The case for employing more credit staff
This article first appeared in the NBR in February 2009
A Malaysian banker emailed me his CV, unsolicited, last weekend. He likes the lifestyle in New Zealand, so he was looking for a job. He works in a euphemistically-named "special assets management" team, the special assets concerned being problem accounts. I couldn't help him but I mention him because I'm encouraging many of my non-banking clients to set up this type of team. I think many businesses will find this type of team important as more and more of their customers run out of money over the next few years.
The structure of credit operations is surprisingly important. The right structure assists prioritisation, and without effective prioritisation you won't have a successful debt collection operation. Let me give three variations of the problem of poor prioritisation, and some solutions.
First, there is the common problem of someone - the office manager or the owner or the general accounts person, for example - whose wide range of responsibilities also includes debt collection. They will often procrastinate over making collection calls, probably because they're scared. The more you do it, the less scary it is. If it's possible to change the job so that there are fewer non-collection distractions, it's usually better for both the person concerned and the business.
Then there is the organisation that gives its collectors portfolios of overdue debt which they manage from the day they become overdue until they are either paid or written off. The temptation for the collectors is simply to collect the new debt because that is easiest to collect, and ignore the old. In this case, the easiest answer is to restructure the team. Give some people the debts less than 30 days old, some the debts 31 days to 60 days, and so on. If the collection results from the oldest tranche of debt didn't justify the expense of collecting it, you would write those debts off and forget about them. If they did justify the expense, you'd add some more staff until you maximised the return.
And last, and most important in the current economy, there is the problem of collectors with a mix of debts - some simple, some complex. If your typical collection is a two-to-ten minute phone call, (as it is for many collection staff), what do you do when you strike one that requires much more time? You probably can't easily ignore your other accounts while you invest a day on it, even when the money involved justifies doing so. So you do an inadequate job, or you pass it on to your boss (who doesn't have time either); the matter drags on and on. Eventually you write the debt off and send it to the debt collectors. But by then it's too late.
To address this problem, most banks hand over problem business accounts to a specialist team. This team has more time to look into solutions, carry out negotiations, arrange extra security, restructure debt, and, if necessary, instruct lawyers or receivers.
At least one Australian bank also has a similar team for problem consumer debts, an approach which I understand their regulators believe should be a model for other Australian banks.
Here's the reason many non-banking businesses should think about setting up such a specialist team: it works. If you have the right people with the time to invest in finding the best outcome, you collect more money.
I know that most New Zealand businesses are cutting back on staff, not employing, but time-consuming debt problems, by definition, take time. You probably don't have enough people and you may not have the right skills in your credit team.
If that's the case, let me know. I can put you onto a Malaysian banker who wants to raise his kids in New Zealand.
Peter Hattaway is a director of Hattaway & Associates Ltd, Credit Consultants, www.hattawaysconsulting.com. This article is not legal advice.