There are reasons why I've hesitated to write about something as important as accounts receivable and collections in my tenure with Surface Fabrication. First, it's not exactly the most exciting topic to tackle, and really, who wants to spend even one extra minute reading about a subject that causes many businesses nothing but anxiety and frustration? It's like reading yet another male-oriented article that wags its finger at you about scheduling invasive "after 40" diagnostic tests. Besides, it's such a huge subject, it can barely be tapped.
You may also have a lingering bad taste for "How To Collect" articles because you've run across too many written by business owners who have yet to experience a prolonged meltdown where receivables spin out of control or, even worse, this author and presumed expert has never actually personally performed collections. These A/R virgins have an entirely different perspective — one that's clinical and clean, one that tends to bug the rest of us who've seen it all. Sometimes the writer presents his or her credit and collection policies and then proceeds to tell how the company practices complete and perfect adherence to them in a way that has no relation or relevance to us human beings from planet Earth.
You must have encountered these brilliantly restrained business wizards before, correct? They are the ones who perform 87-point credit checks on every customer who has the courage to inquire about opening an account. Those brave credit seekers who agree to submit themselves to a forensic financial audit that includes fingerprinting, toe-printing and a "You Can't Handle The Truth" Guantanamo Base-inspired cavity search, go through quite a lot for that $250 line of credit, don't they? This article is for the imperfect companies that dare to be sometimes needy enough, and even occasionally greedy enough, to take an unwise risk with a shaky account or land a big order that will shallow out your cash flow. Regardless of today's temperature, the weak economy has made for some chilly money. It's time to bring your older cash in from the cold. It's time to get real about your receivables.
WHAT DO TOUGH GUYS DO IN A RECESSION?
When you read this column, there's a good possibility that a recession will have been officially declared. Even though I see an ample woman standing just offstage, doing her vocal warm-ups, we at Surface Fabrication take pride in our technical accuracy about everything — even the status of our tipsy economy. So . . . until that corpulent gal starts her caterwauling, this country just has a case of The Chinese I.O.U.'s. Now, what's our next move? When in doubt, copy a leader. What do tough guys do in a recession? Tough guys get real. (Ladies, here the term "guys" is meant to carry no gender association — in New Jersey, where I live, we're all guys.)
1. Tough guys dedicate themselves to two sustaining principles: a) the only thing that matters anymore is your reaction to the economic environment around you, and b) recessionary periods are natural, necessary, temporary and brimming with opportunity for anyone willing to work hard and be creative.
2. Tough guys know that recessions both destroy and create, and they see the long-term value in both actions. They mop up excess and free up critical resources to be deployed more efficiently elsewhere. Survivors of the deep downturn are those who were prepared and eager to hang 10 on the wave of change.
3. Tough guys realize that recessions are not mysterious; the economy gets smaller and business activity goes down. People buy less and worry more — looking for ways to conserve cash. They militarize and mobilize their entire organization, calling on each employee/soldier to focus on cash flow so that bills are paid, paychecks are issued, marketing initiatives live on and the customer base expands.
4. Tough guys develop Hubble-Vision so they can spot new trends before others. One of the best early indicators for economic contraction is a seemingly minor slowdown in receivables (the result of your customers beginning to conserve cash at your expense). Just having your average collection time slip from 34 days to 38 days (a 10 percent slide) can be the super high-pitched whistle that makes the tough guys of the business world tip their heads like The RCA Victor Dog. Tough guys can "hear" a recession coming. Are you listening?