Giving Credit, Where Due --DickesonFebruary 2004
That's why accumulating inventories has prime significance to the nation's economy. If you're an acquiring company, the first thing you look at in your due diligence exercise is the inventories, especially the raw materials and receivables. That's where the sins of the past business policies and practices lie buried.
The first thing I'd look at as a criterion of effective management in any printing business: how fast do they get their invoices for completed jobs in the e-mail (e-mail can be a day or two or even three faster than snail mail.) The invoice should precede the packing slip! Then a phone call to the customer to be sure they've received it, that it's clear and when you can schedule payment. The date on that invoice starts the quick-pay period clock running. None of this horse-puckey of waiting for all of the so-called costs to be reported. That's distorted history.
Price, customer changes and count are all we need to know. If we don't know them instantly, then we'd better crank up the computer system. I recall with sadness one printing leader, no longer in the business, saying, "Try as we might, Rog, we can't get our invoices out in less than 14 days."
Collection of receivables is another thing. If I ask a printer what his credit terms are, the most likely answer I'll get is a proud "30 days." Yet when we look at the collection record it shows 45 days. And that's after the invoice has been issued. Somehow, after the sale has been booked, management forgets about collecting the money. That's why, in applying TOC—Theory of Constraints—we look first at the constraints management itself has allowed in administering its policies. What causes that difference between policy and execution? And is it after that quick-pay discount, which has been abused?
Let me suggest what one of the primary problems is—call it "Chasing Receivables." It's extending credit beyond that 30-day policy in the hope that a little more credit will enable the customer to pay the invoices. That's a fatal mistake that leads inevitably into quicksand. I'd even go so far as to venture that 25 percent or more of the bankruptcies of printing companies in the past quarter century has been due to chasing receivables.
Track your receivables every Monday. Do it by using the statistic for Days Sales on Hand. Divide total receivables inventory at the end of each week by receivables collected during that week. Multiply the result by seven days. The table shows what it might look like on a rolling quarter basis. The goal for the particular chart is 30 days or whatever policy is established. If you're using a quick-pay discount, then the goal should easily become reality.
If you're having trouble collecting some accounts, my suggestion is that you read through the tips published by Inc. magazine.
In a nutshell:
* E-mail the invoice and follow up with a phone call.
* Think very hard before allowing a quick-pay discount.
* Enforce payment terms.
* Don't chase your receivables.
* Track receivables every Monday morning.
* Use a rolling 13-week table with a graph.
Will all this help? Unless you're doing all these things now, you can bring more money in—faster—by minimizing or actualizing the constraint.
—Roger V. Dickeson
About the Author
Roger Dickeson is a printing productivity consultant based in Tucson, AZ. He can be reached via e-mail: firstname.lastname@example.org.