internalized and projected from not only national vital statistics but those of a global economy. At their level, money was quantified by billions and hundreds of billions rather than the units we carry around in our pockets. I was amazed and my thoughts were validated that the US economy is stepping into a recession and more specifically stagflation. However, for these people the results of measuring vital statics were numbers; objective, cold heartless numbers! The barrage of reports and analysis could fairly predict where the economy was going and how, in their capacity, their institution should react.

I have always professed that the economy screams at us, every day, hour and minute what it is doing and what are its intentions. However, like Alice in Through the Looking Glass we don’t see our reflection; we are more enthralled with what is on the other side of the mirror. We aren’t interested in the reality which is being screamed at us, we choose to create our own reality; our illusion of reality, the one on the other side of the mirror. Once we get into our illusion, separating it is based on our ability to deflate our ego and recognize the world around us.

Right about now you should be wondering, how does this relate to AR management in my organization? Surprisingly enough… it is a DIRECT REFLECTION. In our professional practice we often live in this delusional mindset that we, the principle, know all about the environment and the client. When in fact we are looking through Alice’s mirror and failing to see the true reflection of reality. As a principle or partner, I accept a case where I really don’t undertake any due diligence before I establish the client relationship. I believe the engagement is important for my career and that the client will pay the account in full. There is my illusion; for payment of an account is based on a series of compound probabilities. Without a due diligence investigation of that wonderful client, which could be a deadbeat in disguise, the reality of the client not paying, may have a negative impact on my career.

Now when my ego is blended with my illusion of reality, the simple problem gets worse. The work is done and the AR is sitting on the books steeping with each passing day, week and month. Not to mention the cost value of money as that account reaches antique status while sitting on my books. You know the situation all too well, that account is out there for everyone to see, and your sense of reality is faulted. You were looking through the mirror instead of into it. YOU didn’t see the signals. However, it gets worse; you are the partner a well learned person, an authority in your field. How can I be wrong, the client will pay – I guarantee it? What you are doing now is protecting your fragile ego; you must admit that you pushed the card and landed yourself into the fork in the road and now there is no going back! You are left with only two choices, admit your error and write the bill off or seek validation that the client will pay, by leaving the account on the books and maybe even taking on more work in hopes that the client’s cash flow will increase and all accounts will be cleared up. This is your second illusion!

When illusion mixes with ego, it is a recipe for a downward spiral – a train wreck. How can I go back to my partners and my committees and say I was WRONG. How do I resolve the problem, learn from my mistake and most of all spare the firm all of financial losses, and essentially turn back time. The resolution is a two step process, which doesn’t include going back; in the here and now, admit your fault, write the bill off and go on. This also means coming clean with all those who are involved.

The second and most important situational resolution is putting processes in place that prevent you from misreading reality again. Although the client’s ability to pay is important, deflating your ego is probably the most important prevention mechanism. Recognize that you DON’T know everything. You may be the best litigator or possess the best M&A mind, but you do not know everything about credit management. Marcus Buckingham in his book, Now Discover Your Strengths, professes that we should focus and train to increase those attributes for which we have an affinity, and pass onto those the things for which we have no affinity. In his recent speaking engagement at Arizona State University, he spoke how Tiger Woods’ trainers made him practice more at his shots from the tee and not his putt, as he has always been a poor putter. So to emphasis his winning ability is to get the ball closest to the cup.

To put this all into perspective, do what you do best and let others do the rest. Never fall into an illusion of reality. Looking into the mirror is the truth instead of looking through the mirror, and creating your own reality. Finally, as Alice awakens from her experiences of her dreams, she blames her black cat. Like Alice, we often blame others when we look through the mirror and create a train wreck. Maybe it is time to stop the vicious cycle, listen to the numbers, seek the knowledge from those in the know, do what you do best and most of all destroy your ego and admit when you have erred. The costs of illusions are high!

When is Enough, Enough?

Although it is a faint memory, the 4^th quarter of 2007 has left its skeletons. If you don’t think it has, sit back and peruse your aged receivables. You know those skeletons, they are sitting there, now better than 120 days old. They amount to a river of broken dreams. In the back of your mind, the words of that partner still ring clear, “I am almost reasonably positive the money will come in by December 31^st”. While they were being uttered you hung onto every syllable, for that meant the difference making the target or missing the target.

Now as you reflect on those hectic times, you can see where things started to brew into the train wreck 2007 had become. I have already written about the moderate growth that some firms experienced in 2007. Well if you are up-to-date on your reading, you would have caught the February 25^th ABA article, Large Firms Prepare for a Slower Year, by Debra Cassens Weiss. Face it, the global economy is heading for a recession and the world powers are denying it. They sort of won’t tell you about the “800 pound black bear” before you go into the woods. I have written about it and anyone with a television set and at least one channel would know.

Over the past few weeks I shared with you many of the mantra held by the corporate world when it comes to collections. Now more than ever it is time to take heed, otherwise the 2007 train wreck of year-end will pale in comparison to that you will experience in 2008! My recommendations now are get yourself a subscription to Business Credit and learn what your corporate counterparts have known for years.

With Business Credit tucked under your arm and a plethora of caustic blog entries, you may be well suited for the recessionary jungle of 2008. My secret for you is...I perceive that the global economy will begin to see a recessionary reprieve in 2010! However, with that said, and the plans in place – best of luck! Keep in mind that many are vying for your client’s less than stellar cash flow. Make sure your bills are at the top of their list.

Now that your processes are in place to have stellar collections in 2008, there are those legendary receivables. Those that have been around as most office furniture or the first service patch of Windows 2000. At some point, you need to come to the realization that unlike wine, receivables don’t mellow and get paid with age. Instead, the client becomes more calcified and less likely to make concessions. Although calcification is an interesting phenomenon, there is something even grander – the statute of limitations and the Fair Credit and Collections Act. All I can say is make the move to collect on something where the statue has run out and you should consider yourself lucky if you are able to walk away with just an earful of profanity. Instead, you should consider a “Don-ism”. For anyone who has worked with me enough you will know the phrase.

“You derive no benefit in life by proving someone else wrong”

Remember, in collecting receivables you can only state your case so many times and in so many ways; if the client doesn’t move then you need to. Imagine the surprise when I saw that Susan Raush, a corporate credit manager who authored Best Practices: Collections, have the same mantra. Her statement goes as follows:

“When you have a legitimate dispute, you need to weigh the costs against the benefits of continuing the dispute. Sometimes it just isn’t worth it to be ‘right’ and you have to graciously give in to the customer’s demands in the name of goodwill and future profits.”

When the time comes, and you know it has for many of your receivables, you simply need to learn from the experience and walk away. Not walk away in the light of one day the payment will materialize. But rather, do three things: internalize why the receivable never got paid, put in safeguards to prevent it from happening again, and the hardest thing – write it off! When you write it off, it will be like a “therapeutic cleansing”; a rebirth of your purpose in managing receivables!

Managing receivables is probably the most difficult role in an organization. It is important to know when you have done all you can and when to simply walk away. I have learned everything has a beginning, middle and an end. It is important to know where on the continuum you are. Know when you have reached the end, clean up the skeletons and bow out gracefully. Always remember, as you exit the stage, all what you have learned. Most importantly, repeat successes not failures!