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Modernization and The Business
of Debt Collection

As we prepare to enter 2002, air cargo executives justifiably can point with pride to the many innovative ways they have improved service in the past decade and a half. Indeed, today it is rare to find a cargo company that has not retooled to take better advantage of deregulation opportunities.

Streamlined, better organized terminals... Computerized equipment... Delivery systems attuned to today's time-definite marketplace realities - you name it, and seemingly from one end of our cargo companies to the other, more sophisticated and fiscally responsible systems are shaping the practice of cargo delivery.

That is with one notable exception.

  For reasons mainly having to do with a lack of knowledge, there remains one area in the cargo industry where life goes on in the same laborious, outdated manner - conspicuously wasting time and effort, threatening customer relations and often making it impossible for other innovations to succeed.

That area is what I like to call the "back room," but officially known as the accounting department; the place that makes all other efforts - no matter how forward-thinking - possible or impossible to achieve.

Yet, somehow amid the dust and din of deregulation, too many accounting departments have missed the plane to the 21st century.

The reason for this, I believe, has to do mainly with the speed at which the industry has transformed itself into an openly competitive market with truly worldwide boundaries. Spurred on by globalism and economic agreements such as NAFTA and the European Economic Community, demands have forced cargo companies to move quickly to seize opportunities.

Along with the myriad of opportunities, however, have come new and burdensome pressures created by more sophisticated and demanding customers requiring inventory controls such as same-day and next-day delivery. Such demands have driven cargo companies to move forward quickly, and many have responded commendably by purchasing more and better aircraft, expanding airport terminals, computerizing, entering into intermodal relationships, etc.

Yet, in the back room where billing, accounting and the receivables function is supervised, not much different is happening. That is, except the length of recovering dollars, which has steadily risen from 30 to 45 days to 60, 90 and more.

Regrettably, business in the back room is still being conducted as if published tariffs continue to control pricing. Though pricing is taking place today in a competitive manner on the hotly contested front lines, the back room still adheres to systems created around tariffs - systems that move accounting along at a snail's pace and continually drive up the DSO (days sales outstanding).

Refusing to change their tariff mentality, executives in the back room are today encountering a myriad of post-regulation problems, not the least being a tendency to overestimate revenues. What results from that, of course, is ill-will with customers followed by a sticky public relations problem. Then comes the additional expenditures required to placate the client (to the extent you can truly appease skeptical clients).

Clearly, without changes in anachronistic back-room procedures, delivery, sales and public relations problems will only grow worse. Remember, most forecasts for the cargo industry suggest business likely will double in the years to come. Is that good news? Only if you are prepared for such growth, and computers and better-trained sales people aren't the complete answer.

Indeed it's time the back of the factory, so to speak, also be retooled. Companies that ignore the need, or postpone the decision, may well fall so far behind they'll never catch up in collecting receivables. That isn't uncommon, even among companies with more advanced accounting office. Remember: Unlike wine and cheese, receivables don't get better with age.

Now, how should a cargo firm's accounting department handle receivables in the age of burgeoning growth: The fact is, there are lots of variables. The issue is more than just debits and credits - it also has to do with the maturity of the customer and all the variables that come with that, including the seasonality of shippers. Executives who try to find solutions within the old debit-credit paradigm are usually frustrated, ultimately deciding to merely throw more horsepower, like predictive dialing equipment, at the problem. Almost universally, results are not commensurate with the additional expenditures.

Part of the real solution lies in establishing a variable pricing system with the proper communication links between sales and accounting. The hallmark of such a system should be its flexibility in pricing.

In fact, the industry needs to realign its systems so pricing is given to the marketing department. Doing so allows the sales force to adjudicate the price, Which makes it easier and friendlier for the customer. Some companies already do this, but even they need to be more aggressive.

Simplifying the link between pricing and accounting gives marketing an automated way to actually enter the price (or unit price) in their system, which automatically moves the value to the billing system. By transferring pricing decisions to marketing, cargo companies can go a long way toward eliminating the biggest problem in receivables collection - the pricing baggage (confusion) receivables managers have to carry on their backs. With pricing set by marketing, there is an incontestable price. That drastically reduces confusion, particularly when due to demand and excess capacity, spot/onetime pricing is being used more commonly.

In the 1970's and 1980's, companies began to recognize that they could not be all things to all people. They started to look outside the traditional corporate boundaries for experts who could provide expert support at lower costs.... What a winning combination! The result was the birth of outsourcing.

Two of the most popular uses of outsourcing identified and used today are in the areas of data capture and cash application. Previously done in-house, these functions now are done off-site, and in some cases off-shore, at a lower cost and exceeding the highest of quality standards.

It is important to remember that, in most if not all accounting departments, there rarely is a resident expert in collections. Therefore outsourcing collections to specialists brings to the challenge broader and more flexible expertise.

In practice, there are numerous ways a contractor can be used as part of an overall strategy. For example, if a company's collections problems are cyclical, or fluctuating seasonally, the contractor represents a way to control costs. How often have we seen seasonal head-counts increase, then become permanent as guaranteed by The Law of Workplace Elasticity: "a person will find ways to fill and eight-hour day with whatever amount of work is at hand."

Third-party contractors, however, can determine how many people are required on a seasonal basis, and can carry those receivables managers on their payrolls, not the cargo company's.

The fact is, there rarely is an occasion when expert collections specialists cannot be used effectively, with the exception perhaps being an organization with highly classified or esoteric practices, such as the CIA, and I don't think it has much of a collection problem.

Besides creating better returns on receivables by decreasing the DSO, there is another critical reason why third-party collections experts might be considered. It is important to remember that there is more to managing receivables than just collecting dollars. As important as returning dollars is returning customers. Too often, non-experts run off customers in the process of collecting receivables.

That shouldn't be the case. Expert contractors have as their first mission the collection of receivables, but there is an important second mission as well: To serve as a facilitator and even consultant for the customer who truly intends to pay on time, but just can't seem to put the processes together to do so. The best of accounts receivables contractors work just as hard to help customers find solutions to their cash flow problems.

In summary, third-party contractors make more sense today than ever, and increasingly are being used in innovative ways. It is almost a certainty that improving receivables management won't come from traditional methods.

Just like retooling the terminal and delivery processes, accounting, too, needs to be retooled. Clearly throwing more overtime at collections won't solve the problem, not in these exciting but anxious times in the cargo industry.

What is certain is that until we change the accounting operations of receivables management, nothing else we do in the way of retooling stands much of a chance of radically improving the bottom line.

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