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
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.
is with one notable exception.
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outdated manner - conspicuously wasting time and effort, threatening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
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
somehow amid the dust and din of deregulation, too many accounting
departments have missed the plane to the 21st century.
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.
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.
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.
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).
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
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.
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.
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.
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.
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.
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
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.
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
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
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."
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.
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.
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.
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.
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
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.
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.