Strategic collecting: a case study.(extra credit)(Case study)

Every credit manager knows that the function of granting credit and collecting past-due accounts does not operate in a vacuum. There is a close interrelationship and many times a conflict with the sales function. However, frequently, successful credit management requires a strategic approach that includes an understanding of the fundamental impact a particular customer may have on the company's overall business operation. Many times, success requires a strategic approach that may even include "laying off" the bad risk bet.

This case study examines how that approach was used in the staffing industry to mitigate a potentially disastrous situation that could have led, virtually overnight, to the complete demise of a very successful company.

Background

"Staffing Solutions" (all names are made up and any resemblance to any existing company is purely coincidental) provided light industrial workers to automotive industry customers. By 1996, they had been in business for five years. However, the owner's relationships with the customer base had been developed and solidified through his work with his prior employer, another staffing company. He grew Staffing Solutions to about 100 customers with sales of approximately $20 million per year. As is typical in the staffing industry, terms were generally net due upon receipt but customers paid in 30 to 45 days. The company was profitable with the principal, "Joe" withdrawing over $500,000 in 1995.

One customer, "Customer 1," represented a large portion of sales. Joe had a seven-year relationship with Customer 1 and over those seven years, Customer I gradually increased the number of employees and plants to which Staffing Solutions provided services. Because of the long-term relationship, Joe never felt it necessary to check the credit of this large customer. He knew he was putting his whole company at risk but he also knew the customer well and felt comfortable with them based on the experience over the last seven years.

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