For most folks, Christmas is a happy time. Kids getting out of school, family coming in from all around, and the workplace is lighthearted and in a party mood. Unless, of course, you are finishing up the fiscal year and getting heat from above to accelerate your efforts to bring in revenue and reduce debt. In my case, that means collecting before the end of the year on your hardest cases, and to reduce our bad debt. This month I have been challenged to reduce Bad Debt by 80 percent in a single month and to reduce DSO to a full 12 days lower than it was at the end of October.
Went again to the dentist this week, part three of four in my Why It’s Bad to Break a Tooth adventure, complete with root canal and costs for a crown. I got my ‘temporary crown’ today, which is a white plastic thing which looks like a mini tooth tarp. At least it’s better than what I had before. But any day which includes getting your teeth drilled is one I’d like to get past.
But back to the job. In any company, some of your customers won’t pay all they owe, and some won’t pay at all. Obviously, if you knew they would do this you would not sell to them, or at least you would try very hard to address in advance whatever caused them to refuse payment. But all sorts of problems come up, ranging from errors by your company to out-and-out thieving by a customer. So the first problem is sorting out what happened, which is where all good collections work starts.
It should be obvious, of course, that by the time a balance becomes Bad Debt, you have something that cannot easily be sorted out. Looking at my own Bad Debt Leaderboard, I see late delivery, contract terms disputes, repair complaints and customers trying to hide from their debts as the top reasons why an account gets into Bad Debt.
The fun thing about these issues, is that most of them are simple enough to work out. If we have made a mistake, we make things right, by either repairing the product, replacing it, or refunding the money after it’s returned. Now I will admit that sometimes some of our people would promise a credit then forget about it, but I have also found customers who claimed to have returned product, then when asked for proof of delivery, it finally comes out that they never returned it and it’s been sitting on their warehouse floor for months. What both sides have in common on these things is a real strong reluctance on some folks’ part to admit when they made a mistake.
So my partner and I have lowered DSO from about 72 earlier this year all the way down to 54 right now, and we’ve cut about a hundred thousand out of bad debt, not including adjustments made for credit memos owed by Sales. Trouble is, we’re expected to cut DSO down to 50 by end of year, and cut another hundred thousand of Bad Debt in the next eight business days. Considering our Best Possible DSO (DSO based on just invoices not yet due, assuming every single customer pays on time and all issues and disputes are resolved with payment) looks to be around 52 at year-end, we’ll need to do the impossible to meet the standard. As for Bad Debt, considering most of the remaining debt comes from product that was delivered late and the rest is for customers who don’t answer calls, we’d need a sequel to Mission:Impossible to get that done by December 30.
Ho ho ho becomes ow ow ow.
Anyway, that's sort of why I have not posted anything. The rest of my life has been even more boring, although I may have some comments regarding Age Discrimination in talking about my wife's job, depending on how things work out.
Best wishes to all, and to all a Merry Christmas.