Borrowing from my entry of two weeks ago on receivables management and reporting, So What, Now What, it never ceases to amaze me that the more people I speak with the more it emphasizes that receivables management is a problem in ever industry in every country. At a recent roundtable discussion at a CFO conference for telecommunication manufacturers, the issues of receivables management came up. Here are companies that deal in the tens of millions of dollars per bill and they have receivables issues! My first thought when I heard abut their issue was, why they aren’t using secured letters of credit? For some, letters of credit was par for the course when dealing with offshore suppliers, however domestically the old mantra of credit checks, billing and waiting for payment was the fare for the day.
With more probing the issue gained considerable depth. No matter who I spoke with they have their own ‘bell weather’ for determining how well they are doing with their management of receivables. Surprisingly enough, there are more variants of core reports in circulation than one can imagine, both in the professional services and in the corporate world. To make it even more surprising, each user swears that their ‘unique’ report is the best indicator.
My first thought after this experience was, I may be missing something in the remedy purported by all of these ‘unique’ reports. With this feeling of void in not knowing what the ‘best’ report is, I undertook my own research to find out what firms are using and what ‘authorities’ are saying about financial reports. As it turns out, today’s professional services firms have an enormous amount of reporting tools. They have reports from their billing systems and reports from their other systems. They buy custom reporting packages, they buy business intelligence packages and they even have custom reports written, all of which they trust as the gold standard. In the market place today, there is no shortage of reporting tools. The first thing the user must remember, the data is fixed it is only the spectacle by which we view the data that changes; the reports.
With the plethora of reporting tools available the user must really know what they want to analyze and why. Although these tools dice and slice the data in a multitude of ways, one should really ask oneself, is what I am analyzing telling me what I need to know? Do I understand the calculation being made? What is the logic behind the calculation? Until you can answer these questions you are stuck in the “So What” mode.
In an internet article I recently read Law Firm Business Model - Realization, the author discussed ways of measuring the various attributes in the firm’s cash cycle. So as we are on the same page, the cash cycle, begins with the entry of time and costs, through prebilling, final billing and ultimately the receipt of cash. The author contends that the only reports the firm really needs to operate are billing and collection realization reports. The contention is that realization provides the user with the measure of ‘efficiency’ by which a process operates, ie billing and collections.
This concept of efficiency continues to intrigue me. In the world of energy and thermodynamics, efficiency is the ratio of output per unit of input. By way of an example, a home air conditioning unit is said to be 67% efficient. In that regard for every kilowatt of energy taken in, 67% of the energy goes toward producing cool air. As an aside note, automobiles are significantly less than 20% efficient.
Back to the article, the author contends that managing the firm with these realization reports and current asset aging reports is essentially the key to firm profitability. In the article the author cites recent LexisNexis research on the average days for law firms to collect. According to the 2007 Law Firm Economic Survey, conducted by LexisNexis, the average North American Law firm will take 169 days to collect on a bill. This is about 30% longer than the findings of the ABA Survey in 2003. So in four years, law firms have showed a 30% increase in time to collect on a bill! However, almost within the same paragraph, the author, by way of example, presented several firms from the survey that had over 95% collections realization.
How could this be? These firms realized 95% of the cash billed, but the average time to collect their bills increased by 30%. The problem here, I feel, is that the true measure of ‘efficiency’ isn’t being taken into consideration. The missing component is – time. If we recall from Finance 101, money has differing values over time. Simply put, a $1 today is worth more than a $1 a month from now. Therefore the calculation of ‘efficiency’ really does need a time component, which in all of the reporting tools I know of – don’t!
Let’s examine the calculation so you can see where we are going. So by way of an example:
Patty Partner produces a bill for $525 and sends it to the client. After 45 days the client is contacted and is disputing a charge on the bill, a courier charge of $30. Patty agrees to write the amount off and within 15 days the firm receives payment of $495.
According to the standard calculation for cash realization, the formula is the ratio of inputs to outputs. Where $525 was the original amount of the bill and $495 was the amount paid. With that said, the realization is given by:
495 x 100% = 94.29%
525
That is pretty impressive! However it took 60 days to collect! The firm’s policy is payment is due 30 days from date of bill. Let’s alter the calculation to reflect efficiency based on time, which is really the true efficiency!
The firm’s policy is payment is due 30 days from date of invoice, if we add 5 days for processing, the firm should expect payment on or about the 35th day. However, payment came in on the 60th day.
Given:
If payment were to arrive on the 35th day, the process would be 100% efficient barring the deduction for the dispute. If payment arrived before the 35th day, the process would be more than 100% efficient, because the client paid early. While beyond the 35th day the process becomes less efficient.
The calculation of time therefore takes on the representation of:
Output 60 days
Input 35 days
However because the output increases, which operates contrary to energy models, we need the following correction.
1/ (output/input) 1/ (60/35)
Apply this to our example of Patty Partner, the calculation becomes:
495 X 1/ (60/35) X 100%= 55%
525
Therefore Patty’s collection realization for this bill is 55%. The reason for the radical difference from the cash realization report is it took at least 70% longer to collect on the bill than the firm policy dictated and there was a write down! This paints an entirely new picture of Patty Partner.
With this simple example, I hope you can see the need to understand what the calculation means and how it can or should be used to measure activity is vital. This is but a single example of a single calculation. With the number of reports being used, there is no doubt that each day millions of people rely on reports to make decisions, without really understanding what the calculation entails.
As for the article, we have just shown how cash realization can be 95% yet time to collect has increased 30% over the past four years. Realize that each bill for which you are awaiting payment has a time corrected realization that gets worse by the day and so many reports simply aren’t bringing it to your attention! Remember what you think you are measuring may not be in fact what is being measured! Understand the big picture before ‘picking’ a report!
Wednesday, April 30, 2008
Tuesday, April 22, 2008
Are you making Rain or making Mud?
I recently spent a week in Chicago meeting with financial executives of accounting and law firms. I wasn’t surprised how the two very different professions had the same types of problems in firm and financial management. It was almost as if these organizations were having internal battles as how to move forward and most importantly in what direction. Whether you are managing a huge global firm, a local firm or even a team within the firm you are constantly being plagued with direction and momentum.
Lately there has been an explosion of articles on how firms are changing to (re)establish direction and momentum. In The Lawyer, Julie Berris reported how one global firm radically downsized their management structure by 50%, as a means of focusing skills. Their expectation was to reestablish direction and momentum. While Martha Neil writing for the ABA Journal, discussed how a New York firm had undertaken to build a roadmap to partnership and rainmaker retention, by undertaking a ‘strength’ assessment of the professionals. Even the Partner’s Report published by IOMA went so far as to outline a seven step process necessary to establish focus and direction for professional services organizations. It seems these organizations realize they need to do something to maintain their competitive advantage in the market place, however their actions seems to be focused on downsizing and skills assessments.
Interestingly enough the writings of some of the business greats really don’t fit the professional services industry, simply because of the overall dynamic and structure of these organizations. The March 2008 issue of Partner’s Report spends a considerable amount of time expounding on the unique dynamic of professional services firms. However, as I view the entire situation as an outsider I can see that structure leads to form. The lack of a concerted direction of the organization has lead and will continue to lead the professional services organization into a state of confusion. The problem, I feel, is the management of today’s organization is not synergistic.
Even within these organizations, a lack of clear direction and management causes these organizations to become more attuned to fire fighting than overall management. I feel what organizations need now is a paradigm shift, a new way of looking at their business. Organizations must start to realize that all of their issues must be resolved from within. Chawla et al, in their recent publication: Learning organizations: Developing cultures for tomorrow's workplace, states “The human factor in business is more important than ever. Organizations must be responsive to their workers.” Although I believe that organizations must be responsive to their workers, they must understand the synergy created among staff. It is this synergy that makes the difference between greatness and mediocrity.
The idea of synergy between and among staff literally drives an organization in the designated direction. One conversation I had while meeting with financial executives reinforced this concept beyond realization. This firm, a global service provider, had recently had a change in their finance team. Before the change, the team was the most revered group in the organization. They were the rainmakers! However, since the departure of a key individual, they have slipped into mediocrity, had staff turnover and the staff remaining were disgruntled. With a single change, the greatness of the department was decimated and the dynamic was seriously altered.
What really happened, was the person who left a rainmaker? Or was the new hire so dysfunctional that the entire dynamics of the department was upset. The answer, I feel, rests in the huge amount of research done in the mid-1990’s regarding the success of ‘rainmakers’. At that time, it was the fascination of many business gurus that rainmakers who left their firm became average at their new firm, how could this be? What the research revealed was there was no single rainmaker – it was the team that ‘made rain’. As we extrapolate this from our departments, to practice groups and to the organizational level it becomes self-evident that it is more in how people work together that achieves greatness than a single individual. With this, I am reminded of a story from a North-East firm who had a corporate ‘rainmaker’. This partner would bring in some of the largest clients in the world and bill in the tens of millions of dollars per year. Through an internal issue, the partner left. Once announced, everyone in the firm began to ‘run scared’. Now two decades later, the firm continues to thrive and grow. The reason, the environment allowed for the creation of a rainmaking team.
Bob Bunting, partner with Moss Adams LLP, in his article Increasing Margins, makes a powerful statement regarding people and the success of the organization. According to Bunting “…recognizing that people are probably more important now than clients – but only if your firm has the best people.” Moss-Kanter, author of Change Masters:Change Masters: Innovation and Entrepreneurship in the American Corporation, professes that we are at a time of most change. She contends that the most important thing leaders can do for their organizations is to recognize the value of their people and the synergy they create and avoid top down management. The role of management then becomes one of transmitting values and priorities.
With that said, for those of us who manage teams we must recognize the value of the people in the team. Work to enhance the synergy of the team, as they are the rainmakers. It is the role of management to nurture the rainmaking team, as people leave managers not jobs; the team can soon fast become mud-makers.
Lately there has been an explosion of articles on how firms are changing to (re)establish direction and momentum. In The Lawyer, Julie Berris reported how one global firm radically downsized their management structure by 50%, as a means of focusing skills. Their expectation was to reestablish direction and momentum. While Martha Neil writing for the ABA Journal, discussed how a New York firm had undertaken to build a roadmap to partnership and rainmaker retention, by undertaking a ‘strength’ assessment of the professionals. Even the Partner’s Report published by IOMA went so far as to outline a seven step process necessary to establish focus and direction for professional services organizations. It seems these organizations realize they need to do something to maintain their competitive advantage in the market place, however their actions seems to be focused on downsizing and skills assessments.
Interestingly enough the writings of some of the business greats really don’t fit the professional services industry, simply because of the overall dynamic and structure of these organizations. The March 2008 issue of Partner’s Report spends a considerable amount of time expounding on the unique dynamic of professional services firms. However, as I view the entire situation as an outsider I can see that structure leads to form. The lack of a concerted direction of the organization has lead and will continue to lead the professional services organization into a state of confusion. The problem, I feel, is the management of today’s organization is not synergistic.
Even within these organizations, a lack of clear direction and management causes these organizations to become more attuned to fire fighting than overall management. I feel what organizations need now is a paradigm shift, a new way of looking at their business. Organizations must start to realize that all of their issues must be resolved from within. Chawla et al, in their recent publication: Learning organizations: Developing cultures for tomorrow's workplace, states “The human factor in business is more important than ever. Organizations must be responsive to their workers.” Although I believe that organizations must be responsive to their workers, they must understand the synergy created among staff. It is this synergy that makes the difference between greatness and mediocrity.
The idea of synergy between and among staff literally drives an organization in the designated direction. One conversation I had while meeting with financial executives reinforced this concept beyond realization. This firm, a global service provider, had recently had a change in their finance team. Before the change, the team was the most revered group in the organization. They were the rainmakers! However, since the departure of a key individual, they have slipped into mediocrity, had staff turnover and the staff remaining were disgruntled. With a single change, the greatness of the department was decimated and the dynamic was seriously altered.
What really happened, was the person who left a rainmaker? Or was the new hire so dysfunctional that the entire dynamics of the department was upset. The answer, I feel, rests in the huge amount of research done in the mid-1990’s regarding the success of ‘rainmakers’. At that time, it was the fascination of many business gurus that rainmakers who left their firm became average at their new firm, how could this be? What the research revealed was there was no single rainmaker – it was the team that ‘made rain’. As we extrapolate this from our departments, to practice groups and to the organizational level it becomes self-evident that it is more in how people work together that achieves greatness than a single individual. With this, I am reminded of a story from a North-East firm who had a corporate ‘rainmaker’. This partner would bring in some of the largest clients in the world and bill in the tens of millions of dollars per year. Through an internal issue, the partner left. Once announced, everyone in the firm began to ‘run scared’. Now two decades later, the firm continues to thrive and grow. The reason, the environment allowed for the creation of a rainmaking team.
Bob Bunting, partner with Moss Adams LLP, in his article Increasing Margins, makes a powerful statement regarding people and the success of the organization. According to Bunting “…recognizing that people are probably more important now than clients – but only if your firm has the best people.” Moss-Kanter, author of Change Masters:Change Masters: Innovation and Entrepreneurship in the American Corporation, professes that we are at a time of most change. She contends that the most important thing leaders can do for their organizations is to recognize the value of their people and the synergy they create and avoid top down management. The role of management then becomes one of transmitting values and priorities.
With that said, for those of us who manage teams we must recognize the value of the people in the team. Work to enhance the synergy of the team, as they are the rainmakers. It is the role of management to nurture the rainmaking team, as people leave managers not jobs; the team can soon fast become mud-makers.
Wednesday, April 16, 2008
So What… Now What?
My last few posts have conjured up a few questions from my readers, mostly along the lines of; ok Don, now tell us how to fix it. How, about identify the various cultures in organizations and giving us solutions to resolve the issues in each. As much as I would like to produce an “If-Then” matrix for the marketplace it would be essentially useless. The reason for which, is that organizational cultures are the product of their leaders, and as human beings are very complex beings which cannot be explained in simple terms, the task becomes almost impossible; somewhat like quantifying what ‘normal’ is.
In the last couple of weeks I had the opportunity of meeting with several CFOs and Credit Managers from a few very large firms. My area of interest in these talks was, although collections, it more focused around reporting requirements. I found it truly amazing that, for the most part, firms run pretty much the same. They predominately manage their work in progress, they have a billing process, they create bills and they collect on them. Yet, they have a mind-boggling number of very diverse reporting requirements. How can that be? The have essentially the same quantities they are interested in, yet they report on them differently.
As it turns out, financial reporting is as much a quagmire as the differing collections methodologies seen in the professional services sphere. In reality, what is being exhibited in reporting is the same thing that is seen in the treasury and financial management infrastructure; it is all culturally driven. How can one firm honestly contend that their reporting infrastructure is vastly superior to others in the market place? The entities are the same, just viewed/reported on differently.
For many years my contention was that organizations got into the mode of ‘analysis-paralysis’. Through the intense gyrations of twisting, turning and bending the data somehow the user would be awaken by a hidden secret or some mystery would reveal itself. When in reality, that never happened. The secret contortion didn’t reveal the secret to the firm’s competitive advantage. This gets back to some of my earlier writings, regarding the continuance of identical repetitive tasks all the while expecting different results is a sign of insanity.
Today’s professional services firm has a plethora of reports that deal only with client investment. There are many levels of AR, WIP, and cash receipt reports that analyze the same data from hundreds of perspectives. Basically looking at the same apple from different angles! I will bet as you read this you may conclude, yes we have a few reports which look at the exact same data – differently. The most extreme organization I have ever met would produce a partner report book that was 480+ pages in length, EACH MONTH! Amazing when you consider the cost of its production for the firm’s several hundred partners!
How does one stop this treadmill of reporting frenzy? I believe the answer lies in an accounting concept that only auditors really hold dear. The concept is called materiality. In the accounting/finance world it is the materiality principle. The materiality principle can be summarized as: An item is material if there is a reasonable expectation that knowledge of it would influence the decisions of prudent users of the financial information.
Implementing the materiality principle in an organization becomes the gateway to relinquishing the bondage of excessive reporting. The firm, in its cultural wisdom, must define what deviation from expectation that would cause a user to take action in light of the variance. Once a firm can get to this point, the number of reports will rapidly dwindle to a few key indicators that will readily provide pulse of the operation. From there, management decisions can quickly be enacted to institute corrective change.
The first question you are now probably thinking, how can this be done in my organization? The answer follows from where we began – with culture. I do know several organizations that have been successful in implementing a truly strategic reporting model, yet they are few and it came with resistance. One firm, I know, took the bottom up approach. Where they simply dropped one report per month until management realized the report went missing. As it turns out, they went from 22 reports per month to three. Yes, there were only three critical reports that drove the organization!
A dear friend of mine shared her experiences of analysis-paralysis, from her junior days in a global accounting firm, through partnership and now in a global law firm. Her simple statement is “When looking at the numbers on a report, you are either driven to saying either - so what … or now what?” If your reports tend to invoke a lot of ‘so what’, do you really need all of them saying the same thing?
In the last couple of weeks I had the opportunity of meeting with several CFOs and Credit Managers from a few very large firms. My area of interest in these talks was, although collections, it more focused around reporting requirements. I found it truly amazing that, for the most part, firms run pretty much the same. They predominately manage their work in progress, they have a billing process, they create bills and they collect on them. Yet, they have a mind-boggling number of very diverse reporting requirements. How can that be? The have essentially the same quantities they are interested in, yet they report on them differently.
As it turns out, financial reporting is as much a quagmire as the differing collections methodologies seen in the professional services sphere. In reality, what is being exhibited in reporting is the same thing that is seen in the treasury and financial management infrastructure; it is all culturally driven. How can one firm honestly contend that their reporting infrastructure is vastly superior to others in the market place? The entities are the same, just viewed/reported on differently.
For many years my contention was that organizations got into the mode of ‘analysis-paralysis’. Through the intense gyrations of twisting, turning and bending the data somehow the user would be awaken by a hidden secret or some mystery would reveal itself. When in reality, that never happened. The secret contortion didn’t reveal the secret to the firm’s competitive advantage. This gets back to some of my earlier writings, regarding the continuance of identical repetitive tasks all the while expecting different results is a sign of insanity.
Today’s professional services firm has a plethora of reports that deal only with client investment. There are many levels of AR, WIP, and cash receipt reports that analyze the same data from hundreds of perspectives. Basically looking at the same apple from different angles! I will bet as you read this you may conclude, yes we have a few reports which look at the exact same data – differently. The most extreme organization I have ever met would produce a partner report book that was 480+ pages in length, EACH MONTH! Amazing when you consider the cost of its production for the firm’s several hundred partners!
How does one stop this treadmill of reporting frenzy? I believe the answer lies in an accounting concept that only auditors really hold dear. The concept is called materiality. In the accounting/finance world it is the materiality principle. The materiality principle can be summarized as: An item is material if there is a reasonable expectation that knowledge of it would influence the decisions of prudent users of the financial information.
Implementing the materiality principle in an organization becomes the gateway to relinquishing the bondage of excessive reporting. The firm, in its cultural wisdom, must define what deviation from expectation that would cause a user to take action in light of the variance. Once a firm can get to this point, the number of reports will rapidly dwindle to a few key indicators that will readily provide pulse of the operation. From there, management decisions can quickly be enacted to institute corrective change.
The first question you are now probably thinking, how can this be done in my organization? The answer follows from where we began – with culture. I do know several organizations that have been successful in implementing a truly strategic reporting model, yet they are few and it came with resistance. One firm, I know, took the bottom up approach. Where they simply dropped one report per month until management realized the report went missing. As it turns out, they went from 22 reports per month to three. Yes, there were only three critical reports that drove the organization!
A dear friend of mine shared her experiences of analysis-paralysis, from her junior days in a global accounting firm, through partnership and now in a global law firm. Her simple statement is “When looking at the numbers on a report, you are either driven to saying either - so what … or now what?” If your reports tend to invoke a lot of ‘so what’, do you really need all of them saying the same thing?
Tuesday, April 08, 2008
The Best Kept Collections Secret
I have spent a huge portion of the last two decades, meeting with, working with and helping professional service firms achieve increases in the collections of their accounts receivables. I have also lectured on AR management, WIP management and the treasury function in professional services firms. During this time I have probably met with and been questioned by close to 400 professional services firms. Of the 100+ of my favorite questions, the following are from the top ten: “Should we centralize our collections function?” “How do you motivate billing and collections?” “How do we begin to clean up this mess?” “What should be our next step if the client continues to withhold payment?”
For the most part these firms ask the ‘How to’ type questions. These questions are direction seeking type questions, such as ‘show me the way’, and I will do it. Just give the secret. However, the problem and ultimately its resolution is much more complex than simply pulling out a text book, flipping to page 76 and in the second paragraph the answer is blazingly clear. To arrive at the solution, one must completely understand the problem. To find your way from being lost, you must remember the road you have traveled.
There was an interesting article in today’s edition of The Times paper entitled Slaughter and May v Clifford Chance: who is pursuing the best route? The article basically outlines UK law firm business strategy along a continuum. Author Dominic Carman outlines how firms like Clifford Chance has spent the past decade opening offices all over the globe, while Slaughter and May operated at the other end of the spectrum, in closing offices and focusing on the elite type clients. Carman goes on to explain how Freshfields has adopted the middle of the road approach somewhat more of a hybrid of expansion and contraction. The article is filled with quotations from each of the ‘magic circle’ firms’ managing partners how their approach is the best and the others are wrong. One interesting point emerges from the article, “Slaughter and May emerged as clear winners in profitability: its highest earning partners comfortably passed the £2 million-a-year mark”.
Upon a cursory reading of the article, the reader may be left with the notion that the Slaughter and May approach is probably correct because the profit per partner is higher than the others and as is the profit per top partner is highest. Others may argue that is only a current phase and with increased globalization those figures will flip and the firm that is truly global will be the leader in profitability. This article should raise many questions in the minds of the reader, what is the right approach? Is it sustainable? What will be the impact of increased globalization? Maybe with a crystal ball, the answer would be very clear. One question I ask you to ponder would be: Would one expect the same results of Slaughter and May if a firm like Clifford Chance were to adopt the contraction and focus model?
Based on my reading, I think the answer is very simple. Insight to the answer was determined about 10 years ago in business school research and publications. The focus of study was how rainmaking stock brokers lose their thunder when they move to another firm. The answer – culture. It is through a firm’s unique culture that they all achieve profitability in their own business approach. It is the culture of the organization that provides the environment for the rainmaking stock broker to be great at one firm and be average at another. It is the behavior and belief characteristics of an organization that define its outermost capability.
The best kept collections secret, begins in understanding your firm’s culture. That will define how you view your clients and what value is placed on billings and collections. This is not to say you cannot enhance your returns because of cultural limitations. Instead, once you understand your culture, you can then implement policies and procedures that are in alignment with your culture and thereby tap that enormous pool of aging AR and covert it into cash. This is exactly the Slaughter and May approach, know thy self and focus on thy abilities. You already know The Secret and it begins with introspection.
For the most part these firms ask the ‘How to’ type questions. These questions are direction seeking type questions, such as ‘show me the way’, and I will do it. Just give the secret. However, the problem and ultimately its resolution is much more complex than simply pulling out a text book, flipping to page 76 and in the second paragraph the answer is blazingly clear. To arrive at the solution, one must completely understand the problem. To find your way from being lost, you must remember the road you have traveled.
There was an interesting article in today’s edition of The Times paper entitled Slaughter and May v Clifford Chance: who is pursuing the best route? The article basically outlines UK law firm business strategy along a continuum. Author Dominic Carman outlines how firms like Clifford Chance has spent the past decade opening offices all over the globe, while Slaughter and May operated at the other end of the spectrum, in closing offices and focusing on the elite type clients. Carman goes on to explain how Freshfields has adopted the middle of the road approach somewhat more of a hybrid of expansion and contraction. The article is filled with quotations from each of the ‘magic circle’ firms’ managing partners how their approach is the best and the others are wrong. One interesting point emerges from the article, “Slaughter and May emerged as clear winners in profitability: its highest earning partners comfortably passed the £2 million-a-year mark”.
Upon a cursory reading of the article, the reader may be left with the notion that the Slaughter and May approach is probably correct because the profit per partner is higher than the others and as is the profit per top partner is highest. Others may argue that is only a current phase and with increased globalization those figures will flip and the firm that is truly global will be the leader in profitability. This article should raise many questions in the minds of the reader, what is the right approach? Is it sustainable? What will be the impact of increased globalization? Maybe with a crystal ball, the answer would be very clear. One question I ask you to ponder would be: Would one expect the same results of Slaughter and May if a firm like Clifford Chance were to adopt the contraction and focus model?
Based on my reading, I think the answer is very simple. Insight to the answer was determined about 10 years ago in business school research and publications. The focus of study was how rainmaking stock brokers lose their thunder when they move to another firm. The answer – culture. It is through a firm’s unique culture that they all achieve profitability in their own business approach. It is the culture of the organization that provides the environment for the rainmaking stock broker to be great at one firm and be average at another. It is the behavior and belief characteristics of an organization that define its outermost capability.
The best kept collections secret, begins in understanding your firm’s culture. That will define how you view your clients and what value is placed on billings and collections. This is not to say you cannot enhance your returns because of cultural limitations. Instead, once you understand your culture, you can then implement policies and procedures that are in alignment with your culture and thereby tap that enormous pool of aging AR and covert it into cash. This is exactly the Slaughter and May approach, know thy self and focus on thy abilities. You already know The Secret and it begins with introspection.
Tuesday, April 01, 2008
Bet You Don’t Get IT !
Last week’s submission addressed why organizations fail to reap the true benefits of implemented technology. After thousands, if not millions of dollars of investment they are marginally better off than they were before the implementation of technology. Essentially what they have done is put technology over bad business processes, the resultant – speeding up bad business… faster and faster.
The mindset of these organizations, sadly enough, dates back to the 18th and 19th century. You guessed it, the Industrial Revolution! The Industrial Revolution was kicked off in agriculture, manufacturing and transportation, through the introduction of steam power. No longer was human effort so critically needed, now machines did the lion’s share of the work. Tirelessly the machines outstripped people in its production capabilities. It was soon realized that making the machines go faster yielded greater production. Then better faster machines were built that further increased the process. Dr. Stephen Covey refers to these productivity gains as “output was a product of how much you can lubricate the process”.
In case you haven’t noticed, the world has moved on, very much since those days of steam power. Although, we are in the age of Intellectual Capital, the era of process reexamination, sadly enough, much of the world have Industrial Revolution mindsets. Many years ago I visited an organization that had recently purchased an ERP system. Through the implementation on their big beefy hardware, the users found the system deathly slow. At the time the vendor said, it’s your equipment. After many iterations of increasingly larger and more powerful hardware, without a sign of increased output, the CIO opted to bring in the hardware vendor. After days of analysis by the hardware vendor it was determined that the “software was poorly written”.
Somehow we are sold on the notion that the next release or the ‘advanced’ product training will yield better results. Sadly that is not the case. It is simply the mantra of those with a 19th century mentality! What is needed is a critical objective understanding of the business process to identify inefficiencies. In his book The Definitive Drucker, Peter Drucker makes the statement “If it ain’t broken, break it”. I feel the statement Drucker is making isn’t to simply go through organizations with a slash, burn and rebuild mentality. But rather to examine every business process, critically examine it in light of technology and new Insightful Thought, and then make changes. As an example, changing how your office orders coffee sugar will NOT have a great overall bottom line impact. However, changing how you do something like AR Management will.
After writing the last post, I stumbled on some research done by an independent body and published in Credit Today magazine. The article entitled “Formal Credit Department Training Programs Missing at Most Corporations”, made it blazingly clear that organizations spend a ton of money on hardware, software and go lean on product training and process training. The author made the following statement:
“Training is more critical than ever. Not only are technology and automation changing the way receivables are managed, but the regulatory and legal environments have witnessed significant changes since the turn of the millennium. On top of all this, we are at a point in the business cycle where cash flow and risk management are under an enormous amount of scrutiny”.
“Despite these factors, 77 percent of the respondents to Credit Today's recent Credit and Collection Training Survey indicated their firms did not have a formal training program for credit and collections.”
The survey presented that 89% of the sample organizations spent less than $1,500 per year on business process training, how credit and collections is changing and the tools needed in the 21st century to be successful. Organizations today expect sterling receivable agings and tremendous cash flow from a staff that have little or no credit collections training. This makes no sense! To put this into perspective, just because I have a saw and know how to use it – doesn’t make me a cabinet maker! Would you go to a dentist who has all the equipment, and training on the equipment, but no formal training and testing in dentistry? I bet not!
I feel that time has come to stop buying all the new ‘widgets’, all the new snake oil remedies and get back to basics. The basic question is “Are my staff properly trained in Credit and Collections?”, “Are my staff aware of and using all the latest techniques, in light of the current laws and economic situation?”
Face it, the newest widget isn’t going to do it for you, nor will all the training on how to use it. Where you will reap huge benefits will be in your core understanding of the process and what you need to achieve given the limitations. So go and get the training you need, the core training to be the Credit and Collections professional, and then be the Drucker in your organization, and break then rebuild those Industrial Revolution style processes.
Sunday, March 23, 2008
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!
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!
Saturday, March 15, 2008
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!
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!
Tuesday, March 04, 2008
When is Enough, Enough?
Although it is a faint memory, the 4th 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 31st”. 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 25th
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!
Tuesday, February 19, 2008
Actions, Not Expectations, Determine Results
Whether we choose to believe it or not, everything in this world is driven by cause and effect. The effect is in essence the result of the cause, which in turn drives other causes. We cannot view the effect or the result as the termination of an event or series of events. The result is simply a snapshot in time. As effects lead to causes which precipitate other effects and the continuum continues ad infinitum. The concept of viewing results, as a snapshot in time was first documented by Erwin Schrödinger in 1935. Although Schrödinger’s experiments related to superposition of subatomic particles, his theory on a macro scale basically indicated that causes and effects are synonymous and it is only at the time of observation that we can assign result versus cause.
This cause effect continuum is in every aspect of the world. For the most part, nature has in itself scripted a series of events that culminates in a series of results or effects that in turn lead to new effects. Take for instance precipitation; the occurrence of precipitation is a continuum of precipitation, absorption, percolation, absorption, transpiration, evaporation and precipitation. At any point, a snapshot, the preceding events are termed the causes and the item under investigation is the effect.
Another example that is probably closer to home is the management of receivables. The management of receivables is the ‘result’ of prospecting, undertaking the engagement, billing and waiting. The ‘result’ of managing receivables brings possible outcomes: getting paid or writing off the balance or in the case of professional services, allowing it to steep like tea. The outcome, whatever it may be, is the cause for future events and causes. This continuum of cause and effect has continued and will continue ad infinitum.
The cause effect continuum of the universe, for the most part, cannot be altered. There are certain things for which we can manage toward a given result. We can create arable land through the redirection of rivers. The effect is arable land and the cause is introduction of water. Then the new cause is arable land and the new effect is climatic changes; and a new cycle begins.
This management, or redirection of a continuum, is also attempted in business. In many cases, the ‘result’ isn’t what was expected and therefore another ‘cause’ must be instituted. For one to have a desired ‘effect’ one must institute more than a single stimulus or cause. There must be several changes operating in unison to bring about an irrevocable change. Using our arable land example, one simply cannot remove the trees and hope the river will jump the lower banks. In similar fashion, one simply cannot cut an arm from the existing river that will lead to the land. It is a series of changes that must be made.
Probably one of the best articles I have read on the many changes that must be made as part of better receivables management is by Susan Rausch, Best Practices: Collections, in the January 2008 issue of Business Credit. In last week’s entry, I expounded on the importance of the pre-engagement side of receivables management. This week, we will look at Rausch’s second most important aspect “Training or Re-training Your Customers”.
The concept of training, according to Webster, is to bring about an event or effect through a series of consequences. As we already know, the event or effect is the seed to more consequences that will lead to more events or effects. In Rausch’s address of the training issue, she makes the most powerful statement in a single sentence. “By never calling your customers on a consistent basis we actually train our customer to pay consistently beyond terms”. I believe it goes much further than this in the professional services world. By having an annual collections budget and tying it to partner compensation, we ‘train’ our partners into a lackadaisical mindset about collections throughout the year and to create the year end pandemonium. Rauch goes on to set out how we, as collection professionals, must go about training our new clients and re-training our existing clients. This is a process that has to happen both at the client level and at the partner level, in my opinion For without significant change or retraining, the process is self-perpetuating; as in the year-end ‘push’.
The training and retraining process is to arrive at the desired effect, by altering all the proceeding events. Rausch professes calling customers early and frequent so as to stay on top of receivables. The consequences or causes are being altered to derive the given effect: better receivables management. This is, however, is contrary to what occur in most professional services firms. The event or effect is determined, a certain cash budget, while the causes or consequences leading up to the event don’t change. Without the training, how do firms reach the desired result? They don’t! Firms simply go from year to year expecting a different effect, even though they didn’t make any significant changes to the causes. Swaying away from Webster and drawing on the urban vernacular: Insanity is the result of doing the same thing but expecting different results!
Today’s firm must STOP and recognize that they are part of an economic continuum where every event seeds future events, where every engagement can lead to payment and referrals or to antique accounts receivable. Whatever the outcome, more events are seeded. The process continues to either be a wildly successful cash rich organization or a train wreck. As I see it, firms have really only two choices: alter the cause and effect continuum to a desired outcome through training and retraining the clients, associates and partners or bask in the delusional insanity of greater cash flows while not changing anything. Luckily, the choice is yours!
This cause effect continuum is in every aspect of the world. For the most part, nature has in itself scripted a series of events that culminates in a series of results or effects that in turn lead to new effects. Take for instance precipitation; the occurrence of precipitation is a continuum of precipitation, absorption, percolation, absorption, transpiration, evaporation and precipitation. At any point, a snapshot, the preceding events are termed the causes and the item under investigation is the effect.
Another example that is probably closer to home is the management of receivables. The management of receivables is the ‘result’ of prospecting, undertaking the engagement, billing and waiting. The ‘result’ of managing receivables brings possible outcomes: getting paid or writing off the balance or in the case of professional services, allowing it to steep like tea. The outcome, whatever it may be, is the cause for future events and causes. This continuum of cause and effect has continued and will continue ad infinitum.
The cause effect continuum of the universe, for the most part, cannot be altered. There are certain things for which we can manage toward a given result. We can create arable land through the redirection of rivers. The effect is arable land and the cause is introduction of water. Then the new cause is arable land and the new effect is climatic changes; and a new cycle begins.
This management, or redirection of a continuum, is also attempted in business. In many cases, the ‘result’ isn’t what was expected and therefore another ‘cause’ must be instituted. For one to have a desired ‘effect’ one must institute more than a single stimulus or cause. There must be several changes operating in unison to bring about an irrevocable change. Using our arable land example, one simply cannot remove the trees and hope the river will jump the lower banks. In similar fashion, one simply cannot cut an arm from the existing river that will lead to the land. It is a series of changes that must be made.
Probably one of the best articles I have read on the many changes that must be made as part of better receivables management is by Susan Rausch, Best Practices: Collections, in the January 2008 issue of Business Credit. In last week’s entry, I expounded on the importance of the pre-engagement side of receivables management. This week, we will look at Rausch’s second most important aspect “Training or Re-training Your Customers”.
The concept of training, according to Webster, is to bring about an event or effect through a series of consequences. As we already know, the event or effect is the seed to more consequences that will lead to more events or effects. In Rausch’s address of the training issue, she makes the most powerful statement in a single sentence. “By never calling your customers on a consistent basis we actually train our customer to pay consistently beyond terms”. I believe it goes much further than this in the professional services world. By having an annual collections budget and tying it to partner compensation, we ‘train’ our partners into a lackadaisical mindset about collections throughout the year and to create the year end pandemonium. Rauch goes on to set out how we, as collection professionals, must go about training our new clients and re-training our existing clients. This is a process that has to happen both at the client level and at the partner level, in my opinion For without significant change or retraining, the process is self-perpetuating; as in the year-end ‘push’.
The training and retraining process is to arrive at the desired effect, by altering all the proceeding events. Rausch professes calling customers early and frequent so as to stay on top of receivables. The consequences or causes are being altered to derive the given effect: better receivables management. This is, however, is contrary to what occur in most professional services firms. The event or effect is determined, a certain cash budget, while the causes or consequences leading up to the event don’t change. Without the training, how do firms reach the desired result? They don’t! Firms simply go from year to year expecting a different effect, even though they didn’t make any significant changes to the causes. Swaying away from Webster and drawing on the urban vernacular: Insanity is the result of doing the same thing but expecting different results!
Today’s firm must STOP and recognize that they are part of an economic continuum where every event seeds future events, where every engagement can lead to payment and referrals or to antique accounts receivable. Whatever the outcome, more events are seeded. The process continues to either be a wildly successful cash rich organization or a train wreck. As I see it, firms have really only two choices: alter the cause and effect continuum to a desired outcome through training and retraining the clients, associates and partners or bask in the delusional insanity of greater cash flows while not changing anything. Luckily, the choice is yours!
Sunday, February 10, 2008
All Roads lead to Rome
Success in business can be sifted down to two very simple activities: producing a product or service that makes sense, and selling it for more than it costs to produce. These two very simple activities form the very basis of every wildly successful company. Equally, look at the failure of any organization and it could be attributed to one of these being out of alignment.
I recently returned from Legal Tech New York, an annual technology show focused on the legal industry’s needs. This venue has been running for 27 years and each year it has attracted more and more technology companies that are trying to get a foothold into today’s law firm. Each of these vendors are purporting that their latest high-tech gadget will provide tremendous value to the operation of today’s firm. However, they often fail to demonstrate the business case on how their ‘snake oil’ is better than the competition. Although they fail to recognize it, they are attempting to reduce the costs of the operation of today’s legal practice, thereby making your firm an ongoing viable entity. In speaking with several of these vendors this year and many over the years, their focus is clear: they want the ‘deal’ and are willing to use their canned lines which they hurl at the attendees, in hopes to land them, hook, line and sinker.
With a sea of technology abound and more coming to the market each day, today’s firm must gain a full understanding of their business, where the revenues are being derived and where the costs are being generated. Only then can an astute decision maker objectively look at solutions and make an educated decision as to how to enhance the bottom line while enhancing the quality of service their organization brings to the market.
In all of these relationships, be it from the vendor side or the customer side, we all too often take the big picture for granted. We simply fail to see all the pieces of the puzzle. To the sales person, it is the ‘deal’. To the firm, it is the cost saving of the new widget. The underlying idea we all fail to either realize or simply not consider is that the underlying medium of all of this is cash. Without the ultimate exchange of cash, the entire model breaks down. The once great ‘deal’ is nothing more than a bad debt. The latest new widget, if it doesn’t live up to expectations can at best not have any effect on the firm’s bottom line. At worst, it can enhance the hemorrhage of funds.
The first step in effective cash collections, regardless of the business, is establishing the rules of the business transaction. In the commercial world, the starting point is the credit application and the purchase order. These are informational pieces that later becomes legal documentation following the sale. In the professional services world, it is the engagement letter.
In the January 2008 Business Credit article, Best Practices: Collections, author Susan Raush sets out that the best collections happens long before the account is past due. She stresses it happens at the credit application. This contention is strongly supported by Ed Poll in his book, Collecting Your Fee. I, too, have shared this belief for many years. It amazes me that with all of this knowledge in the market place so many firms have either no engagement letter or an ineffective one.
During my recent travels, I had the opportunity to meet with several large national firms. At some point in our meeting I got the opportunity to review their engagement letters. For the firms who had these documents, and they are few, they were essentially a form letter that every prospective client received. I found it amazing and sometimes humorous that somehow the firm thought that every client was the same and every case was the same. If the firm didn’t believe this, why would they send all of their clients the same engagement letter! My one suggestion on engagement letters is to tailor them to the uniqueness of the engagement and the client. I am not saying that these letters run rampant. What I am saying, is that within the limitations of the firm’s credit and collections policy, the engagement letter should be tailored to the uniqueness of the situation. Here are some ideas that, I hope, will seed some thought in engagement letter evolution:
This engagement falls under “Pro Bono” work as defined by our firm, XYZ LLP. Under such engagements only the legal fees are “Pro Bono”, all costs and disbursements are to be paid within 30 days of receipt of our invoice.
The outcome of this type of engagement cannot be determined with any degree of certainty. It is only by way or a court judgment that the true position of this case is known. Therefore, I, ABC Ltd (client) agree to remit payment for all billings within 30 days of receipt. In addition, should any funds be disbursed into escrow, XYZ LLP retains the right to apply those funds to outstanding billing and remit the remainder to ABC Ltd.
It is important to keep in mind, no matter if we are a vendor, a client or a professional services firm, that our ultimate goal is collecting for services rendered. Steven Covey professes “Begin with the end in mind…” essentially he is saying to recognize that every action and client interaction must bring you closer to – getting paid.
The Romans were masters at never losing sight of what was important. Following all of their battles, the Romans would build elaborate roadways. The roadways, would lead from the town to Rome. Never did they build roadways between adjacent towns. The reason, the towns could rally together and oust the Roman invasion. The key here, focus on the task at hand and bind it! In every engagement, solidify the relationship such that “the road to Rome” is payment for your billing.
I recently returned from Legal Tech New York, an annual technology show focused on the legal industry’s needs. This venue has been running for 27 years and each year it has attracted more and more technology companies that are trying to get a foothold into today’s law firm. Each of these vendors are purporting that their latest high-tech gadget will provide tremendous value to the operation of today’s firm. However, they often fail to demonstrate the business case on how their ‘snake oil’ is better than the competition. Although they fail to recognize it, they are attempting to reduce the costs of the operation of today’s legal practice, thereby making your firm an ongoing viable entity. In speaking with several of these vendors this year and many over the years, their focus is clear: they want the ‘deal’ and are willing to use their canned lines which they hurl at the attendees, in hopes to land them, hook, line and sinker.
With a sea of technology abound and more coming to the market each day, today’s firm must gain a full understanding of their business, where the revenues are being derived and where the costs are being generated. Only then can an astute decision maker objectively look at solutions and make an educated decision as to how to enhance the bottom line while enhancing the quality of service their organization brings to the market.
In all of these relationships, be it from the vendor side or the customer side, we all too often take the big picture for granted. We simply fail to see all the pieces of the puzzle. To the sales person, it is the ‘deal’. To the firm, it is the cost saving of the new widget. The underlying idea we all fail to either realize or simply not consider is that the underlying medium of all of this is cash. Without the ultimate exchange of cash, the entire model breaks down. The once great ‘deal’ is nothing more than a bad debt. The latest new widget, if it doesn’t live up to expectations can at best not have any effect on the firm’s bottom line. At worst, it can enhance the hemorrhage of funds.
The first step in effective cash collections, regardless of the business, is establishing the rules of the business transaction. In the commercial world, the starting point is the credit application and the purchase order. These are informational pieces that later becomes legal documentation following the sale. In the professional services world, it is the engagement letter.
In the January 2008 Business Credit article, Best Practices: Collections, author Susan Raush sets out that the best collections happens long before the account is past due. She stresses it happens at the credit application. This contention is strongly supported by Ed Poll in his book, Collecting Your Fee. I, too, have shared this belief for many years. It amazes me that with all of this knowledge in the market place so many firms have either no engagement letter or an ineffective one.
During my recent travels, I had the opportunity to meet with several large national firms. At some point in our meeting I got the opportunity to review their engagement letters. For the firms who had these documents, and they are few, they were essentially a form letter that every prospective client received. I found it amazing and sometimes humorous that somehow the firm thought that every client was the same and every case was the same. If the firm didn’t believe this, why would they send all of their clients the same engagement letter! My one suggestion on engagement letters is to tailor them to the uniqueness of the engagement and the client. I am not saying that these letters run rampant. What I am saying, is that within the limitations of the firm’s credit and collections policy, the engagement letter should be tailored to the uniqueness of the situation. Here are some ideas that, I hope, will seed some thought in engagement letter evolution:
This engagement falls under “Pro Bono” work as defined by our firm, XYZ LLP. Under such engagements only the legal fees are “Pro Bono”, all costs and disbursements are to be paid within 30 days of receipt of our invoice.
The outcome of this type of engagement cannot be determined with any degree of certainty. It is only by way or a court judgment that the true position of this case is known. Therefore, I, ABC Ltd (client) agree to remit payment for all billings within 30 days of receipt. In addition, should any funds be disbursed into escrow, XYZ LLP retains the right to apply those funds to outstanding billing and remit the remainder to ABC Ltd.
It is important to keep in mind, no matter if we are a vendor, a client or a professional services firm, that our ultimate goal is collecting for services rendered. Steven Covey professes “Begin with the end in mind…” essentially he is saying to recognize that every action and client interaction must bring you closer to – getting paid.
The Romans were masters at never losing sight of what was important. Following all of their battles, the Romans would build elaborate roadways. The roadways, would lead from the town to Rome. Never did they build roadways between adjacent towns. The reason, the towns could rally together and oust the Roman invasion. The key here, focus on the task at hand and bind it! In every engagement, solidify the relationship such that “the road to Rome” is payment for your billing.
Monday, January 28, 2008
Prospecting with Receivables
A few times in the past year I wrote about the radical difference between organizational management in the corporate world and that of the professional services world. These differences permeate every facet of the entity, from vision to what type of coffee is available. It is for this reason that professional service organizations operate under a profit-limiting glass ceiling unlike their corporate counterparts. After years of research in this area, I have concluded that the managerial organization of professional service organizations is inherently flawed and this is the reason for the rampant inefficiencies that plagues all of these organizations.
The greatest absurdity placed on today’s law firm partners is the expectation that they have skill in all areas of organizational management. Although they may be well versed in reorganizations or stock issuances, they don’t have the unique skill in managing their own partnership. Then because there isn’t a single leader but rather a sea of partners, jugular issues are sacrificed for the sake of status quo. Regardless of the firm, today’s partners must maintain a threshold number of billable hours per year. They must manage billing and collections realization, manage junior professionals, build their client base, bill for services and collect on their billings all within a 168-hour week! Given time for sleep and commuting, all aspects of today’s partners’ time are sliced down to the 1/10th of an hour!
Following a few conversations with three partners of a prominent global firm, I would like to share some of the highlights of our discussions. The conversation on prospecting came about when I made notice of a significant achievement the firm had achieved in a new practice. My colleagues shared with me how difficult it was to get their practice where they needed it to be. They were pressed with the demands of keeping on top of the workload they had and prospecting for new clients. Although well versed in their area of specialty they had difficulty in getting hold of and conquering the prospecting function.
Prospecting is probably the most difficult job in an organization. The position is well suited to a person with a true hunter instinct. This individual must seek out organizations that could use their product or service, find the correct individual, get beyond the gatekeeper and make contact. Once contact is made, a relationship must be initiated, then nurtured either to the point of a sale or a parting of ways.
In the corporate world, businesses have specific people whose entire role is to be the hunter, to find the prospect and open the dialogue. Once the dialogue is opened then a product/service specialist is introduced. The specialist, through fact-finding, attempts to close the gap between the prospects needs and the firm’s offering. In a highly sophisticated organization, a closer is brought to move the process to the ultimate sale. However, in the professional services world, this entire process rests on the partner’s shoulders.
Sadly enough today’s partners don’t realize that prospecting is already at their doorstep. Some of the best prospecting leads are on the pages of their receivables listing! The beautiful thing about prospecting within the receivables listing is you already know the clients’ business, if they are good payers, and you already have a relationship. There are essentially two types of prospecting which can be done from a receivables listing, service expansion, and service extension.
Service expansion is a process of providing different services to the same client. By way of an example, suppose the firm has a client, a company in the business of automotive parts manufacturing. That client would definitely have a need for patents and trademark work because of their R&D technology. They may also require advise in employment law, possibly litigation, immigration and maybe estate planning for the principals. Today’s firms have to realize that their receivables listing is an untapped goldmine of new work just waiting to be mined! The first step in tapping this valuable resource is communication. It is the partner’s responsibility to maintain regular communication with his or her client and to find out their needs to see how the firm may be able to be of assistance. In addition, the partner should keep other departments and practice groups informed as to the type of client for whom they have just completed work. Essentially the firm must ensure that each client is aware of all of the services the firm offers. This type of behavior is slowly being realized when firms offer lunch-and-learn sessions on current topics. However, this “shotgun approach is better than nothing. Truly, what is needed is a highly refined strategic approach, such as a personal call to the client with information of a new law that could impact their business!
Service extension is much more involved and requires the partner to be more in tune with the client and what is going on within their organization. A good example of this was provided to me by a Director of Administration of a national firm. During our conversation on the topic of delinquent receivables, he brought up that one of the firm’s large national clients had requested better payment terms. When faced with this type of question, the firm must have a plan on how to react. Although my colleague’s firm did issue the extended terms, they got nothing in return when they should have!
In the December 2007 issue of Credit Today an article entitled: When Your Customer Asks for Extended Credit Terms, by Doris Solis, explains how this question opens the door to a myriad of opportunities for both the client and the organization. Solis expounded on the many reasons why clients seek extended payment terms and how a true credit professional must research the company before making a decision. This is a critical juncture in the relationship. The client wants something, extended terms and the firm wants something, payment of receivables. The key area of research for the credit professional is in the basis for the extended terms and the client’s ability to pay essentially the client’s credit score and their circumstances.
I shared the article with my colleague and explained how the firm took the wrong approach with the client. When faced with the question of extended credit terms, they should have undertaken a thorough analysis of the client and their ability to pay. What they would have found was that the client was a good credit risk and wanted better terms because they were undercapitalized while they were in a strong growth phase. Where the firm made their mistake was in not seeking something in return for the better credit terms! As it turned out, the client had legal work placed in nine other law firms. The firm should have opened a dialogue with: “we recognize that you are using ten firms to fulfill your legal needs. We could offer you extended payment terms and possibly better hourly rates if you agree to move, where possible, 50% of the work you place with other firms to our firm.” The end result, if taken, the firm would have new business from a good client without the hassles of prospecting for new clients!
Today’s firms have so much technology, that they simply fail to see the opportunities right before their eyes. The receivables’ listing clearly outlines the good, the bad, and the ugly clients. From there, firms could easily take the next step in expanding their business – learn more about the clients and communicate with them. Having a receivables listing in hand and knowledge of the client’s business, most of the prospecting hard work is done! Start using that collections intelligence wisely – prospect from your receivables!
The greatest absurdity placed on today’s law firm partners is the expectation that they have skill in all areas of organizational management. Although they may be well versed in reorganizations or stock issuances, they don’t have the unique skill in managing their own partnership. Then because there isn’t a single leader but rather a sea of partners, jugular issues are sacrificed for the sake of status quo. Regardless of the firm, today’s partners must maintain a threshold number of billable hours per year. They must manage billing and collections realization, manage junior professionals, build their client base, bill for services and collect on their billings all within a 168-hour week! Given time for sleep and commuting, all aspects of today’s partners’ time are sliced down to the 1/10th of an hour!
Following a few conversations with three partners of a prominent global firm, I would like to share some of the highlights of our discussions. The conversation on prospecting came about when I made notice of a significant achievement the firm had achieved in a new practice. My colleagues shared with me how difficult it was to get their practice where they needed it to be. They were pressed with the demands of keeping on top of the workload they had and prospecting for new clients. Although well versed in their area of specialty they had difficulty in getting hold of and conquering the prospecting function.
Prospecting is probably the most difficult job in an organization. The position is well suited to a person with a true hunter instinct. This individual must seek out organizations that could use their product or service, find the correct individual, get beyond the gatekeeper and make contact. Once contact is made, a relationship must be initiated, then nurtured either to the point of a sale or a parting of ways.
In the corporate world, businesses have specific people whose entire role is to be the hunter, to find the prospect and open the dialogue. Once the dialogue is opened then a product/service specialist is introduced. The specialist, through fact-finding, attempts to close the gap between the prospects needs and the firm’s offering. In a highly sophisticated organization, a closer is brought to move the process to the ultimate sale. However, in the professional services world, this entire process rests on the partner’s shoulders.
Sadly enough today’s partners don’t realize that prospecting is already at their doorstep. Some of the best prospecting leads are on the pages of their receivables listing! The beautiful thing about prospecting within the receivables listing is you already know the clients’ business, if they are good payers, and you already have a relationship. There are essentially two types of prospecting which can be done from a receivables listing, service expansion, and service extension.
Service expansion is a process of providing different services to the same client. By way of an example, suppose the firm has a client, a company in the business of automotive parts manufacturing. That client would definitely have a need for patents and trademark work because of their R&D technology. They may also require advise in employment law, possibly litigation, immigration and maybe estate planning for the principals. Today’s firms have to realize that their receivables listing is an untapped goldmine of new work just waiting to be mined! The first step in tapping this valuable resource is communication. It is the partner’s responsibility to maintain regular communication with his or her client and to find out their needs to see how the firm may be able to be of assistance. In addition, the partner should keep other departments and practice groups informed as to the type of client for whom they have just completed work. Essentially the firm must ensure that each client is aware of all of the services the firm offers. This type of behavior is slowly being realized when firms offer lunch-and-learn sessions on current topics. However, this “shotgun approach is better than nothing. Truly, what is needed is a highly refined strategic approach, such as a personal call to the client with information of a new law that could impact their business!
Service extension is much more involved and requires the partner to be more in tune with the client and what is going on within their organization. A good example of this was provided to me by a Director of Administration of a national firm. During our conversation on the topic of delinquent receivables, he brought up that one of the firm’s large national clients had requested better payment terms. When faced with this type of question, the firm must have a plan on how to react. Although my colleague’s firm did issue the extended terms, they got nothing in return when they should have!
In the December 2007 issue of Credit Today an article entitled: When Your Customer Asks for Extended Credit Terms, by Doris Solis, explains how this question opens the door to a myriad of opportunities for both the client and the organization. Solis expounded on the many reasons why clients seek extended payment terms and how a true credit professional must research the company before making a decision. This is a critical juncture in the relationship. The client wants something, extended terms and the firm wants something, payment of receivables. The key area of research for the credit professional is in the basis for the extended terms and the client’s ability to pay essentially the client’s credit score and their circumstances.
I shared the article with my colleague and explained how the firm took the wrong approach with the client. When faced with the question of extended credit terms, they should have undertaken a thorough analysis of the client and their ability to pay. What they would have found was that the client was a good credit risk and wanted better terms because they were undercapitalized while they were in a strong growth phase. Where the firm made their mistake was in not seeking something in return for the better credit terms! As it turned out, the client had legal work placed in nine other law firms. The firm should have opened a dialogue with: “we recognize that you are using ten firms to fulfill your legal needs. We could offer you extended payment terms and possibly better hourly rates if you agree to move, where possible, 50% of the work you place with other firms to our firm.” The end result, if taken, the firm would have new business from a good client without the hassles of prospecting for new clients!
Today’s firms have so much technology, that they simply fail to see the opportunities right before their eyes. The receivables’ listing clearly outlines the good, the bad, and the ugly clients. From there, firms could easily take the next step in expanding their business – learn more about the clients and communicate with them. Having a receivables listing in hand and knowledge of the client’s business, most of the prospecting hard work is done! Start using that collections intelligence wisely – prospect from your receivables!
Saturday, January 12, 2008
The First Step…
Now that the dust has settled or at least started to, I want to kick the year off with some reality. My last entry returned a flurry of responses, the nicest of which were, the modern day, “raspberries”. Some of the others made suggestions as to where I should dislodge my head from. Wherever the readers are in the spectrum of responses, one response prompted today’s entry. The note basically made it clear that I had no idea what was happening in their environment and that all I do is hurl inflamed statements regarding business management and don’t provide any direction for a resolution. Freedom of speech is a wonderful gift!
Dear writer, I do know what the professional services world is like. I have been here for almost two decades both on the front lines and working with clients. As an outsider, I see the reality of all of the firm’s actions without the emotional connection. The problem with today’s professional services organizations rests with those on the ground in the finance team. They are so disoriented and therefore cannot see the way out of the forest! They have fallen victim to ‘status quo’. They have decided that their fat paychecks carry more weight than making a change. They don’t want to go beyond doing what they should be doing which is to begin increasing the financial health of their employer. On a like for like comparison, people in the finance departments of law firms make more money than their corporate counterparts and do less work; less meaningful work! They are paid for complacency; a sort of ‘hush’ money.
Following my last entry, one of my colleagues, Charlotte, from corporate America, stepped forward with some suggestions on how to get legal collections into the 20th century. Once firms see the return on investment of modern day business management, then a movement into the 21st century is possible.
I met Charlotte at the 2007 National Association of Credit Managers (NACM) conference in Las Vegas, NV. The NACM is an organization of credit professionals from all industries who emphasize a better management of credit decisions through education and knowledge exchange. Over the past few months Charlotte and I have spoken to great lengths on credit laws and practices in today’s industry. Charlotte heads up credit and collections for a multi-billion dollar organization that has 40 plus offices in the United States. Her organization is currently in the acquisition mode and has assimilated several smaller entities in the last few months. Working with her staff of two, Charlotte has consistently over the past 10 years received accolades from executive management as her team has kept their DSO hovering around 37 days for net 30 credit terms. In listening to some of the trials of this large organization, I can appreciate that managing a multi-billion dollar AR portfolio requires strategy and skill and not MBC (management by crisis); more brains than brawn! Even through the several acquisitions, Charlotte’s team have managed to take torn and tattered AR portfolios and turned them into stunning gems.
Here is Charlotte’s roadmap for today’s legal firm.
1. I would recommend starting a process for new clients in 2008…it would be a bit overwhelming to get this going for all clients right off the bat. Established clients will not be receptive to the process of providing credit information; however, they should not be excluded from the collection process. Perhaps a modified collection process would be more in order for these accounts.
2. Start simple with credit policy (standard practice)…more can be added once the basic info is established. Application should include full legal name of client, address, contact info, credit references and contact person for payment. It should include the terms of payment & consequences of non-payment; spelled out terms in layman's language. (Do attorneys have an internal network to see if their clients are spreading out work? If so, you may want to consider sharing credit info with those attorneys as well to learn if they are getting paid).
3. Qualify the client and their ability to pay. Options to qualify--credit reports, personal guaranty, bank LOC, retainers, etc. Establish a credit line based on credit info record. If charges are near or exceed the credit line and the account is past due, a collection call should be initiated. Charges for new work should be reviewed and approved before additional work accepted. Total credit exposures include the WIP & AR and calculate accordingly to know total risk.
4. Explain the client collection policy and keep it simple. Would not recommend late fees or finance charges starting off but may want to consider it as an option if account goes beyond a certain predetermined time.
5. Be sure the client understands the billing; invoice regularly and in this environment may want to provide some way client knows about WIP. Also be sure client knows who he or she may contact within the firm to discuss invoices & charges. This person must be qualified to explain charges so the call does not escalate to the attorney.
6. Hire a customer friendly, credit professional to manage all aspects of the above while keeping attorneys out of the picture. (Not sure how to say it best for this environment, but in my world…the sales rep is the good guy and I am the bad guy…it works well in my world). My favorite adage is: "You can attract more bears with honey than vinegar any day of the week". Never back the customer/client into the corner but always give respect and offer options for a win-win solution. Finally, smile as it comes across in the communication.
There you have it, the first step to getting off the mark. All I can say is…start now, as October 1, 2008 will be too late to avoid the usual year-end train wreck!
Wednesday, January 02, 2008
Post War Blues
Welcome to 2008! Depending where you on the planet you could have been recognizing the birth of a New Year as much as 24 hours ahead of the rest of the others. Through the festivities to ring in the New Year, there will be hopes, dreams and resolutions for the New Year. At the same time, there will be memories of the ending year.
For those firms with a December 31st year-end, the stress and anxiety of the final day in 2007 is now history. For accrual-based firms, the mad dash was to get the work in progress converted to accounts receivable. While for cash-based firms, the goal was to get as much accounts receivable converted to cash as the budget dictated. Regardless of the type of goal, the deadline has past! At this point, there is nothing you can do to alter 2007. Now, depending on your organization, you will be faced with the year-end audit; the numbers are what they are!
A faint memory of my days in public accounting, I recall that auditors were those who came in after the war was lost and bayonet the wounded. For many, the war was considered lost when the actual outcome was significantly different from the budget. I would guess that today, many finance people are reflecting on their firm’s 2007 goals, their degree of success, while many are feeling quite wounded. Regardless of when you return to the office, the remnants of 2007 will be everywhere and the task of clean up and starting a new year will begin. I am reminded of those feelings; post the April tax deadline when in public accounting and post December 31 when I was at a law firm. The medical world had identified those feelings and labeled it as postpartum depression. Although medically it relates to something significantly different, I can identify with the symptoms. It is the day after the war, the point when all stress and anxiety has diminished and only a sense of emptiness remains.
Over the coming weeks those feelings of emptiness will wane and will eventually be replaced by the day to day excitement of the New Year. We will settle in on becoming aligned with our new budgets and our new goals for 2008. By mid-February we will vaguely remember the long hours, the stress and the adrenaline rush of the last 90 days of 2007. The most important thing we will bring forward from 2007 will be our old habits and 2008 will unfold as 2007 had. It is important to realize that there are many roads to success in order to meet expectations. However the path chosen is what's very important. In achieving the goal of a certain profit figure, one could increase the revenues, decrease the expenses or affect both the revenue and expenses at the same time. Regardless of how you get to the goal, some roads to success are less burdensome. Maybe 2008 is the year to try a new path.
Over the years, I have written a lot about the year-end crunch and how it is the time bomb of insanity. On those occasions I brushed on doing things new and in different ways. I would encourage you to kick 2008 off with a paradigm shift; a radical new way to look at your business and the management of inventory and cash. Isn’t now the perfect time, as we are forming the foundation to December 31, 2008? In my earlier writings I basically outlined that there are only 3 reasons why clients don’t pay bills: relationship, billing and economic. I have also professed that not all clients are the same, therefore a one size fits all credit and collections policy simply doesn’t work! Therefore to make a radical impact on cash receipts, firms should look at their policies and practices as they impact the key reasons why clients don’t pay.
The first step down this paradigm shifting experience; recognize that all clients are not the same! Recognize that the world is constantly changing. Your cash flow is directly related to the economics of where you operate, the clients and how the economy affects them. The foundation must begin with a credit policy, a policy that recognizes a dynamic economy affecting your firm and your client’s operation. Now is the time to set a credit policy, not a policy where any client can be extended any amount of work. But a policy that looks at how much risk, in each client, the firm is willing to absorb. The credit policy will form the basis of the collections policy, which will determine how the process goes from billing to ultimate cash receipts. From here, firms must establish benchmarks and milestones throughout the year to ensure they are on target.
According to Dr. Charles Gahala, CCE, Professor of Finance at Benedictine University, setting milestones and benchmarking performance are some of the best tools available to identify focal points for improving credit deparment operation. Dr. Gahala goes on to state, in his article Practical “Best Practices” to Integrate Benchmarking into the Credit Department, that the setting of milestones and firm management through benchmarking requires the buy-in of top management. Basically, the entire partnership must be in full agreement that the new process of establishing a reasonable credit and collections policy and its monitoring, is what is needed to achieve the desired results, without the anxieties of the past.
Terry Callahan, CCE in his article Benchmarking to Measure your Performance, makes a very strong statement in “Tell me how I am rewarded, and I will tell you what my focus is”. The partnership must recognize that the better way is at their disposal. However, it takes a leap of honesty to conclude the current methods are not working and a change is needed. With a solid credit policy and a process for collections, today’s firms can reap huge financial benefits without the stress and anxiety of the year-end push. Today’s law firm doesn’t have a problem in communicating, with the voluminous reports that are created each month. The problem with today’s firm is that no single leader exists that is willing to admit that the current methods are simply not working as they have. The old adage hold, if it isn’t broke, don’t fix it. While many brilliant minds of today say, if it isn’t broke, ‘break it” and rebuild it better.
To break away from the insanity of the past, the firm must establish realistic goals and also realize that as the economy changes the means for achieving the goals must change. In 2007, the US economy suffered a series of financial blows in the sub-prime mortgage sector. The economy changed, but many firms didn’t! Today, those firms are now sitting with millions of dollars invested in those sub-prime lenders with really no way to collect. Moreover, those same firms are now overstaffed in corporate groups with associates having no work. I have read about on east coast firm that bantered with the idea of downsizing their corporate group. But there had never been lay-offs in the associate ranks in the history of the firm. Obviously no one recognized the economy changing or they were too afraid to make a change. Too bad!
It is high time that the professional services world looks at the corporate world for direction on how to truly run a business, that is, if the firm wants to run like a business. If you have been a regular follower of my commentary you will recall my reference to Slater & Gordon, the world’s first publicly traded law firm. They took the quantum leap in May 2007 and today they continue to tout their unprecedented growth in profits and increasing market share. Success in today’s firms must now be marked with the words: credit policy, collections policy, profits, milestones and benchmarking. To get the ball rolling, here are some facts from corporate America that set out the road ahead.
1. The median cost of performing the credit function is 0.028% of billing.
2. The average corporate firm will experience AR turnover of 8.88 times per year. That is average days to pay, based on net 30 terms, is 41 days!
3. Most credit professionals manage a portfolio of 700 customers.
4. In corporate America, 52% of companies use an auto-cash application system that automatically applies payment to over 80% of the bills.
5. 52% of all companies assign a risk code to their clients.
Here we are at the fork in the road, we can make 2008 a mirror of 2007 or we can do something different, something better. Now is the time to act, as December will be too late!
“Two roads diverged in a wood, and I -- I took the one less traveled by, and that has made all the difference" - Robert Frost
For those firms with a December 31st year-end, the stress and anxiety of the final day in 2007 is now history. For accrual-based firms, the mad dash was to get the work in progress converted to accounts receivable. While for cash-based firms, the goal was to get as much accounts receivable converted to cash as the budget dictated. Regardless of the type of goal, the deadline has past! At this point, there is nothing you can do to alter 2007. Now, depending on your organization, you will be faced with the year-end audit; the numbers are what they are!
A faint memory of my days in public accounting, I recall that auditors were those who came in after the war was lost and bayonet the wounded. For many, the war was considered lost when the actual outcome was significantly different from the budget. I would guess that today, many finance people are reflecting on their firm’s 2007 goals, their degree of success, while many are feeling quite wounded. Regardless of when you return to the office, the remnants of 2007 will be everywhere and the task of clean up and starting a new year will begin. I am reminded of those feelings; post the April tax deadline when in public accounting and post December 31 when I was at a law firm. The medical world had identified those feelings and labeled it as postpartum depression. Although medically it relates to something significantly different, I can identify with the symptoms. It is the day after the war, the point when all stress and anxiety has diminished and only a sense of emptiness remains.
Over the coming weeks those feelings of emptiness will wane and will eventually be replaced by the day to day excitement of the New Year. We will settle in on becoming aligned with our new budgets and our new goals for 2008. By mid-February we will vaguely remember the long hours, the stress and the adrenaline rush of the last 90 days of 2007. The most important thing we will bring forward from 2007 will be our old habits and 2008 will unfold as 2007 had. It is important to realize that there are many roads to success in order to meet expectations. However the path chosen is what's very important. In achieving the goal of a certain profit figure, one could increase the revenues, decrease the expenses or affect both the revenue and expenses at the same time. Regardless of how you get to the goal, some roads to success are less burdensome. Maybe 2008 is the year to try a new path.
Over the years, I have written a lot about the year-end crunch and how it is the time bomb of insanity. On those occasions I brushed on doing things new and in different ways. I would encourage you to kick 2008 off with a paradigm shift; a radical new way to look at your business and the management of inventory and cash. Isn’t now the perfect time, as we are forming the foundation to December 31, 2008? In my earlier writings I basically outlined that there are only 3 reasons why clients don’t pay bills: relationship, billing and economic. I have also professed that not all clients are the same, therefore a one size fits all credit and collections policy simply doesn’t work! Therefore to make a radical impact on cash receipts, firms should look at their policies and practices as they impact the key reasons why clients don’t pay.
The first step down this paradigm shifting experience; recognize that all clients are not the same! Recognize that the world is constantly changing. Your cash flow is directly related to the economics of where you operate, the clients and how the economy affects them. The foundation must begin with a credit policy, a policy that recognizes a dynamic economy affecting your firm and your client’s operation. Now is the time to set a credit policy, not a policy where any client can be extended any amount of work. But a policy that looks at how much risk, in each client, the firm is willing to absorb. The credit policy will form the basis of the collections policy, which will determine how the process goes from billing to ultimate cash receipts. From here, firms must establish benchmarks and milestones throughout the year to ensure they are on target.
According to Dr. Charles Gahala, CCE, Professor of Finance at Benedictine University, setting milestones and benchmarking performance are some of the best tools available to identify focal points for improving credit deparment operation. Dr. Gahala goes on to state, in his article Practical “Best Practices” to Integrate Benchmarking into the Credit Department, that the setting of milestones and firm management through benchmarking requires the buy-in of top management. Basically, the entire partnership must be in full agreement that the new process of establishing a reasonable credit and collections policy and its monitoring, is what is needed to achieve the desired results, without the anxieties of the past.
Terry Callahan, CCE in his article Benchmarking to Measure your Performance, makes a very strong statement in “Tell me how I am rewarded, and I will tell you what my focus is”. The partnership must recognize that the better way is at their disposal. However, it takes a leap of honesty to conclude the current methods are not working and a change is needed. With a solid credit policy and a process for collections, today’s firms can reap huge financial benefits without the stress and anxiety of the year-end push. Today’s law firm doesn’t have a problem in communicating, with the voluminous reports that are created each month. The problem with today’s firm is that no single leader exists that is willing to admit that the current methods are simply not working as they have. The old adage hold, if it isn’t broke, don’t fix it. While many brilliant minds of today say, if it isn’t broke, ‘break it” and rebuild it better.
To break away from the insanity of the past, the firm must establish realistic goals and also realize that as the economy changes the means for achieving the goals must change. In 2007, the US economy suffered a series of financial blows in the sub-prime mortgage sector. The economy changed, but many firms didn’t! Today, those firms are now sitting with millions of dollars invested in those sub-prime lenders with really no way to collect. Moreover, those same firms are now overstaffed in corporate groups with associates having no work. I have read about on east coast firm that bantered with the idea of downsizing their corporate group. But there had never been lay-offs in the associate ranks in the history of the firm. Obviously no one recognized the economy changing or they were too afraid to make a change. Too bad!
It is high time that the professional services world looks at the corporate world for direction on how to truly run a business, that is, if the firm wants to run like a business. If you have been a regular follower of my commentary you will recall my reference to Slater & Gordon, the world’s first publicly traded law firm. They took the quantum leap in May 2007 and today they continue to tout their unprecedented growth in profits and increasing market share. Success in today’s firms must now be marked with the words: credit policy, collections policy, profits, milestones and benchmarking. To get the ball rolling, here are some facts from corporate America that set out the road ahead.
1. The median cost of performing the credit function is 0.028% of billing.
2. The average corporate firm will experience AR turnover of 8.88 times per year. That is average days to pay, based on net 30 terms, is 41 days!
3. Most credit professionals manage a portfolio of 700 customers.
4. In corporate America, 52% of companies use an auto-cash application system that automatically applies payment to over 80% of the bills.
5. 52% of all companies assign a risk code to their clients.
Here we are at the fork in the road, we can make 2008 a mirror of 2007 or we can do something different, something better. Now is the time to act, as December will be too late!
“Two roads diverged in a wood, and I -- I took the one less traveled by, and that has made all the difference" - Robert Frost
Saturday, December 15, 2007
The Ending Twelve…
As we approach December 31st, all of our hopes and dreams will be indelibly encrypted in the annals of time and only the memory will continue. Sadly enough, the human mind never remembers the original event, but rather a memory of the memory. Through time and new events the facts of the original event gets distorted and frayed in our minds. It is only through reviewing evidence of history that the memory, or rather memory of the memory, comes to the forefront of our minds.Current research into how memories are maintained suggests that the original facts of an event can be lost forever. The research suggests that the senses take precedence over memory. In the study, the researcher took a sample of people who lived through the 1989 events of Tiananmen Square. The sample population was separated into two groups. Group A, were shown pictures of the actual events, while Group B were shown altered pictures of the event. Group A recalled the 1989 event as it occurred. However, Group B had a completely different recollection; very much in alignment with the pictures they were shown.As I watch the sun breaking the horizon, the finality of 2007 is at the forefront of my mind. For the most part, it was a good year filled with successes and tremendous learning experiences. However, as I undertake that arduous task of clearing up emails I am catapulted back to some of the most interesting events of 2007. Until this moment, I had truly lost appreciation for the events that have shaped 2007 and me, personally and professionally. Those events are now lost in time and unless I make the effort to seek them out, I will continue, as always, looking forward to tomorrow. All the while, failing to learn from the past, make the best of the present with the view of reshaping my future.Today is day twelve for cash basis firms with a December 31st year-end; the twelfth deposit day until 2008. To these firms, the race to the finish line is in the home stretch. At this point, nothing is of value but to make the “magic number”. All success is based on the achievement of that goal. However, sadly enough – it doesn’t matter! It doesn’t matter because midnight December 31st marks the end, whether or not the goal is met. From that point, a new goal begins. The events of 2007 will then be packaged in the hearts and minds of everyone and we will step into 2008.Although I am not one to follow popular culture, there is a piece of music that resounds of the finality of the endings and the perpetuation history. Closing Time by Semisonic has a line that screams what we have been discussing…“Every new beginning is from some other beginning’s end”. Every event in our lives is gauged against the yardstick of beginning, middle and end. What we fail to do is to understand this continuum and learn from events. We tend to be so caught up in “what’s next” that we fail to learn from our past.Last week I had the opportunity to have lunch with a CFO of a national firm, at a time where every minute is precious. The conversation at hand was how his team has some exorbitant amount to collect before December 31st. The number, which he shared, was significantly higher than in previous years. We spoke about the number and some of the other dynamics of the firm. I came to realize that the feat that was to be accomplished was simply impossible! When I said, with my usual bluntness, Terry (not his real name) that goal is impossible. The deafening silence that resulted was pierced with a sullen ‘I know’. The conversation went down the road of what the partnership needed was a specific number; but all of the dynamics through the year didn’t point to that growth. Instead the events pointed toward 15% shrinkage of the firm.In cleaning up my emails, I found emails from Terry that marked highlights of 2007. These range from adoption of new technology, new processes and expansion into new markets. But today, none of those things matter. What matters is the end, the countdown to the end. The joys and expectations of early 2007 will culminate in disappointment and failure. Sadly enough, 2008 may be fraught with more of the same, as 2008 will begin with new budgets, new expectations, new goals and aspirations, but sadly the same practices. This process calls to mind something I have heard a while ago “insanity is the result of doing the same things the same way over and over, but expecting different results”.In reflecting on 2007, I feel that we fail to have a postmortem on events, personally and professionally, to learn from the past in order to reshape the future – to ward off insanity. Regardless of what the next twelve deposit days bring, realize that the fate of the outcome has been predestined with each passing day of 2007. Once the beginnings of 2008 rain in, take a moment, dig up those old reports, the minutes to 2007 meetings, check emails, and reflect on the actions of 2007 and how they have culminated into the outcome. Keep in mind that the past is recreated in your mind by the information you use to trigger the memory. Create the ‘correct’ image by reviewing ALL the facts – not only the positive ones. Without the ‘correct’ view of the past, the will to change the future will only be a recapitulation of what has already happened.
Saturday, December 01, 2007
Newtonian Physics and Law Firm Collections
My entries of late have stimulated a flurry of responses from my colleagues in the corporate world. To them, the practices of law firm collections are completely unfathomable. It wasn’t until the trailing end of last week that several conversations triggered my analysis into, why behaviors of law firms are the way they are and why they will continue without change. On November 26, the thought provoking conversation took place. My colleague said, “Precedence has been set and it takes one (firm) to break away from the pack, to make change...” That single statement had two very powerful elements. Firstly, the precedence has been set and secondly, the concept of breaking away, which in itself bears with it a question of the effect of breaking away.
In dealing with the first part of the statement, “the precedence has been set”. We have to realize the practice of law, like any other profession is steeped in tradition; for which many practices have continued through generations. With such tradition, there was and continues to be no compelling need to change. Essentially historical practices have set the stage; to be the mold that shapes the present and the future. The second key concept questions, what if there is some stimulus or reason for a single firm or firms to break away from the status quo and undertakes change, what would happen? With such a radical change, will other firms follow suit or will the firm breaking the status quo be alienated from the market? The answers to these questions, I feel, date back to the mid-1600’s during the inception of classical physics.
To sum up briefly the questions to which we seek insight, are: (i) the precedence is set and what is needed to break away from the status quo, and (ii) how will the break away affect the firm and market as a whole? Insights into these were first postulated by Sir Isaac Newton in 1687 in his treatise, Philosophiae Naturalis Principia Mathematica. At the time, Newton was simply examining the physical world, seeking to understand why the world behaved as it did. This treatise later became the very foundation of some of the most pivotal laws in physics.
Newton’s First Law of Motion states that every object will remain at rest or in uniform motion in a straight line unless compelled to change its state by the action of an external force. Well isn’t that today’s law firm, when it comes to collections practices? Each year we do the same thing! January to March we assess the wounded and close the year. April to July we are into reporting. July to September we are talking to our partners about WIP and AR. October to December we are manic trying to make the ‘budget’ number! Basically, we continue to do what we have because there is no force providing the impetus to change. Our inertia propels us forward on a pilotless trajectory; it has always been this way and we have done well, so it will always be this way and we will always do well.
Unlike the Laws of Physics, the pilotless inertia of current law firm collections practices needn’t go unchecked or unaltered. It is our own failure to make change that is at fault here and not the environment. Ed Poll in his “holy grail” of law firm collections, “Collecting Your Fee”, explicitly states that firms have only themselves to blame for their collections woes. I feel this is partly the case, Newton’s First Law suggests the reason why these bad habits perpetuate – there is no external force to change! Borrowing from the medical profession, at one point in history, they (doctors) too were poor collectors, just like law firms. But what happened, an outside force got involved – insurance companies. The insurance companies took over the financial management of medicine and left the practice of medicine to the practitioners. The actuaries of the insurance companies did what they did best – profit management. The practitioners were left to do what they did best – practice medicine. I feel it will take some extraordinary outside stimulus to corral the legal profession into a more refined business model. One where financial management has been stripped away from the firm and placed in the hands of a body who has such expertise and leave the practice of law to the lawyers! (For those who have been following my posts, I suggested this direction several months ago.)
Let’s say for the sake of argument that one firm, on January 1, decides, “we are going to break away from the pack behavior and do things right”. We will have solid engagement letters clearly outlining our terms, we will have our dockets done by the end of each business day, bill all WIP by the end of the month in accordance with the engagement and our collections team will be on the client by the 35th day; what will happen? If your immediate answer is, that firm will be grotesquely profitable and everyone will get enormous bonuses. You are wrong!
A firm that engages in such a ‘radical’ departure from the status quo will not get the results, as theory would suggest. No Newton’s Third Law of Motion states that for every action (force) in nature there is an equal and opposite reaction. It is the client’s ‘reaction’ that is not being considered, that would lead one to believe the firm would be immediately grotesquely profitable. Any action that the firm undertakes will be received by and reacted on by the client and often in opposition to what we expect. If you don’t believe this third law, let’s deviate for a second to aspects in life to which we are familiar. Let’s say, the government hikes up interest rates. The effect, everything for the average person gets more expensive. They lower interest rates, everything gets cheaper. This impact affects our discretionary income and therefore our spending. Another good example, but complex, is the effects of taxation. In the simplest sense, the government needs more money. So they raise taxes, that begets them the government more money. Where does it come from? The taxpayer’s pocket, which then through the multiplicative effect of taxation, the population’s discretionary income decreases and so does spending!
Returning to our firm that undertakes a full 180-degree change to become more in alignment with better business practices of the corporate word. I postulate such an avant-garde firm will endure a very rough and rocky financial future. For the clients who have become used to a 120-day plus collections term and are now faced with 45-day terms, will seriously rethink their engagement with the firm. To these clients, up to that point of change, the law firm was their banker through interest free credit. The problem is further compounded since lawyers have commoditized the practice of law. Any radical move in client management, I feel, would drive clients to the other firms that offer more palatable practices. Personally, I would like to carry interest-free debt for 120+ days, oh and negotiate a deal at year-end instead of paying my bills in 45 days. Imagine how wonderful it would be to carry your MasterCard bill, interest free, for 4-6 months then within the last couple of weeks of the year get a 10-20% discount. Who wouldn’t think that is great and who wouldn’t get upset at the departure from that ‘status quo’!
Does this spell doom and gloom for today’s legal practice? I don’t believe so. I feel that eventually firms will hit the glass ceiling on profitability. It may be this glass ceiling that is the impetus to change. Until then, firms will continue to settle in on what they have had instead of what they could have. However, if they were to stretch to what they could have, through small incremental changes in their business practices, they will achieve immense success. The refreshing reality is, some firms have undertaken the journey. I personally know of six. One of which I met last week. On Friday, November 30, I had the privilege of speaking with the CFO of one such firm, an eastern United States firm, who has been in existence for over 100 years. Throughout our conversation I was amazed how the CFO and the collections manager were so calm. I asked if they had a December 31st year-end and why they weren’t completely manic like all of their U.S. counterparts. To which she (CFO) answered: “if you batten down the hatches all year long, there is no need to go ‘manic’ in the last few weeks of the year”. She was referring to a consistently applied methodology for running the firm that achieved profits throughout the year, not in the last 22 deposit days. Anything is possible, there simply needs to be an external stimulus to change and then management of the cause/effect of the stimulus.
Monday, November 26, 2007
Your Political Correctness is Upsetting My Freedom
Anyone living in the
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,
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
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!
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