PROBLEMCONTEXT
Companybackground
SMCTanTaoLimitedCompanyisthecompanyprofessionalintradingandimportingvarioustyp esofsteel,metalgoods,constructionmaterials,interiordesignmaterialsandc o n s t r u c t i o n equipmentofallkinds,mechanicalequipment,andframewarehouses,factorieswithaluminumstr uctures,steelandstainlesssteel.
Symptomsoftheproblem
OnSMCTanTao’scashflowstatement,theoperationalcashflowfrom2014to2016c l e a r l y isn egative,thismeansthecompanycannotcoveroperationssolelyfromrunningthebusiness.Negativ eoperationalcashflowalsosignifyagrowingcompanythatishiringpersonnel,oritcouldsignifyac ollectionsproblemorpoordebtstructure.
ThistableshowthedifferenttimeperiodbetweenAve.CollectionandPaymentperiodofS M C TanT ao(SMC),TienLen(TLH)andHoChiMinhCityMetal(HMC)CompanyinS t e e l CommercialIndu stryinVietnam.Asageneralrule,theaveragecollectionperiodshouldnotbelonger(1+1/3)ofaverage paymentperiod.Comparingratiosofthreecompaniesabove,thereisasignificanthigherimbalancebet weentworatiosatSMCthantheothercompanieswhenthetimetocollectmoneyfromcustomersisne arly15dayslongerthantimetopaythesuppliers(4daysatTLHand5daysatHMC).B e c a u s e the
Customer's payment status of SMC TT in 2016
Longer than 40 Days Overdue paymenttermofsteelexporterisusuallyfixed,alongercollectionperiodinthiscasewillh a v e negativ elyaffecttheshort-termdebtpayingabilityoftheSMC’sbusiness.
Theissueofhighcollectionperiodratio(orlate– invoicepayment)hasbeencitedasamajorproblemfacingbusiness,andinthe2016DebtManagement ReportofSMCTanT a o , theunusuallyhighrateoflatepaymentofcommercialdebthasfoundwhen 67%ofcustomersbyrevenuehaveinvoicesthatpaylaterthanthepaymentterm.Thebelowchartw i l l showaveragenumberofdaysoverduein2016:
PROBLEMIDENTIFICATION
Situationanalysis
Todeterminewhetherornotaveragecollectionperiod(Table2)resultsaregood,simplycompareavera geagainstthecredittermsSMCTanTaooffertheirclients.Thecompanya l l o w s their71/108clientc redittermslessthan15days(accountfor72.40%ofsalesr e v e n u e ) , buttheaveragecollectionperiod is31.03(Table2)days,whichistroublesome.Thebelowtablewillshowdetailofaveragenumberofd
Inaccordingtotheinformationprovidedbyplanningdepartment,only33%ofSMCTT’scustomerha vetimelypaymentwiththeirpayableaccount.Thisratio,issignificanthigherthantheaverageindustry ratio,althoughthedayofoverdueisthesame,usuallylessthan3 to4weeks.
AccordingtoAtradiusSurveyRevealsstatethat(7)nearly40%ofthevalueofB2Binvoicesi nWesternEuropepaidlate.Overdueinvoicespaidonaveragewithinthreew e e k s ofduedate.1i n4respondentspaidtheirsupplierslateduetoB2Bcustomer'slatepayment.
Furthermore,weconductedthesurveyandsenttoallcustomerswhohavelatepaymenttofi n d outthe reasonswhichresultedintothesymptom“Lateinvoicecollection”.Finally,w e foundoutandsumma rizedthreemainreasonsthatcustomerusuallyarguedasf o l l o w i n g :
Inthistable,thesalesfigureofcustomerhaveoverdueinvoiceis27.527MTaccountingf o r 62.7%oft otalsalesinSMCTT.Sothosewhofoundlatepaymenttobethegreatestproblemimpactonabusines ses’turnoverorcashflow.Notonlybecauselate- paymentbybuyerscostsabusinesshavetimeandmoneyinrespectedtopursuingcollectionofdebts, b u t alsobecausebaddebtreservesrepresentmoneythatisunavailableforuseingrowingthebusiness.
Thisisthemostpopularanswer(56.67%)whenconductingthesurveyfortheotherg r o u p s , theytell theirbusinessmaybegoingthroughtoughtimesandtheyreallyareu n a b l e topayyoubackontime. Theexcusesforthiscanbeanything:theymayfindtheya r e unabletosustainthelevelofborrowingth eyhavebuiltup,theyhaven’tyetreceivedt h e paymentfromtheirclientsortheproblemsmayhaveco meaboutbecauseofsomeu n f o reseenevent…
Thisanswerwasdiscoveredbythesalesman’sexperiencewhentheycommunicatepersonally wit htheircustomer.Furthermore,36.67%ofcustomer’feedbackshavethesameopinionthatSMCTanT aomaynotberankedatthetopoftheirpaymentprioritylist.
ThereasonbehindthiscaseisSMCTanTaohavenon- stringentcreditcriteria.Somesupplierscanclaiminterestanddebtrecoverycostsifcustomerislatef orpayinggoods,theothersevenhavethecommissionorannualawardsforcustomerwhomakethep aymentontime.
Potentialproblems
Moreover,inordertomakethestudymoreeffective,clearerandconvinced,togetherwiththesupport ingtheoriesandthemostupdatedanalyticsfromPlanningDepartmentofSMCT a n Tao,5in- depthinterviewswereconductedwithfourmaingroups,withdetailsasb e l o w :
TheinterviewswereconductedviamobilephonewithcustomerswhohavethelatepaymentatSMCTa nTaotofindoutwhethertheanswerinsurveyisrealreasonoftheirlate- invoiceandanothercommentaryabouttheroleofsalespersoninhelpingthemmaket h e paymentonti meandmoreeasily.Intheotherhand,theinterviewwithstaffswillbeh a p p e n e d face-by- faceatmeetingroominSMCTanTaotodiscover.Semi- structuredinterviewswereselectedtocarryoutthisresearchstudy.Theyallowedtheparticipantstoe l a b o r a t e andwiththatprovidedmoreflexibility,rangeandthereforethecapacitytoelicitmoreinfor mationfromtheparticipant.
Afterdoingtheresearches,exploretherealityandfromsymptomslistedinsituationanalysis,p otentialproblembehindthemwasinvestigatedincluding:inappropriateofc r e d i t policy,failu
Todiscoverthereasonwhycustomersmayfindtheyareunabletosustainthelevelofborrowing they havebuiltup.Mr.Thanh,thesalesmanagerrevealtherealreasonbehindcustomer’excuses:
Thecausalfactorofthisanswersisthefailureinassessingcustomercreditlineandtheirsolvency.Cred itevaluationistheimportantprocessmustgothroughtobecomeeligiblef o r adebt;however,SMCTa nTaodoesn’thavethespecificjobwhichmonitorsthef i n a n c i a l performanceandwell- beingofcustomers,orcategorizedtheriskycustomerwhon e e d thecreditinsurancetoprotectcompa nyagainstthefailureofcustomerstopaytradecreditdebts.Therefore;salesmanandsalemanagerus uallyrelyon“gutinstinct”w h e n decidingwhethertoextendcreditstocustomers.Thiswouldbedang erous,becausetheyaremostimportantpeoplewhilewhetherthecustomercreditlinewillbeincreased orn o t
Besides,salespersonusuallyproposeahighercreditlineforcustomerstohopethey’llbuymoreinthefu ture.Ifclientshavethebiggerorder,salesmanwon’thesitatetodeliverg o o d s toachievethesalestarg etwithoutconsideringtothedifficultyofdebtrecoverylater.Mr.Tien,theDirectorwhosecompanyh avelate–invoicewith20-35daysoverduesaid:
“Iagreewithyouinprinciple,butitisnotassimpleasitseems.Ifyouwanttohavethebigdeal youhavetofollowtheordercarefully.Yoursalesmanknowthisrule,withoutgratingcredithecan’tg etorderinbulklikethat”
Insummary,SMCTanTaodoesn’thavecreditinsuranceforriskycustomeranddiscountf o r earlypa yment,thosecreditpolicieswereinappropriateattheadvancedstagecomparingwithothercompetitor sandthatwasaseriousmisjudgment
NightcustomerwhorespondedinGroup1havethesamemainreasonthattheygettroubleingettingt heirinvoicesandthepaymentinstructionsareunclear.Adisorganized accountingdepartmentoralackofheadcountthatknowshowtotrackandprocesspayablesmaycaus edelayedpaymentsforthem.Therefore,clientsmaynotbeabletop r o p e r l y keepatrackoftheiracc ountspayables,leadingtoconfusionsregardingpaymenta m o u n t s anddeadlines.Second,SMCTa nTaokeepsendinginvoicesthathavegotsmalllittleerrorsthatmakeabigdifferencetotheoverallinv oicingprocessandleadtoinvoiced i s p u t e Inaddition,threeapprovalarerequireoneachinvoice isshowinganinefficientinvoiceprocessingsystem,thatmakeinvoicesfailtoreachtheclientontime andsothepaymentsgetdelayedaswell
Thefasterthatthebillingdepartmentgeneratesinvoicesandsendsthemtothecustomera f t e r aproduct orserviceisdeliveredthesoonerpaymentwillbereceived.Asobviousast h i s maybe,SMCTanTaop erformsuchworkinbatchesanditmaytakethemaweekormoretoinvoicetheircustomers.Ms.Trinh,t hebillingstaff,hasthedutythatincludecombiningandprocessingthevendorinvoicesintobillsorinvoi cessenttoclientssaid:
“Imustpassthesebillsfromtheoperationsdepartment,wheretheliabilitywasorig in al ly cre ated,totheaccountingdepartment,whereitmustberecorded.
Finally,Ishowthemtothedeputydirectortoconfirmtheinvoice.Therearethreeapprovalfor eachinvoice.Thatistoomuch!”
Seconds,manualdatainputininvoicesprocessingistime-consumingandpronetoerror,re- keyingintomultiplesystemssoit’seasytomisplaceandlosepaperinvoices.Whenaninvoicearrive swithincorrectdetails,twothingsarelikelytohappen:clientswillwastet i m e tryingtofigureoutt hedetails,orpushitintotheexceptionfolderforlatercorrection.Eitherway,paymentisdelayed. Paul(2)explainedthatithasbeenarguedthatlatepaymentproblemsareexacerbatedbythefacttha tfirms,especiallysmallones,donotsendinvoicesorstatementsontime,orinsomecases,atall(p. 11).
Inaddition,thesalespersonwhohavemoreworkcreatedintrackingdowncustomer'spaymentstatusas theydon’thavetimetoremindtheoverdueinvoice;orgivecustomerst h e paymentinstructionondocu mentnotclearlysocustomersdonotknowwhenthepaymentsisdue.Ontheotherhand,theyhavetoom uchdifficultiestotrackcustomer’s paymentprogressthroughasystem,andprocessingisfraughtwithaccess,retrievalandstorageissues.
UnderSMCTanTaopaymentterms,wheneverbusiness'clientspaytheirinvoiceslate,l a t e payment interestcanbeclaimed.Butthetruthisinterestonlatepaymentisnotrigorouslyenforcedbecauseo fthesalesmanaffair:that’snottheprofessionalwaytoen c o u r a g e clientstopayontimeandtheywi llbuynomoreproductatSMCTanTao.Char gi ng feeistakingmoneythecustomercouldbeusingt opayonhisloananddivertst h a t moneyawayfromthatpurpose.Itleadstotheperceptionmaybethat aclientwhodo esn’ t payontimecanrepeatthisbehavior.
Oneoftherolesofthesalespersoniscollectingbadpayingaccounts.Butinthein- deepinterviewwithMr.TranVanTung,thesalesman,revealthattheirtimeisbetterspentsellingth eproduct.Everycollectioncalltheymakeisonelesssalescallthatcouldhaveb e e n madeandhedo n’twanttobreakhiscloseworkingrelationshipswithcustomerstoc o n v i n c e themtomorequicklyr etirepastduebalances.Intheiropinion,ifthebillisn’tpaid,thesaleisn’treallymadeandthecustomer delayforfewdaystomakethepaymentinsteelindustryisacceptable.
Moreover,SMCTanTaoalsodoesn’thaveearlypaymentdiscount,whichhelpcustomerstosaveasi gnificantamountofmoney.Thatisthemotivationforcustomertopaysoonerb e c a u s e thelonger companywaittogetpaid,themorethingsthatcanhappenthatmaypreventthebuyerfromsatisfying itsobligation.
TogetherwiththeLate–invoicecollectionliteratures&theoreticalresearchand3in- d e p t h interviewswithonlinesurveytodifferentgroupsofcustomer.Thefollowingcause-a n d - e f f e c t mapwithmaincontentsandreasonshasjustbeencreated.
Centralproblemvalidation
Baseontheinitialcauseandeffectmap,threepotentialproblemofSMCTanTaoarethattheyhaveina ppropriatecreditpolicy,failureofbillingdepartmentandsalespersonfailurethatleadtothelate- invoicecollection.However,inthisessayonlytheinfluenceofsalespersonfailureoncompanysympt omwillbediscussedbecauseofthelimitofdataa n d timeaswellasthecomplexbetweendifferentfu nctionsinSMCTanTao.
An disorganized billing department or insufficient staff knowledgeable in tracking and processing payables can lead to delayed payments for customers, highlighting issues within the company's structure and procedures This disorganization may prevent clients from accurately managing their accounts payable, resulting in confusion over payment amounts and deadlines Additionally, early payment discounts and credit insurance offered to clients are contingent upon the company's credit criteria and the long-term goals of the board of directors While credit insurance can be advantageous for some businesses, it may be an unnecessary expense for others, depending on their specific circumstances Although early payment discounts can yield positive outcomes, they are not suitable for every company; in fact, such discounts may prompt clients to revert to longer payment terms without notice, potentially reigniting cash flow issues Furthermore, due to data limitations, time constraints, and the complexities of interdepartmental functions, the primary focus is often placed on the salesperson's performance as the central issue.
Firstly,salespersonhascloserelevantandappearinallthreefactorwhichisdiscusseda b o v e willbe chosentoinvestigate.Mr.Thanh,SalesManagersaidabouttheimportanto f salesteamincollectione ffortofcompany:
“Salespeoplecommunicatewithcustomersmoreoftenthanaccountingemployeessotheycan actasanextensiontothefinancedepartmenttohelpcollectonpastdueinvoice.Inmanycases,thesa lesmanisthebestpersontoinvolveincollectionswhichm a y beheldupduetodisputesoverproducts theypurchased.Soifsomethingwrongwiththeaccountreceivable,salesmanshouldbeprimaryr esponsibleforthat”
Rottenberger(3)explainedthataccordingtoDidierMuller,vicepresidentofCarboneU S A Corp, inNewJersey,therearetwoessentialbenefitstothistypeofsetup:“First,e n s u r e s thatyourcredi tdepartmentwon’tcallanddestroyrelationshipthatthesalespersonhasbuilt.Annsecond,itmoti vatesthesalespersonprovideproperfollow-u p andabetterreturnon(p.2).
Finally,theotherfivereasonsarecloselyrelatedtothesalesperson'sfailuretocollectther e c e i v a b l e ontime.Thatarethewrongperception,working- relatedstressortheq u a l i f i c a t i o n ofemployee– factorsdemonstratethatthesignificantofsalespersonfailurei s themostconsiderableproblemSMC TTisfacingto.
Definingthesalespersonfailuretermisimportanttomeasurethefailureofsalespersonperfor mance.Butthereisverylittletheoryandreviewhavebeeninvestigatetheissueofsalespersonfailur e.Iamawareofonlytwostudieswheresalespersonfailureh a s beendefinedinmajortopic.
Ingram(5)definedfailureas“theinabilityofthesalespersontoconsistentlymeetm i n i m u m jo bstandards(p.11).
Salespersonfailureismeasuredbythetermination(voluntaryorotherwise)ofthesalesperson orbythefailureofthesalespersontoreachexpectedgoalsorstandardssuchasquota,forecast,o rothermeasuresofproductivity(6).
Finally,evenwithinagivencompany,thedefinitionoffailuremaybesomewhatsituational,depend ingonthepersonorterritoryinvolved,thestateofeconomy,oranynumberofothercircumstances.
In the study "Salesperson Failure: Definition, Determinants, and Outcome" by Morris et al (1994), respondents provided written definitions of salesperson failure, which were content-analyzed to reveal a significant commonality in their answers The dominant theme identified was inadequate revenue generation, whether in absolute terms, relative to quotas, or in comparison to the costs incurred by the salesperson Additional factors mentioned included poor communication with customers, an inability to resolve customer issues, low call frequency, and insufficient follow-up or account servicing Notably, many respondents emphasized that performance deficiencies were often attributed to factors within the salesperson's control.
Thedefinitionwerethensortedintothreegroups,basedonwhetherthefocusedprimarilyo n inputme asures,outcomemeasuresthatwereconcernedwithlevelsofsalesachieved,o routcomemeasuresth atwerenotsales-based.
Behaviorindicativeoffailure:Ba dworkhabits Inappropriatedress/ appearanceUnethicalbehavior SellingwrongproductSelling towrongcustomer
Ofallthechallengesfacedbybusinessowners,theonethatprobablycausesthemthemostsleeplessnig htsisthefailureoftheirsalespersonperformance.Especially,thish a p p e n incollectingdebtfromcu stomers,soitisforcingmanybusinessesintomakingsometoughchoicesonhowtousethecashtheyha veavailable.Salespersonfailurein debtcollectioncreateadditionaleconomiccostforbusinesses,lowemployeemoraleanddeclineinc ustomerconfidence.
Ifsalespersonfailincollectreceivable,itcangiverisetotighterfinancialconditions,leadingtoincrea sedadministrativeandfinancialcostsasexternalfinancingmayben e c e s s a r y inordertoman agecashflows.Hence,latepaymentscangiverisetoinsolvencya n d ultimatelybankruptcy,whichme ansthatfirmsceasetoexistorinotherwords,exitthemarket.Mr.LeTruongGiang,theAccountingM anagersaidaboutthecostsgeneratedbylate–paymentinvoice:
“Forevery1billionVNDofannualturnover,athree- daydriftinaninvoicedueca n take11.5millionVNDbiteoutofworkingcapital(1billionVND/ 261workingdaysp e r annum).Formanybusinesses,thismeansresortingtoincreasedborrowingsi nordertobridgethegap.Standardbusinessfinancecarriesa10percentinterestrate.Inthise x a m p l e , thatequatestoanextra8,2millionVNDinadditionalinterestexpense,directlycuttingintom argins”
Acashflowproblemalsoariseswhenabusinessstrugglestopayitsdebtsastheybecomedue.Theref ore,whencashflowisconsistentlynegativeandthebusinessusesupitscashb a l a n c e s , theproblem becomesserious.Additionally,itnegativelyaffectbusiness'credit rating,creditreportofcompanyincluding:liquidity,efficiencyandcashflowratios… andimpacttheabilitytogetcreditaccountprivilegesandloansinthefuture.Mr.LyHoangT h a n h , th eSalesManager:
Therelationshipbetweensalespeopleandcustomerscangetworseifbothhavenowayofd eal in g wi thoverduedebts.Thelackofskillsinnegotiatingasalecontractwillleadtoa m b i g u i t y inthetermso fthepaymentofoverdueinterest.Whenadisputearises,itisverydifficulttoavoidcomplaintsfromc
18 company'sgoodbutalsotelltheotherpeopleaboutthebadstory.Thiswillaffectboththeimageofthec ompany,showingthelackoftransparencyandprofessionalismofemployeesinreceivablesmanage ment.Ms.Hang,PurchasingManagerofPEBSteelBuildingsaid:
“SMCTTneeddevelopaclearandvisibleprocesstosalesstafftofacilitatethec u s t o m e r incheckingandpayinginvoicesinthesignedcontracts.Disputesonoverdueinvoicesthatarenotpro perlyprocessedwillnegativelyaffectcustomerconfidenceaboutc o m p a n y ’ s image”.
Thesalespersonfailuretomanagetheaccountsreceivableaffectsnotonlytheperformancecompan y,butalsotheemployee'sattitudesandmorale.Excessivepressuref r o m themanagersinbaddebtrec overy,customerdisputesoverinvoices,hugeworkloadso n customerpaymenttrackingwillexhaustem ployee’sproductivity.Employeemoraleproblemscanquicklyaffectateam’squalityofwork.Signso ftroubleincludemissedd e a d l i n e s , anincreaseinmistakesoradeclineincustomerserviceandt urnover.
CAUSES VALIDATION
LackofSalesforcetrainingprograms
InSMCTanTao,thesalesman donothavethespecificprogra mstotrainandutilizeanumber offinancialtoolstoevaluateth ecreditsolvencyofapotential borrower,sotheg r a n t i n g o fcreditdependsontheconfide ncethesalesmanandsalesma nagerhaveintheb o r r o w e r' s creditworthiness.Toexten
29 dcredittoandhowm uchcredittoextend,t heyarelackedofastr ucturedprocesstofo llowwhendetermini ngwhichcustomers shouldbe.
Theyhavetolearne v e r y t h i n g themselv esbyobservationho wotherpeoplework, weareafriendlytea mande v e r yo n e is happytosupporteac hother”
Inaddition,because ofindustrycharacter istics,salesemploye einSMCTanTaous uallyh a v e closere lationshipwiththeir customer,thatisbuil dtheperceptionofth emtothinkthatdela yforfewdaysisacceptable.
Theyareregularlyvisitand checkraw- materialsdemand,soifcus tomerhavethebiggerorde rthancurrentcreditlinethe ywillnotaffairtoincreaset helimittoavoidlosingther elationshipinthefuturewi thoutconsideringthea b i l i t y tomakethetimelypa yment.
Thequestionishowclose istoocloseincustomerrel ationship.Beingprofessi onalasasalespersonincl udesinsistingoncancella tionfees,prices,andpay mentperiods.Thisise x a c t l y whatshouldapplyto therelationshipbetweenb usinesspartners:professi onal distance.Therefore,salespersonrelyongutinstinctwhendecidingwhethertoextendc r e d i t tocusto mers,thiswouldbedangerous.
Inappropriatecriteriaforsalesperformance evaluation
KPIs(KeyPerformanceIndicators)shouldbethemostimportantmeasuresusedbysalesteamstotrac ktheirprogressagainststrategicgoals.Awell- designedsetofKPIsoughttop r o v i d e thevitalnavigationinstrumentsthatgivesalespersonanunder standingofcurrentlevelsofperformance.ThosearesomedutyforsalesexecutivepositioninSMCTa nTao:
However,inpractice,thesewell- intendedKPIscanturntoxicofsalespersonbecauseofthehighproportionofsalestarget(accountin gfor50%ofKPIs)whilecollectiondutiesisonly10%.Furthermore,salesstaffwillreceivecommissio nregardlesstheinvoiceisn’tpaid.Iftheaccountsgetspassed15to40days,theyonlywillberankedin steadofAwhichisBorCforthatmonth.Thisrankshavelittleeffectontheirbonusattheendoftheyea rs,sotheydon’ttrytheirbestoncollectingdebttask.Mr.Tung,theS a l e s Executivesaidintheinter viewthat:
Theresultwas,thesalespersonwantstoselltoanybodyandeverybody,andbe comfortablewiththeclient’sabilitytopaytoreceiveincentivesforclosingsales”
Thatisleadtothepressuretohitsalesfigurewithoutconsideringotherfactors,salesmana f f a i r thatc ustomerwillnobuyagainanymore- thoselargerclientsaccountedforasmuchas40percentoftheirrevenue.Mr.TungandMr.Thanhal sotellthat:
Inthiscase,salespersonthinkinvolvingsalespeoplecanimpacttherelationshipwiththecustom ersothatshouldbeaconsiderationindecidinghowandwhentoinvolvesalespeople.However,becau seofunclearKPIs,theythinkthatthey’veescalatedonlyafter accountingdepartmenteffortshaven'ts ucceeded.Theydon’trealizethatnosaleiscompletewithoutpaymentandultimatelytheyshouldplaya role.There'salsothequestiono f payingcommissionsoncollectionorrecognizedrevenue greatifyoucanpaybasedoncashreceivedbutalsoexpectsomeresistancetothat.
Poorskillindebt collection
Onaverage,everysalespersoninSMCTanTaohas30to50clients,moreworkwillbec r e at e d forsa lesmanintrackingdowncustomer'spaymentstatus,soitisnoteasytotracka n d handlesuchalargev olumeofworkiftheydonothavegoodplanningskills.Mr.LyH o an g Thanhtellaboutdifficultiesin collectingdebt.
“It’dependonsaleseffort.Howlongtheyspenttoreadandanalyzethecreditreporteveryday. Timeismoneyinsales.Intheworkinghours,salesmanhavetomakema n y callstohavetheordera ndhandleotherprocedures.Ifhewanttomanagedebtwell,hespendmoretimeafterworkinghour stodetectwhichcustomershavelate–invoiceandremindthemsoon.”
Intheotherhand,forcustomerswithagoodpaymenthistory,theyalwayshaveatrackertohandlethei nvoiceistotheduedays.Thiscase,however,isnottypical.Thereareeventhosethatcontactthecusto merbeforetheduedate,justtoremindthemitsclose.Forthisr e a s o n , tohelpthesalesmaninreme mberwhichcustomerneedtolookmoreclosely,ad e b t recoveryreportwillbesentbythebillingdep artmenteveryMonday
Despitethefactthatsomesalesmantoldtheyseemlydon’thavetimetoreadortotallyforgettomakeaf o l l o w - u p calltoaskclientsdirectlyiftheyhavereceivedtheinvoiceandaskforas p e c i f i c datethatthepay mentwillbemade.That’swhyit’ssoimportanttohaveaplanin placewhenfollowinguponalatepayment.Intruth,clientsmayhave simplyforgottena b o u t invoices,sosalespersonneedtoapproachthesituationwithcarewhilealsoatt emptingtochangeclient’sbehavior.
TomaketheoverviewpictureofproblemsinSMCTanTaoclearer,thefollowingfi nal caus eandeffectdiagramwillshowreasonsthatledtothefailureofsalespersonincollectingtimelypaymen t,itisthechanceforSMCTanTaotoreallysee:whatarethea c t i o n s thattheyneedtotakeimmediat ely,intheshortrunandinthelongrun.I f not,late
-invoicescanhaveaseriousimpactonoperatingcashflowandprofit.Notonlybecausen o n - p a y m e n t bybuyerscostsabusinesstimeandmoney,butalsobecausebaddebtreservesrepresent moneythatisunavailableforuseingrowingthebusiness.
ALTERNATIVESOLUTIONS
RedesigningKPIsforsalesperson
IntheKPI'sstatementforsales,althoughmanagementhaveemphasizedthegreateffectoft h e debtrec overyinpractice,manysalespeopleonlyinterestedinsellingbutoverlookedt h e recoveryofdebt.Aco mpleteandeffectivetransactionmustincludebothsalesanddebtrecovery.Salesmanneedtofindspe cificmeasuresindebtmanagement,suchasbuildingacreditmanagementsystemforthemselves,re gularlyhavetrainingdebtr e c o v e r y skills Oncemasteredthewaymanagementanddebtrecover yskills,employeesw i l l haveadifferentperspectiveonthedebt,andtheywillbemoreoptimisticabo uttheb ad debt.Itistoodifficulttomeasurethesalespersonjobandwhichtoolisappropriatetomeasur etheperformanceofcollectingdebttask,regardless,thesalesteammustknow
25 thereisnoeasyroadinvolvedwhenitcomestocommissions– eitherthey’llgetpaidw h e n yougetpaidorthey’llsufferachargebackifyoudon’tgetpaid.
Kerasi(8)statethatperformancestandardsaredesignedtomeasuretheperformanceactivitiesthat thecompanyconsidermostimportant.Settingstandardsofperformancef o r thesalesexecutivein theevaluationprocessrequiresconsiderationofthenatureofthesellingjob.Inotherwordssalesjo banalysisisnecessarytodeterminethejobo b j e c t i v e s , dutiesandresponsibilities(p.51).
Thefunctionalityoutlinedabovediagramshowsbothqualitativeandquantitativeo b j e c t i v e s ofthe salesdepartmentwhichislinkedwithaseriesofperformancestandardsthathelpsalesorganizationf orconsistenteffectiveevaluationofsalespeople.Thise m p h a s i s wasconfirmedbyresponses tothequestion,"Whatfivefactorsdoyouuseandc o n s i d e r beingmostimportantintheevaluationof salespeople?”Inthiscase,SMCTanT a o didnotattachimportancetooneofthemostimportantfactor s,thesellingexpense ratio.Therefore,redesigningKPIsforsalespersonisthefastest,mosteconomicalande f f i c i e n t so lution.
Thisisthecriteriaforsalespersondevelopedbythecompanymanagement.Everyindicatorwillberan kedfromAtoF,dependedonsalespersonperformance’sindicatora n d itwilldecidetheirsalaryfort hatmonth.Thecommissionwillbedependonthesalesfigure,sotheywillreceivemorecompensat ioniftheycansellmoreproducttocustomer.
Reportcompleting Numberoffailuresorcompletionofr eq u ir ed reports 5%
’tcompletethistasktheycancompensateforcommissionsfromefforttosellmoreproducts.Thisactio nwillfacilitatetheprovisionofgoodstocustomersbeyondtheirsolvency-thatleadtolate- invoicecollection.
30%oftheirsalary.Inadditiontothefixedmonthlysalary,thesalespersonisalsoentitledtoaremuner ationb a s e d onthepercentageofdebtcollectedonamonthlybasicandsalestaffsshouldbepaidc o m m i s s i o n basedonthatKPI.Thecompanyalsoassignsspecificresponsibilitiestoeachmemberofthe board,particularlythesalesmanager.Underthecostmanagementregimeo f thecompany,thesaleste amareresponsibleforfindingcustomersforthecompany.Inthisprocess,theymustthoroughlyunderst andthesituationofproductionandbusinessaswellasfinancialstatusofthepartnertobeabletoadviseth esalesmanagertostopdeliveryifthecustomerdoesnotpaythedebtwithinacertainperiodoftime.T heya l s o havetheresponsibilitytoreporttothesalesmanagerifthecustomerhasunusualsignsinpa ymentorthecustomer’sbusinessshowssignsofinstabilityinthelongrun.Thec l e a r responsibilitie s,whichhelpmembersinthesalesdepartmentintheactualhandlingthisphenomenonandwillhelpth ecompanyavoidlosinglargeamountsofmoney,notb e i n g appropriatedfromcustomers.
Developtrainingworkshopsabout debtcollectionprocess
Businessesneedtofindspecificmeasuresindebtmanagement,suchasbuildingacreditm a n a g e m e n t system,regularlytrainingdebtcollectionskillsforemployees Becausew h e n Salesforcema steredthewayhowtomanagedebtanddebtrecoverynegotiationskills,employeeswillhaveadiffere ntperspectiveonthedebt,andeven,theywillcanc r e a t e specifiedplanaboutthecustomer'slate- invoicecollection
Attie(9)statedthatsalestrainingcontributessignificantlytosalespersonknowledgean d skilllevel s,performance,effectiveness,customerorientation,andoverallfirmperformance.Businessesinve stsubstantialtime,money,andefforttrainingtheirsalest e a m withultimateobjectivesofincreasi ngsalesproductivityandprofitability(p.1).
Formanyyears,SMCTanTaodoesn’thaveanytrainingprogramwhichspecializeind e b t collectio nprocess.Infact,manysalesexecutiveinSMCTanTaoleadveryindependentlifestyles.They’reon theroadmeetingretailersandmanagingtheirownschedules.Duetotheindependentnatureofthisjo binsteelindustry,trainingisoftennota hugeconcernformanysalesmanagersandbusinessmanage ment.Likewise,manyoft h e m havebeenworkedhereforyearsanddon’tfeelthattheyneedanyadd itionaltraining.
However,trainingisnecessarytosalessuccess,andremainsanongoingpracticeinmanysalesorgani zations.Althoughtheywasparticipatedsomeworkshopsaboutsalesandp r o d u c t , theywillbelac kofknowledgeabouttheimportanceofdebtrecovery.It’leadtowrongperceptionofsalesmanwhe ntheyfacetocustomer’lateinvoices.Customerswho arefrequentborrowersestablishabigreputationwhichdirectlyimpactsontheirabilitytosecuredebt atadvantageoustermswhentheymaketransactionwithsalesperson.Thecompliancewithlatepay mentcharge,pressureonboostingsalesfigure… canimprovetherevenueinshorttermbutwilldamagetheprofitinlongterm.Intheotherhand,sales personalsoneedsometechniquestohelptoknowpotentialpartner'screditwo r t h in es s beforesign ingasalesorderagreement.Salesmancanlearnhowtoevaluateac o m p a n y ' s financialstatussotha ttheycanmakeinformeddecisions.
Formanyemployees,debtcollectionisa"boring"job.Debtcollectiontechniqueswillh e l p salesman workmoreefficiently,savemoney,time,andlimitstress.
Training can significantly alter a salesperson's perception of customer excuses for late payments Many customers may not pay their debts simply because they lack an understanding of their payment obligations Therefore, during the debt recovery process, employees should maintain persistence and realistic expectations regarding customer payments Salespeople must recognize common excuses and remain undeterred, while also exercising skepticism towards these reasons, as they often serve as a means for debtors to delay payment It is crucial to prioritize these customers on the "reclaim" list; showing empathy towards their situations can hinder an employee's ability to effectively complete debt collection tasks.
ACTIONPLAN
Thefirstalternativesolution:CompanyshouldredesignKPIsforsalesperson.Thetimelinefort hisstepcouldrangefrom01monthupto05months.However,asthenewKP I swillplayakeyroleint hedecidingsalesperson’ssalaryandcommissionsothattherequirementshouldbeveryspecificand details.Furthermore,changesshouldn’tbea p p l i e d atthesametimebutdividedintoseveralstages.AllthemanagementteammusttakepartofthisstepbutthemainrolewillbetheHRandSalesManage r.
Decidingtheappropriatetheproportionofdebtcollectiond e b t collectiontochange taskinsalaryformula thesalaryformula Notifyaboutthetimelineandimplementthechangefors a l a r y formula.
HRDepartmentSal esperson Re- evaluationtheresultofdebtcollectiontaskandadjusttheproportio nifnecessary
BenefitsofrightKPIswilloutlinetheimportantaspectfordebtmanagementwithintheb u si n es s , motivateandengagesalespersonwithcompanygoals.First,thechangesins a l a r y formulawillhig hlighttheimportantofcollectingdebtontime,createthepressuref o r salespersontodothistaskmore effectively.
Benefitsofhavingasalescommissionpolicybasedonthedebtcollectionperformancewillincludei mprovedproductivityandincreasedemployeemotivation.Thiscanbecomea routinewaytorecogni zeandrewardemployeeachievement.Salespersonlikedebtc o l l e c t o r s whoworkoncommissio nmaybehighlymotivatedtoconvinceclientstopaythedebt.Commissioninthiscasewillbelikeac ompromise.Companywillpaypartoft h e commissiononthesaleandhalfatthecollection.Aswass tated,asalespersonistof o c u s onsalesbutstilldonotthetasktocollectmoney.
To enhance debt collection processes, companies should implement training workshops for their sales personnel A skilled salesperson must not only focus on timely and complete debt recovery but also possess the ability to mitigate potential risks that can lead to bad or doubtful debts This requires a thorough understanding of effective techniques and strategies for managing debt, as well as the capacity to engage with various customer types while fostering mutually beneficial relationships Therefore, SMCTan Tao should prioritize the development of these training workshops, with a timeline of one to two months for implementation Concurrently, this initiative should align with redesigning Key Performance Indicators (KPIs) to transform employees' skills and perceptions regarding overdue debt recovery Additionally, this commitment reflects the leadership's determination to address and rectify challenges faced by sales personnel in debt collection.
Thetypeoftraining:On-the-jobtraining,Classroom- styletraining,Technology-basedlearning,Simulations HRDepartment
- thepreventionoftheemergenceofoverduedebtincluding:creditevaluation,credit wo rthiness,creditreporttraining
- emphasizetheimportanceoflate- invoicecollectiontocompany’scashflow,c h a n g i n g salesman’sattitudeaboutlatep aymentfee
- introducetools(invoicefactoring,assetsbasedloan…)tosolvewithunpaidinvoic eorworkingwithacollectionsagency.
4 Additionalcost(electricity,telephone,notepapers,clipboard
CONCLUSION
Thisthesishasfocusedonfindingthemainproblemcausinglate- invoicecollectionsituationofSMCinrecentyears.Thus,amongpotentialproblemsledtolate- invoicecollection,salespersonfailureisprovedthekeyfactor.ItcouldbeseenthatSalesforcetrainin gprogram,waysalespeopleareevaluatedandpoorplanningskillofsalesperson playsanimportantroleinexplainingsalespersonfailureindebtmanagementfromcommercialanden d– userclients.Thepurposesofthisthesiswastostateclearlyandi n f o r m therealissuethatisoccurring inSMCTanTao.Fromthat,thecompanywilltakea c t i o n s immediatelytogivesomeproposedsol utions,thenchoosethebestone.
SUPPORTEDINFORMATION
Summaryofmethodologyconducted
Primaryorsecondarydataaretwosourcesthatcanbeobtainedinthisthesis.Dataandi n f o r m a t i o n tookfromprimarysourceisforthepurposeofidentifyingandsolvingaproblem.Nevertheless,seco ndarysourcesaretheexistingdataandinformationthataimsf o r anotherpurposethanresolvingthepr oblem
SecondarydataobtainsreliablesourcesfrominternalcompanylikereportandfiguresofA c c o u n t i n g , PlanningandDepartment,BillingDepartment;andothersupportingdocumentsrelativewithlate - invoicecollectionandsalespersonfailuressuchasliteratures,books,journals,previousresearches. Thenallcollecteddatawascomparedw i t h realityinordertohavespecificinformation.Asforpri marydata,aqualitativeapproach wasappliedforthisstudybecauseofthelimitedtimeframeandth eabilitytoa c c e s s thesteelindustryinVietnam.
Themainmethodforcollectingqualitativedataisin- depthinterviewsbuttheq uick surveywassenttooverdueclientstonotifyaboutcustomer’spayment statusandcol lect theirfeedbacksaboutlate-invoices.Theresearcherconductedtwotimesofin- d e p t h interviewsforrespondentsofinternalcompanyandexternalcompanytoexplorethepotentia lproblemandanotherinterviewisusedtoseekcauses.Everyin- depthinterviewtookabout25minutesto30minutes,isconductedatthecompanyloungeorviasma rtphone.Questionnairesweredesignedclearlyandopen- endedtogetvaluablei n f o r m a t i o n Inordertogaindeeperinsightsofthephenomenonofthestu dy,in-depthinterviewsofrespondentsfromthreegroupswerecarriedon:
• ThefirstgroupincludesthreepeoplewhoarecurrentlySMC’sclientswithd i f f e r e n t companies:( 1 ) Ms.Xuan-PurchasingEmployee;(2)Mr.Tien-Directorand
Summaryoffinancialreport
SMCTanTaohasthetotalassetswhichisincreasinglyeveryyearfrom2014to2016buttheassetsha vebeenfinanced60–80%debt,hasamuchhigherdegreeofleverageandrisky.
Inthistable,netincomehavethebigfluctuationin2016,with32billionbecauseoftheg r o s s profitare morethandoublethatof2015
OnSMCTanTao’scashflowstatement,theoperationalcashflowfrom2014to2016c l e a r l y isne gative,thismeansthecompanycannotcoveroperationssolelyfromrunningthebusiness.
Detailof theCause andEffectDiagram
Late–invoicepaymentsurvey
TheemailwassenttocustomerwhohastheoverduepaymentatSMCTanTao.Followthedataprovid edbySMCTanTaoPlanningDepartment,wenotifytoyouaboutyourc o m p a n y paymentstatusa sthebelow:
T h e surveyonlyaimstogatherinformationtoimprovethelate– invoicepaymentatSMCTanTao,wewillnotdisclosepersonalinformationinthesurveywithouty ourpermission.T h a n k You&BestRegard
Thestructuredinterview
Toconclude,inyouropinion,doy outhinksalesmanisthemostimpo rtantfactorthatmakecompanyhav ethelate-invoicecollection? Pleaseexplain.
Q Ms.Xuan Mr.Tien Ms.Hang Common
Qualified Qualified Thematerialmeett hequalificationreq uirement.
- Yes,becausesteelbusi nessusuallyneed ahu lkamountofcash
- Yes,becausewehave toomuchsuppliers,dif ficultytopaythemonti me
Especiallywithcust omerwhoh av esho rterdaypaymentter m
Varietyofreason,in cludingsalesperso nfactorandrelatin gdepartments
Nottocloserelation ship,werarelyhave facetofaceappoint ment
Name: Ms.Xuan Daysoverdue: 4-10days
Yes.Hecanhelpustot rackingthedebtrepo rt,fixtheinvoiceandr emindusaboutlatein voices
- Yes.Salesmancouldo ffermoresuitableandr ealisticpaymenttermt omeetmycompanyca sh circle
- Yes.Hecansuggestco mpanytoofferclient moremethodtoencour ageusmakethepayme ntontime
Yes.Salesmanisthe connectionbetwe enbusinessmanag ementandcustom er
- Ineffectiveofcomm unicationandnegot iationskill,theywillg ettroubleinfindingrea sonforthoselateinvoic e.
- Inadditiontooffern e w paymentmethod– whichdependonthe company’screditpoli cy.
- Salespersonalsoisthe factortoconvinceth emanagementinup datingthecriteriacred itofothercompetitor
Yes.Salesmaneffor tandtheirknowled gewillminimizether iskofunpaidorlate– invoicebyusingthe appropriatemethod
I: Today,I’mgoingtoconducttheinterviewwithyouaboutmycompany’problem,that’slate– invoicecollection.Thisproblemoccurveryregularly,andyouknowit’llaffectmycompany operation.YouhavebeenavaluedcustomerformanyyearssoIreallywanttoknowwhatreas onsthatmakeyoumakethepaymentlater thanthesignedcontract.
X: Oh.I’mverysorryaboutthelateinvoice.Therearesomecausesthatleadtothisp r o b l e m … u m butIdon’tthinkit’sserious,mycompanyonlypay3-7dayslater thanpaymentterm.
X: Letmesee…Iusuallyseeyourinvoiceafter2-5daysafterreceivedgoodsthenI havetocheckagainandsentittotheaccountingdepartment.Ifeverythingallrightwe’llmaketh epaymentforsuppliereveryTuesdayorFriday.
X: IreceivethedraftinvoiceonedaysafteryoudeliverygoodsviatheemailfromMs.T r i n h , your billingemployee.Butyouknow,IhavealotofemailseveryworkingdayssosometimesIhaven’t checkheremailifsheorsalesmandoesn’tmakethe follow-upcall.
X: Andanotherreasons,ithappenregularly.Therearethemistakeswithdraftinvoicethatleadtota keanotherdaystoresolve.Afterthat,althoughallthepaperwere completelyfull,Ievenhavetogetmybillthenext2workingdays
X: Thankforunderstanding.Idon’twanttomakethelatepaymentbutyouhavetosendtomethequ alityandaccurateinvoice.Ifnot,itwillwastingtimeandmoney forbothcompanies.
X: Um…Ithinkyourcompany’ssalesmanshouldhavetheresponsibilityinhelpme intrackingmypayable.HeonlyremindmeonceaweekaboutthelateinvoiceIh a v e , buthed oesn’tlistthemmorespecific.
Name: Mr.Tien Daysoverdue: 21-35days
Position: Director Mainreason: Companyisinfinancial difficulty
I: Thanksforunderstanding.Today,I’mgoingtoconducttheinterviewwithyoua b o u t myco mpany’problem,that’slate– invoicecollection.Thisproblemoccurveryregularly,andyouknowit’llaffectmycompany operation.Youhavebeenav a l u e d customerformanyyearssoIreallywanttoknowwhatre asonsthatmake
I: It’sbetween21and35days.It’stoolatethanusual,whichproblemswiththe invoiceyoufaceto?
Ihavenotbeenpaidbymycustomeryet,theypaytheinvoiceformyc o m p a n y 30days– 45days.Therefore,IthinkIneedalongerpaymenttermto makethepaymentontime.
T: Ihavetobuyinthematerialscostsmoneybeforetheworkisevenstarted.SoIn e e d s custome rstopaypromptlywhentheirbillsfalldue.Butthatdoesn’thappeno f t e n , soalmost80%ofthe projectscompany’sworkedonrecentlyhavebeenpaid late.
I: Butinthepast,thesalesmanincreasethepaymenttermfrom7daysto15daysfor yourcompany.Ithinkthis’syourproblemandyoushouldbalanceyoubudgetb e f o r e decidin gtopurchasingmaterials.
T: Yes,Iknow.Byagreeingtothetermsandconditions,Ihasanobligationtopay youwithinthetimeframespecified.Butyousee… althoughIdon'thavethemon ey rightnowbutIwillpayyourcompanyassoonaspossible. I: Butwhydon’tyoumakeanimmediatepartialpaymentandprovidesalesmanwith anexactdatethathewillreceivetherest?
Ididthatseveraltime.YoucanseeI’mthebigclientandwe’reworkingtogetherformanyyears Myordersinhugequantitiesneedanequivalentamounto f money.Ifthecustomerhasnotp aidme,IhavetodisbursemoneyatthebanksothatIcanmakeareplacement.Disbursementi nbanksisquitetroublesomesoitis
T: Iagreewithyouinprinciple,butitisnotassimpleasitseems.Ifyouwanttohavethebigdealyo uhavetofollowtheordercarefully.Yoursalesmanknowthisrule, withoutgratingcredithecan’tgetorderinbulklikethat.
T: Unfortunatelywecan’tgrowthebusiness.Weatbestcanstagnatewhereweare.Wehadtoleto neofourapprenticesgothroughaverydifficulttimethatwes u f f e r e d atthebeginningofthey ear,andsomethingwe’rehopefullytryingtopush
T: Ibelieveitis.IfIcangiveyouanexample,threeyearsagowehadnomoney outstandingbeyondfifteendays.Ihopeitplateausoffanddoesn’tbecomeanywor sebe causewecertainlycouldn’tcarryoninbusinessifitdoes.
Name: Ms.Hang Daysoverdue: 11-20days
Position: Purchasingmanager Mainreason: Theyhaveothercriticalsupplier I: HiMs.C.Howareyoutoday?
I: Today,I’mgoingtoconducttheinterviewwithyouaboutmycompany’problem,that’slate– invoicecollection.Thisproblemoccurveryregularly,andyouknowit’llaffectmycompany operation.YouhavebeenavaluedcustomerformanyyearssoIreallywanttoknowwhatreas onsthatmakeyoumakethepaymentlater thanthesignedcontract.
I: Accordingtotheinformationwereceived,youusuallyhavethelateinvoice between11-20days,thevalueofeachinvoiceisfrom500millionto3billiond o n g
H: 11–20days,that’snotsignificanttimecomparingwiththeamountofmaterialwe boughteverymonth.We’rebigcompanybutthebudgetcan’tbepayforallthe supplierontime.Therefore,wehavelistedoutafewofthemostpopularones belowforbothdomesticandoverseassuppliers,andturnaroundcapitalforeachv e n d o r
H: Thereareactuallyhavesomefactor.Youmeans…mydirectorusuallyrankthe supplierbasedonthequalityofmaterial,timeofdelivery,otherscommissionforpayingearli er
H: Yes,exactly.Anearlypaymentdiscountisofferedbysomesupplierstomotivatec r e d i t cu stomerstopaysooner.Iftheourcompanyhasadequatecashorareadilyav ailabl elineofcre dit,the1%earlypaymentdiscountforpaying20daysearlyequatestoaveryattractiveannual returnofapproximately18%.Ifwedoesnoth a v e cashoracreditlineavailable,theearlypay mentdiscountmaybesmall comparedtoabankoverdraftfee.
H: Justafew.Buttheothersuppliersusuallyhavetheawardsforcustomerwhohaveo n timep aymentforahalfofyearorayear.Thediscountsorawardsaddupovertimetosavecompanya significantamountofmoney,particularlyifseveralof suppliersofferthem
I: Isee,butyourcompanycanbeclaimedinterestanddebtrecoverycostsifbusiness islatepayingforgoods.FollowtheinvoicepaymentterminSMCTanTaosalesc o n t r a c t , thestatutorylatepaymentinterestratecanbeupto1%permonth.
Name: Ms.Trinh WorkingatSMCTanTaofor3yea rs Position: Billingemployee
T: Thanksyou,everythingisstillgoodthoughtI’mhavedolotofpapers.Sowhatdo youwanttotellwithme?
I: Today,I’mgoingtoconducttheinterviewwithyouaboutyourcompany’ phenomenon,that’slate–invoicepayment.Doyouknowaboutthisproblem?
Ihaveh u n d r e d s ofcustomertocontactanddiscussaboutthoseinvoicesohowcanIsentth eminadays.IreallywanttohelpsalespersontoimprovethissituationbutIdon’thavetheres ponsibilitytosendremindersforpaymentsandcontact customers.
T: Manageaccountbalancestodiscoveroutstandingdebtsorotherinconsistenciesandcollecta llinformationneededtocalculatebillsreceivable.AfterthatIcheckthedatainputintheaccount ingsystemtoensureaccuracyoffinalbill,answerq u e s t i o n s andhandlecomplaintsfromcu stomersregardingbills.NextIissueinvoicesandbillsandsentthemtocustomersthroughvario uschannels(mail,e- mailetc.)andsentcustomeraccountstatementsperiodicallyorwhenevernecessaryE v e r y da y,Iupdateallaccountingrecordswithnewpayments,balances,customeri n f o r m a t i o n et c…FinallyonceaweekIreportonactivitytouppermanagementand salesdepartment
T: It’sdependonmanyfactor.Theearliestisin2daysfromthedateofreceiptofthe goodsifeveryisOk
T: Imustpassthesebillsfromtheoperationsdepartment,wheretheliabilitywaso r i g i n a l l y created,totheaccountingdepartment,whereitmustberecorded.
Finally,Ishowthemtothedeputydirectortoconfirmtheinvoice.Therearethree approvalforeachinvoice.Thatistoomuch!
I: Soit’sdependonyourcompanyprocedure.Iftheinvoicegotsomeproblem,what isthat?
T: SometimesIsendtheinvoicetothewrongaddressorcontact,thatwillprobablybed i f f e r e n t fromthepersonwhoorderedthework,becauselargeorganizationscanbecomplicatedandsen dinganinvoicetothewrongaddresscouldleadtoitbeinglosto r delayed.Inaddition,someco mpanyhavethecomplicatedproceduresoIreally wastetimetocompleteallofthem
T: IncasesofnewlyincorporatedcompaniesorstartupslikeSMCTanTao,internalaccountingp roblemsfrequentlypopupbecauseoflackofproperdepartmentalsystemsinplaceorsimpleb ecauselackofemployee.OnlyIhavetotakeover themisimpossible.
T: Inmyopinions,theyshouldhavetheautomatedinvoiceprocessing.Itcans i g n i f i c a n t l y re ducethetime,cost,riskandcomplexityofcapturing,routinganda p p r o v i n g invoices.Byr educinginvoiceprocessingtime,companycansecuree a r ly - p ay m en t discountsandimprovevendorrelations,andalsofreeupstafftow o r k onbusiness- criticalactivities.Withadocumented,automatedinvoicingprocess,I’llsimplifyauditrespon seandgaingreateroversightintobottlenecksor inefficiencies.
T: AsImentionedabove,thepurposeofthemonthlydebtstatementistotellcustomersaboutthei rcurrentoutstandingbalance.Thisistogiveabriefandclear reportofthepreviousmonths,andfinallytoremindertheoutstandingbills.
Name: Mr.Tung WorkingatSMCTanTaofor3yea rs Position: Salesman
I: Today,I’mgoingtoconducttheinterviewwithyouaboutyourcompany’problem,that’slate– invoicecollection.First,couldyoutellmeaboutyourcustomer,do theyusuallyhavetheoverdueinvoices?
T: Theyoftenhavethelate–invoice,almost70%ofmycustomerhavethisproblem butit’sabout5-15days.Onlyafewofthemhaveapayoutdategreaterthan20.
T: Thecustomerwhohaveless7daysoverdue,inthiscase,youbettershouldn’t remindthemaboutthoseinvoicesifyoudon’twanttobreakcloserelationshipwiththem.Inthe otherhand,it’sdifficulttodetectless-than-7- dayslateinvoice.Ihaven e a r l y 50customerandcustomer’spaymentprogresssystemistoo hardtouseand control.Soifcustomerdon’tmakethepaymentuntilaweek,Iwillbenotified
T: Weputtogetheralloftheevidence,settingouttheinvoices,theduedates,thetimesitshouldha vebeenpaid,whattheamountswerethatwewereclaimingin accordancewithlegislationandourcostsincurredinreclaimingthosedebts.
T: Well,thelongestoneIcanrecallwasabout6days.Becauseofourexperiencenoww i t h themI don’tgivethemthatkindoflatitudeanymore.Weremindthemthatasinthelawweareentitled tostartcharginginterestfromthedatetheinvoicefallsd u e , andwewilltellthemthatwewills tartdoingthatunlesstheypayitvery promptly.
I: Theinterest?Didyoumeanthelatepaymentfeecharge?Inanycase,doyouhave toapplyapenaltytothem?
T: Yes,thepaymentfeechargeabout1%/ month.B u t thetruthisinterestonlatepaymentisnotrigorouslyenforced.Youknow… ifyou’reasmallbusiness,thec h a n c e s aretherearemany,manyothersuppliers,manyother smallbusinesseswhosellthegoodsandservicesthatyousell.Andifyougoalongtoalargeor ganization whoisbuyingyourgoodsandservicesandsay,‘Youhaven’tpaidmeontime,’ whatyou’regoingtogetisthatthecustomermightactuallypayyou,but theymightalsothenstopdoingbusinesswithyou,sothisistheproblemwiththe
51 powerrelationshipsinthesekindofbusinesstobusinessrelationships.Andwhatwefoundco nsistentlyisthatsmallbusinessesarevery,veryreluctantinthemaintoactuallyexercisetheir rights,becausetheyknowthey’rekissinggoodbyetothat businessrelationship.
T: Itwasverydifficult,theywerequiteevasive.Wewouldn’tgetemailsrespondedtoorlettersresp ondedtoorwewouldgetpassedaroundphonecalls,butnooneactuallycomingbacksayingw hytheyweren’tpaying,andthenyouwouldhavetok e e p chasingthem.Wewerethen,youkn owanotherweekfurtheronandtheystill weren’tcommittingtowhytheyweren’tpaying.
T: Therewerenoextenuatingcircumstances;therewerenomistakesonmypart.T h e materialst hatwereprovidedwerefullyqualified,finishedandintermsoftheserviceprovided,theyweref ullysatisfied.Therewasnodiscussionoverthe qualityoftheworkdone.
T: It’sabouthowcompanyevaluatesalesman’sperformance.SMCTanTaoputKPIsinplaceto measuretherelativesalesperformanceofsalesperson.Itthencreatedleaguetablesandrewa rdedthebestperformingsalesquota.Theresultwas,thesalespersonwantstoselltoanybodya ndeverybody,andbecomfortablewiththe client’sabilitytopaytoreceiveincentivesforclosingsales
T: Yes.Exactly,creditdepartmentshouldbemainresponsibleforthisduty.Thesalespersonisth eonewiththerelationshipwiththecustomerandshouldbeusedtor e s o l v e conflictsorbillin gdiscrepanciesbetweenthetwocompanies.Ifyouputthesalespersonintheroleofcollecting moneythatgetsover30,60,90daysor whenever…,thesalespersonstartstobecomeabillcollectorintheeyesofthe customer.Thisstartstoputthe“wallup”thatthesalespersonhashadtoovercomeinthebegin ningtogainthetrustofthecustomer.Atthispointthesalespersonisn o t aswelcomedduring thevisitswiththecustomerbecausethecustomerisnotk n o w i n g whattopossiblyexpectfort hatvisit/call.
Name: Mr.Thanh WorkingatSMCTanTaofor5yea rs Position: Salesmanager
I: Today,I’mgoingtoconducttheinterviewwithyouaboutwhatcausesoflate- invoicecollection.Youknowthereare70%ofinvoiceispaidlatebyclient,soIthinkthatisth ebigproblemthat youneedtodiscover.Sobaseoncompany’job description,whoisresponsibleforthedebtcollectiontask?
T: Uh… that’sbelongtothesalesdepartment.Mycompanydon’tdeliberatetoputthetaskofcollectingo nthesalespersonbut, youseetheyarepeoplewhotalkwithcustomermorethanothers,sotheycanusetheircloserel ationshiptodoandg e t
T: Ourplanningandaccountingdepartment.Whileplanningdepartmentprovideamon th ly su mmaryaboutdebtstatustoeachsalespersonforshowingtheircustomersoverdueinvoices.Thi shelpsgenerateclearcommunicationabout involvedinthecollectioneffort.Theycheckthedelinquencynumberofcustomerso n theco mpany'sERPsystem.Ifthenumberofdaysisover10daysorsignificantincreasesthanthecre ditlimits,willhavealertsbyemailforsalesperson.Inaddition,salespersonaregenerallyasked forinformationtheymighthaveaboutcustomer’sbusinesstoprovideforplanningdepartment tore-assessthecreditlimit ifnecessary.
T: Actually,no.Assoonasanaccountisaged10daysbeyondtermsthesalesteamshouldbealer tedandaskedtocontactthecustomerasamatterofacustomerr e l a t i o n s gesture– justtomakesureeverything’sOK.Inaddition,atthispoint,thesalesteammustbecautionedt oavoidanycontactwiththecustomer,regardlessof theircommissionsituation.
T: Wedonothaveanytrainingprogramforsalespersonforcollectingdebt.Theyh a v e tolearnev erythingthemselvesbyobservationhowotherpeoplework,weare afriendlyteamandeveryoneishappytosupporteachother
T: YesIhavethesameideaswithyou,salespeoplecanplayaveryusefulrole.Byu s i n g theirpers onalrelationshipscombinedwiththeirknowledgeoftheinternalwo r k in g s ofthedebtorcomp anytobringadditionalpressuretobearontherightper son ordepartment.T h e r e aretimeswh encustomerswouldratherhaveaco mf o r t ab le conversationwiththeirsalesrepthanaconvers ationwiththefinancial/ creditpersonnel.Theyaremoreapttogiveupwhytheyareslowingthan havetomakeupliesorexcusesonwhytheycannotpay.
Timeismoneyinsales.Intheworkinghours,salesmanhavetomakem a n y callstohavetheor derandhandleotherprocedures.Ifhewanttomanagedebtwell,hespendmoretimeafterwor kinghourstodetectwhichcustomershave late–invoiceandremindthemsoon.
I: Sowithcustomerwhocan’ttracktheirpayablelikethat,whatactionsalesman shouldtodo?Could youtellmeyoursolution?
T Salespersonneedtohavemoreattentionforthiskindofcustomerthanothers.Theyc e r t a i n l y havethescheduletofollow- upthemregularlyandnotifycustomerthattheyhaveanupcomingoverdueinvoice.Plantorem indcustomerbeforeandaftert h e paymentdatewillbecomeapartofstandardoperatingproce dure.Inaddition,d e p e n d i n g onhowcustomerrelationshipisclose,ifemail,phoneoreven debtreminderlettersarenotpowerfulenoughtomakethemgetpaid… inthiscasethelastchoiceissalesmanmayhavetoothersreceivablesmanagementmethodssu cha s invoicefactoring,orcollectingagencyandcapturetheattentionofanyonewho isprimaryinapositiontopaythoselateinvoice.
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