Carl Hughes
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What if you could improve the quality of your customer base, permanently reduce your debt, enjoy larger profits and increase
the value of your company without the need for more people or capital?
This is a possibility for all retail propane distributors by implementing a simple, yet disciplined, accounts receivable management
program.
How well a company manages this area of the business can be a characteristic that separates a quality company from a troubled
one. For those who are weak, the good news is the above benefits are available to those who choose to implement a plan. The
results of a plan are easily measurable, and improvement can come quickly.
Incorporate a good planActually, a quality accounts receivable management plan encompasses three key areas of our businesses. First, begin by selecting
only quality customers. Second, be clear about payment expectations with all customers. Finally, hold customers accountable
to what they have agreed to do – pay you on time.
While I cannot write your plan, the following list represents the core elements your plan should include:
1. Do the work on the front end and select good customers. - Require credit applications from all new customers.
- Have a clear credit policy that determines what standards a new customer must meet to be approved.
- Select and train specific roles for credit approvals.
- Clearly spell out payment expectations for all sales processes.
- Allow COD as the only alternative to an approved credit application.
2. Monitor receivable balances daily.- Cut off past-due accounts.
- Do not allow any double fills.
3. Collections process- Establish a system to monitor balances daily.
- Initiate increasingly stern past-due letters.
- Realize that phone calls are more valuable than letters.
- Train employees on procedures for collection calls.
- Turn bad debts over to collections immediately – waiting costs money.
- Allow only senior managers to make exceptions to the policies.
4. Success requires full company commitment, including sales, service and especially senior management.
Results of a successful plan
A key for any successful receivable management plan is the diligence of ongoing daily execution. Consider these three criteria.
There are many measurements of success, but I believe that anything short of these standards demonstrates areas for improvement.
- Current account balances should be 60 to 70 percent of total receivable balances (assuming a disciplined write-down program
for bad debts).
- Current balances plus balances no older than 30 days past due should represent 80 to 90 percent of total receivable balances.
- Bad debt should not exceed 1 percent of sales.
