Business Health Series – Protecting your Credit Sales: Prevention is Better than a Cure

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Welcome everyone. I am Gershon Morgulis, I am the founder of Imperial Advisory. And welcome to our business health webinar series. I’m gonna take a moment, let’s start by ⁓ welcoming some of our team members. Then I’m gonna take a moment and introduce the firm.

And then I’ll do a brief intro on our speakers and then let them introduce themselves further and we’ll jump into it. All right. So for starters, I’m gonna just look through in no particular order. It’s what I see on the screen. Thank you, Elizabeth and Maggie back up for putting this together. welcome, Rick. We’ll hear more from you soon. Welcome, Dean.

And then welcome Tom Amato. Welcome, Ken. Special special treat to have you here today. and welcome to the other team members whose faces I can’t see, but it’s good to have you too. all right. So without further ado, let’s get started. So let me tell you a little bit about Imperial Advisory. We are a

CFO company. We provide fractional CFO services. So practically what that means, we provide CFO level financial leadership to growing businesses. And we come in either as a fractional CFO for some sort of project or as an interim solution when a senior finance leader exits. We typically work with two profiles of clients either CEOs of successful growing companies.

Who need strategic financial leadership but aren’t ready for or don’t need a full-time CFO. We work with people like that on growth planning, cash flow, profitability, leading the financial team and infrastructure, preparing for transactions and/or an eventual exit. Second profile is CFOs of larger organizations. So those are typically going to be.

You know, between fifty million and

500 million. So or a division of a larger company. So bigger, a two hundred million dollar division of a billion dollar company. Anyway, CFOs at companies like that often need an experience outside resource to handle complex work like FP and A, prepping for an audit, prepping for MA, buy side, sell side. It’s often project driven, not always, sometimes it’s ongoing. But anyway.

When they bump into situations where they have a bandwidth or expertise gap, they call on us. Now it sets us apart from others or what we think is really good about us. Let’s focus on us, not others. All the CFOs on our team bring decades of experience. all of them have over 30 years of experience. And generally we’ve got at least 10 years, sometimes 20 or more, sitting in the CFO seat.

And the people on our team really bring a wide range of experience. They’ve been in many different industries and in many different company sizes. We I like to say that we’re bringing large company perspective to the small business space. Anyway, we don’t send consultants. The people on our team have been there, have lived the life, have been in that seat. And that’s a big part of what we’re providing, what we provide to our clients.

⁓ we work closely with CPA firms providing hands-on financial leadership that complements the tax and compliance work that many firms are already, many companies are already receiving. So we complement your CPA firm. We’re not there to replace them. If you are a CPA firm, we’re there to help you. Anyway, we also work closely with attorneys and bankers to provide strategic financial assistance, whether it’s on a project basis or an ongoing basis to their client space. To their client base, I should say.

And that’s our story. That’s what we do. And we’re able to help these companies grow, improve problems, or just prep for their next level of growth. Anyway, that’s the story. That’s a little bit about who we are. And one of the things that we bring is the people on our team have been operators, they’ve been in that seat, and they end up touching many different parts of the business. And so our business health series is really to

cover not just finance, but all many different aspects of a business that we feel are important for our clients and others in our network to know. Today’s topic though really is very close to finance because it it’s really finance. It’s part of finance. If if you sell stuff but you don’t collect the money, did you really sell it? It’s like the tree in the forest. right, you spent the money on cost of goods, but you don’t collect. That’s a real problem. So

Making sure you get your money and making sure you get it quick, because if you get it in a year and then you have to spend money financing your receivables, that’s also pretty expensive. So making sure that you get paid, get paid on time, don’t end up wasting operational resources on collections that you should have never had to be wasting time on. Those are all really important things. And so I’m really excited to have our webinar today on this topic of how to

solve problems, how to avoid problems of around receivables, how to solve problems, how to plan for growth and

we’re really excited to have Rick Katz. Rick Katz is one of our amazing CFOs. He hails from Texas, but he’s been all over the world as you’ll soon hear. and ⁓ Texas, Atlanta, South Africa. and Rick is going to be walking us through some strategies. Really excited about that. I’m going to let Rick take over in one second. We have a second speaker along with Rick.

Who’s Ryan? Ryan has been in the credit insurance business for a very long time. And credit insurance is one of many tools that you can, well, tools or tactics that you can use in planning and optimizing your accounts receivable. And ⁓ Rick and Ryan have worked together and we’re so excited to have them for presenting today. Rick, take it away.

Thanks. But Ryan, you’re welcome. Thanks. Good morning, everybody. as you heard, I’m a ⁓ originally from South Africa. I have been in the United States 40 years. And primarily I have been involved as CFO of a number of companies. I’ve also got a general management background. I’m a chartered accountant with a business degree.

⁓ and I have done ⁓ a variety of strategic and hands-on roll up your sleeve activities over the years. So I feel I have a good ⁓ kind of view of things, really from A to Z. And I hope to help you all today in terms of discussing this topic. I want to make it as interactive as possible. So please I’m not putting slides on the screen. You’re gonna we’re gonna talk.

And you can get a copy later. But if you have a question while I’m talking, please put it in and we’ll deal with it immediately, you know, rather than collecting them until the end. And I think that would be a better experience for all of us. So to introduce Ryan Morse. Ryan and I work together where he solved some problems for me in a particular situation in terms of receivables or credit sales as we call it here.

And Riot will Ryan will be able to add that particular tactic or strategy and give you a full description and how it works and what it can do for you.

Ryan, please introduce yourself. Morning. Appreciate everyone’s time being on the webinar today. ⁓ as Rick mentioned, we have worked together ⁓ many years ago. Don’t want to date any of us on the call. ⁓ but I’ve been in the trade credit insurance industry for over fifteen years, started my career off at Allianz Trade, and now have been at Kofoss for about twelve to thirteen years.

COFOS briefly, we have about a hundred thousand customers around the world. We have risk underwriters and risk analysts in almost every single country. So I always say partnering with a company like KOFOS is like partnering with the strongest credit department in the world with a checkbook. as a partner, you have direct access to ⁓ not just me as a sales VP, but also

our direct risk analysts and underwriters who are making these decisions for your customers or you all over the world in all the countries that we operate in. So appreciate the opportunity to be here today and ⁓ we’ll give it back to you, Rick. Great. Thanks, Ryan. So let’s get down to it and deep dive into ⁓ protecting your credit sales. this is going to ⁓ involve quite a lot of process discussion.

I’m a believer in processes. I believe in ⁓ avoidance is better than having to deal with it as a problem later on. And there are many aspects ⁓ to ⁓ being able to manage credit sales and AR, as I call it, accounts receivable, to ⁓ be a positive impact on the business. Protecting should be a basic business principle, but

It is often about growing revenue without taking unnecessary payment risk. Strong credit practices help companies reduce fair debt, improve cash flow, and support profitable customer relationships. Remember, the sale is not complete until you are paid. And I’ll give some examples just quick later on about that. So why protecting your credit sales matters?

When we talk about credit sales, we’re talking about both mostly B2B. We’re not talking about consumer, where the consumer normally pays at the time of purchase. But we’re talking about B2B, which really is a backbone of most companies’ revenue. But they also expose the business to delayed payments, defaults, and even fraud. Weak controls raise days sales outstanding, strain working capital.

And increase write-offs. Well-managed receivables support healthier cash flow and more predictable forecasting. And we’ll talk about that now. Cash flow management is the most dynamic, constantly changing aspect of finance and the root cause of many failures.

This is especially important when growing your business. As you grow, your inventory grows, your receivables grow, and you need more working capital. So if your working capital gets stretched, people who grow too fast can get into more trouble than people who grow slowly. Payment discrepancies are a major profit leak.

Especially large retailers and supermarkets who have built-in deductions to increase their profitability. Supermarkets’ net profit is as thick as between one and a half and three and a half percent. That’s looking at the major national chains. So you can imagine if they can arbitrage your cash for even ⁓ 30 days or 60 days.

Or if they can find reasons to short pay you, it really adds to their bottom line substantially. And that is something I have experienced working with companies like Proger, Home Depot, Lowe’s. They all have these built-in ways of finding areas to charge and to reduce what they pay. Core strategies to protect credit sales.

A standard written credit policy. I know smaller companies may have difficulty, you know, when you do AR. An audit questionnaire, and they ask you for the controls and who checks who. Obviously, in a smaller company, there’s a limited number of people involved, but you can still have a process that will encourage smooth operations and keep you on top in terms of managing your AR.

Your receivables. Define approval criteria. Standardized terms, credit limits, exception authority, and escalation rules. All should be a standard practice and all should be written so people can see it, read it, and follow it. The other big area is screening customers thoroughly before extending terms.

Review trade references, payment history, financial strength, ownership details, and risk indicators, user service if possible. Dun and Bradstreet, Credit Safe, and there are others are good choices to use. Now they cost money. But in terms of what they can do for you when you’re adding a new customer.

It pays in the long run that you have them there and that you are protecting yourself as much as possible. I would really recommend that. There are costs, but if it’s well worth it, and it’s certainly better than a bad debt. Can I jump in for a second? Yes. I wanna I want to add something to what Rick is saying, that it’s not just about should I spend the money to protect myself, which

You might say, okay, these guys are finance people, they’re being too conservative. It there’s also the fact that sometimes you’re gonna look at things and you’re gonna say, That’s too risky, and then you’re going to lose the sale. But if you avail yourselves of of having policies like this and having things set up, you you may end up doing more more sales and more volume.

Because you have that done in Brad Street, or we’ll talk about credit insurance later. But if you have a way of checking, you’ll have cases which otherwise you might have turned down, which now you won’t have to turn down because you’ll be able to be confident. And so on the margin, a lot of these things can actually help you. You may end up rejecting some. Well, it costs you money up front. You may end up rejecting some, but you may end up accepting others. So on the margin, it may actually increase sales.

Thanks, Yoshan. That’s a thought. If you don’t agree with that, that was an unprepared remark. But ⁓ my next point actually ⁓ leads into some of that. You’ve match your terms to risk. Use shorter terms if you have any doubts. Use deposits for smaller companies, even use credit card payment for smaller amounts.

Personal guarantees where an owner runs a business.

And to and prepayments to cover your costs, at least your costs of whatever you supplying for higher risk accounts. I do not support using cash discounts. It’s expensive. They never come when you expect them. And then you start arguing about you were four days late, five days late. Well, I sent it, I didn’t send it. I have I’ve I’ve refrained throughout my career of offering.

or agreeing to cash discounts. It’s more expensive than it is saving you money.

They are expensive generally.

Then monitor exposure continuously. At least weekly, you should have a tracking system with outstanding balances, aging trends, concentration risk, and sudden order spikes. And that’s one is really special in industries where there may be changes in their activity, they may have difficulty and need cash flow.

And that place a double or triple size order, and then you don’t get paid for ages. There should be good reasons before somebody gives you a massive order compared to what they do regularly. Then get getting down to the basics. Invoice accurate. Yes. Is that generally a red flag if someone has a big order? Or is that just a risk to you? Because if it’s only

Yeah, Rick, can I if it’s if it’s unusual, I would want to know why, yes. Rick, can I jump in real quick? Please, please. I I think this is an excellent point. you know, that Rick made you know, with the with the unusual orders. So we saw a lot of companies

You know, obviously when COVID hit and then as volatility continued to increase after all the government aid kind of fizzled out, we’ve saw an increase in Chapter 11 bankruptcies. And typically what we’ll see is we’ll see a couple big, big orders because they’re preparing to file for Chapter 11 and they know when they file for Chapter 11, they’re gonna have difficulties with some of their suppliers who will can will not supply them ⁓ product when they file for Chapter Eleven.

⁓ so what we’ll see is we’ll see an uptick in those orders for companies that are starting, you know, to go downhill and are about to file for chapter eleven. So I think Rick’s point here often goes overlooked. So I’ve met with hundreds of credit departments in my 15 years of doing this. And a lot of the times they will be so excited because the sales guys like me will be like, I got this million dollar order. I’ve spent years developing this relationship and you know, and we’re getting this business, you know.

They they used to work with this supplier, but this supplier’s, you know, not going to sell them as much and they’re all excited. You know, but what’ll typically happen is let’s say they are Kofost customer, their other supplier that’s been supplying them. Well, we’ve probably notified them and said, you know, this is a huge risk. We see them on the verge of bankruptcy, you know, and then so this new supplier whose sales agent’s all excited about this big order, you know, they don’t have credit insurance or they don’t have a good

you know, un they don’t know that there’s all this inner stuff going on. So now they make that big order and now they’re on the hook for a significant amount of ⁓ you know, it’s a problem. So I I think that is a really good point, Rick. ⁓ and I just wanted to stress that because we do see that a lot. and we look for that internally as well. So great point. Thank you. Appreciate that.

So, invoicing, clear invoices, purchase order alignment. It must be the same as their purchase order. And prompt delivery, reduce disputes and payment delays. Make sure invoice pricing aligns with customers’ orders. Proof of delivery must be included where required.

If you slip up on your invoice to start with, you can expect 30 to 45 days to get that invoice paid. It immediately creates an area for a customer to delay. Make payments easy, accept convenient payment methods and have clear remittance instructions. More and more today, companies are going to ACH payments. They’re not sitting and writing out checks and signing checks.

Make that available, it’s quickly, it’s in your bank, and you know it’ll be met because it can it won’t bounce. ACH is in tinn. Large companies have strict protocol steership payments. Be careful. And often AP is located separately from multiple receiving points. Bear that in mind. Normally the receiving point has to approve it in terms of whatever documentation.

until it reaches the accounts payable department. And if there’s any miscontact between those two, you will not get paid until it’s sorted out.

Prioritize collections early. Use reminders on due dates and act quickly on past due accounts. So there’s some obvious debate on how and when you take action. But if you have payers that are important and you know that they are prone to pay two, three days late, advise them it’s coming due. I had my

AP Clark who dealt with incoming payments have personal relationships with the customer accounts payable department. They get to know each other. They work with each other. And if you’re the one who’s working with the accounts payable clerk, you’ve got a better chance of being paid on time regularly. And if there’s a problem, use the telephone.

I find too much is trying to be done by email only. Talking is a far better way to deal with these matters from day one. Email sometimes aren’t even read. Can I jump in again, Rick? Carry on, please. I think this is another absolute ⁓ must

Reiterate this point. So we’re seeing a significant increase in fraudulent activity and AI has only increased that. We meet with FBI folks regularly here at Kofoss. and to Rick’s point, picking up the phone and developing these relationships is so critical versus emails because a lot of the time sometimes people are faking, you know, that they work for this company and they send the emails. I dealt with this with one of my clients, you know, he’s like, Ryan.

you know, this company got approved for a hundred thousand, but something seems a little off. And so I put the entire email chain through Microsoft Copilot and it red flagged, you know, little tiny pieces of the email. And I said, Well, did you pick up the phone and and call this person to see if he actually worked for this company? and he’s like, Well, no, you know, I was just been emails. And so to Rick’s point, picking up the phone is critical, not just to develop that relationship, but also to prevent

being ⁓ in a fraud situation where you’re actually not dealing with you know employees from the actual company you think you’re dealing with. So great point, Rick. Thank you. Pick up the phone. And in fact, I have a an experience on the wrong side of that, where we were paying a supplier on a regular basis and there was emails between the supplier and ourselves on the AP side us, and an email arrived

within a chain of emails from this sub supplier asking to change the bank account for the next ACH payment.

parts of the same email chain. Well it never came as far as me, but it got handled by the controller who was probably busy, and we paid a fraudulent bank account.

Not once, twice. Now, one of the checks got recovered because we acted as soon as we discovered it, but the other one got to China before we could get hold of it. And it was a net loss, bam. About twenty-nine thousand dollars. So ⁓ and I’ve and of course there are much worse cases dealing on emails. We’ve all seen emails from the boss.

saying I’m out of town and I need to pay this urgently, please send this money here or there. No it affects it affects this as well. It affects AR. Be aware of it. I want to jump in and the point too, but ⁓ I would just say that I think Vito has a ⁓ has a hand up on question two. Please.

speaker-2 (21:35)
thank you so much. this is great. I work with ⁓ a company that does collections and the ACH has become such an important thing for not only for us but for our clients. we pay their percentage on the 15th of every month. If you are an ACH client, you might get it the evening of the 14th in your bank account.

We had a situation two years ago. The post office is terrible these days. And and two years ago we had a problem where several hundred clients didn’t get their checks. And the next month they didn’t get their checks. And after two months, the company redid the checks. Well, of course they had a note in there saying don’t pay the don’t cash the first one with this date on it.

my god, what a mess it was. So we try to let everybody know it’s in their best interest if we’re gonna be sending them money, they should use the ACH. It’s secure, it’s fast, and it’s not expensive. It’s cheap, right?

speaker-0 (22:42)
Yes, sir. Thank you.

speaker-2 (22:43)
Thank you.

speaker-0 (22:44)
So again, now after collections, we look at how we manage the business from AI automation, numbers point of view, alerts, scoring, aging dashboards, and workflow tools improve consistency and speed. And what you’re trying to do is have a cadence that works. You know when customers pay regularly.

You know if there’s a problem because they don’t pay. You see it quickly on a report. Don’t let it sit there.

Include in all documentation proper contract terms drawn up by your attorney to protect your interest and reduce risk.

Those terms are for your protection. It does not protect your supp your customer. There’s nothing they need in protection. And therefore, don’t be shy about it. It’s very important that you don’t leave leapholes, sorry, that they can come back with and delay payments and say this doesn’t tie up with that or whatever.

Every order form, confirmation and invoice needs to have the same information, the same warnings and worded for maximum protection.

Then we come to consider transfer risks, which is another way of saying some kind of insurance. I worked with Ryan and he did a very specific insurance for us. But one of our partners, a large German organization that we would insured all their debts worldwide, always. So they say they didn’t need.

A credit department. You either within your terms and you paid, or you were handed over to the insurance and something was done immediately, or future orders were stopped. We didn’t want that because we had large customers that we’ve been dealing with for a long time, but we had some that were in more risky industries, or some new ones, or some overseas. And ⁓

Letters of credit aren’t popular because again, you know, they could put wording in there that doesn’t really get you your money. I’ve had experience with that over the years. So letters of credit aren’t an answer. The answer is really insurance when it comes to overseas. So Ryan, over to you.

Perfect. Thanks, Rick. and I want to clarify too, our company ⁓ has actually implemented a new product line where outside of the trade credit insurance will monitor the financial stability of key suppliers and key customers all over the world for our clients, ⁓ outside of the trade credit insurance. So that’s a lot less expensive than trade credit insurance. It doesn’t come with the same level of protection, obviously, as the insurance.

But it’s superior to you know a lot of the other credit reporting companies out there because our money is actually backing up that info. the other thing that I might add too, so you know, if for anybody who’s not familiar with trade credit insurance, there’s three main players that have the breadth as Kofas. So it’s Kofas. Rick mentioned Euler Hermes in the email, but now they’re Allianz trade, they rebranded not the

bash our competition because I love the folks over there. But they did a lot of canceling of coverage during COVID, and so they rebranded as Allianz Trade, which was a fantastic marketing strategy they did. But anyway, ⁓ so it’s Kofos, Allianz Trade, and Atredius have the risk analysts, the risk underwriters, and the full breadth of, you know, all of this data globally. ⁓ and then there’s a lot of other trade credit insurance carriers that really

Like AIG will put the onus on the customer to make sure they’re dotting the I’s, crossing the T’s, make sure they’re monitoring their own, you know, accounts. but if you want that true partner that has the 4,000 plus risk analysts, risk underwriters in almost every country in the world, ⁓ that’s us, or it’s a tradius, or it’s alliance trade.

One thing I wanted to reiterate what Rick said ⁓ is a couple different things that I thought were really important is really, really make sure all your invoices and everything have all the key data that Rick mentioned and make sure that you do have maybe an in-house attorney kind of look it over, make sure the purchase orders that are coming in.

you know, the company that you’re doing business with is actually the company, you know, that’s legally responsible for paying you. So if you see a purchase order with a you know different company name, they’re like, well, yeah, that’s a similar company. Well, a lot of the times it’s you know totally it’s it’s a le total different legal entity that they’re telling you. So they’re like, well yeah, that’s us, you know, pay us over here. Well we’re seeing a significant

Significant increase in the amount of fraud, but we’re also seeing a significant increase in, let’s say, this big, big company has like a hundred subsidiaries, and those hundred subsidiaries aren’t all legally owned, wholly legally owned by the top parent, right? So they’re all separate legal entities. While the parent might offload a bunch of debt into subsidiary A, subsidiary B, subsidiary C.

And then the parent will say, Well, you guys go use chapter eleven as a business tool, or you, you know, whatever they want to do. And so you think you’re doing business with this big, big conglomerate and they’re safe. Well, really, that’s not the case. You’re doing business with this little sub that is going to use chapter eleven as a business tool. You’re on the hook for all that. Meanwhile, you thought you were doing business with this huge conglomerate. and that happens a lot more than people think. I deal with that almost every single day. I’d

Dealing with it this morning. You know, I’m getting pushed to get five million in coverage on this company. And they’re like, ⁓ this company in South America is like the ExxonMobiles of the world. And I’m like, well, actually, you know, these are separate legal entities and they can force this company in Argentina to go bankrupt on their own. The parents are not going to guarantee these receivables. So I I think the biggest point that I’ll make to Rick’s point is, you know, times have changed.

AI has significantly increased the amount of fraud that we’re seeing. And to Rick’s point, you really want to put a lot of effort on the front end of screening your customers. I connect with everybody on LinkedIn before I even talk to them for the most part. You know, if a prospect reaches out to me, leaves me a voicemail on my phone, I immediately see if they have a LinkedIn profile. I immediately see who they’re connected to. I see if we have clients that are doing business with them. ⁓ and I put a lot of effort into

you know, trying to figure out, okay, who’s coming to us looking for trade credit insurance and wants to partner with us. You know, is that a fraudulent situation? Do they have somebody that they’re worried about that might owe them a million dollars and they’re thinking they can just get credit insurance because, you know, they’re not getting paid by this company. So they’re reaching out to us right away. so I just think that’s a really good point that Rick made to to make sure you Yeah, man, I’ll just say yes, I

I didn’t go into the detail that you mentioned. That is so vitally important, especially if you’re dealing with Canada and Mexico, which is a lot of activity. And I’ve always insisted that ⁓ the person the company placing the purchase order is the holding company or the company that we’ve got confirmed credit on and no one else. And they easily start switching that, and then you’re in trouble. Very

Important, yes, thank you.

Yep. And and that’ll that’s one of the three main reasons a claim will get denied in the trade credit insurance industry. So, you know, for every dollar we collect in premium, we typically pay out about forty five, fifty cents in claims. So we do pay a lot of claims. but one of the re the one of the three main reasons a claim will not get paid is if we seek coverage on the wrong entity.

So years ago when Target Canada went bankrupt, you know, some people thought they were doing business with just the Target, so they put the coverage on Target US. Well, Target Canada went bankrupt, Target US didn’t. Situation like that, we wouldn’t pay a claim. In a fraudulent situation, we wouldn’t pay the claim either. So for example, I have a client, they sell oil and gas. Well, somebody ordered fifty thousand dollars worth of fuel, had it delivered. If this guy had just looked up

where they wanted that delivery, it was a defunct gas station in North Carolina. So, you know, if they just looked at Google Maps, if they called that location, they would have realized that that gas station’s out of business. There’s nobody there. And so they would have picked up on that. And that was a fraudulent case that wasn’t covered under the trade credit insurance because we can’t go after their customer for anything, right? Because it’s a fraudulent order. So they shipped $50,000 worth of oil to this gas station and we’re on the hook.

⁓ and we’re seeing that happen more and more. So that’s another reason a claim will get denied. And then the other thing I’ll mention too, ⁓ is when you’re a partner of Kofoss.

It really gives you a lot more flexibility ⁓ in your credit department, in your sales department. We kind of bridge that gap. So sales is comedy, you know, the credit department saying, We need to approve this for a million dollars. This is ridiculous, Rick. Why aren’t you approving this? You’re so conservative. This is costing us business. You know, well, Rick can then say, Well, Kofoss, because we have over a hundred thousand customers, chances are good we have clients that are also doing business with.

This entity. And so, yes, you might be getting paid on time, you know, or they might share trade references, but who’s ever gonna share a negative trade reference, right? So, with a partner like us, we have all that intel from our other customers. So, for example, I’m dealing with this right now. I have a client that says, Why are you not approving this? You know, we have positive payment history, you know, and I said, Well.

We have two other Kofost customers who have filed sizable six-figure claims on this same customer. So really don’t care that you’re getting paid on time because that means nothing when two Kofost clients have filed over a hundred thousand dollars in claims. And they they said to me, They’re like, Are you serious? And I’m Yeah, I’m looking right at it. You know, and so, you know, when the bankruptcy court comes in.

You know, they can come and take that money back, which a lot of people don’t understand. You know, the bankruptcy court can come back months and they can say, Okay, well, you guys were getting paid on time, but those were preferential payments. And so what they do is they come and they claw that money back from you so so you could get a million dollars taken from you that you were getting paid on time, and then that million dollars is going to be equally distributed to the other suppliers that are on that schedule of creditors in the bankruptcy court. So

trade credit insurance also protects you from that. So we also cover those clawbacks. So if you’re getting paid on time, a year goes by, and now the bankruptcy court comes to you and says, Well, actually you you owe us a million dollars. That’s covered under the trade credit insurance program as well, which a lot of people don’t d didn’t don’t know. So that’s another thing. and we also underwrite the risk in those specific markets.

So if you’re exporting or you have clients or anybody that’s looking to grow their sales, you know, right now with everything that’s been happening, all the uncertainty going on. We have no idea. I mean, I haven’t checked, I’ve been in meetings all day. Is the straight open today? Is it not open today? How is this going to play out? There’s just so much uncertainty. and so our underwriters have the boots on the ground in those specific markets.

And they’re monitoring the economy in all those countries. They’re monitoring all of the the the sector risk, country risk. And all of that becomes embedded into ⁓ a company’s entire credit and sales departments when they partner with a company like ours. Great. Thank you.

when you say that that money can get clawed back, does that does that only happen if the company has already declared bankruptcy or the bankruptcy goes back and says, You paid bills for the last six months or the last year and we’re gonna go claw back money from all those people? And is that the latter. So if I understand the question correctly, so let’s say, you know, I’m

I’m selling widgets and you know this company’s paying me on time, paying me on time, and they’ve been paying me on time for the whole last year. But they’re not paying five other suppliers on time. So now let’s say two months later, this company that I’ve been selling to goes bankrupt. They start going through the bankruptcy, they start getting all the details. Months go by, those bankruptcy proceedings take months. So now they’re going through everything and they’re realizing that, you know.

Ryan Morse widget company was getting paid a million dollars like clockwork because, you know, me and that, you know, leadership team went to church and golf together. So I had this personal relationship or whatever it have you, right? So I’m getting paid on time, but all these other people are not getting paid on time. You can see that clawback happen years in advance, which is why our policies cover, you know, two, two, three years out.

If they come back and get that claw back, because it can happen years afterwards. Exactly. Yes. Yeah. We just saw that happen the other day. A client of mine from three years ago, they were getting paid on time. They were like, What is this? You know, this this bankruptcy, you know, was three years ago, and now they’re trying to collect this like thirty thousand dollars. And we made a claim payment on that because we went back and

It was a clawback. The bankruptcy court went through all the different bankruptcy stuff that they go through and they came back and said, actually, hey, we found this 30 grand that you were paid three years ago. You now need to give this back to us and we need to equally distribute this to everybody else. Yep. So ⁓ just a couple of things about credit insurance. There are rules and there are regulations that they provide you and they have to be kept.

You have to report it when it’s overdue. Don’t try and try. And then suddenly, you know, 30 days too late, you say sorry, it’s not being paid. They have their own controls and their own rules about reporting and staying up to date and changing credit terms and exceeding limits. All of that has to be taken into account. But if you do it right, you’re well covered. Yep. And

To reiterate Rick’s point, almost every single carrier in the marketplace has a lot more dotting of the I’s and crossing of the T’s to make sure a claim gets paid. with Kofoss, we’re a lot more lenient, but we still ask that you, you know, keep an eye out on things and keep us abreast. But you have a pretty large window. It’s typically 180 days from the oldest invoice to file a claim. So if you invoice somebody January first,

They haven’t paid you by July 1st. You really need to get that claim into us. Now you can file a claim day one after it’s passed due if you really want to. ⁓ one of the strategies I recommend is letting your client know you have trade credit insurance. and I always say putting the onus on the bank. So say, hey, look, we’ve partnered with Kofoss.

For our trade credit insurance, they ensure all our accounts receivable. And we do that so that we can offer more favorable credit terms to our clients like you, Mr. Customer. We do this so that we can get a more favorable working capital facility with our lender, which has enabled us to take on a lot more growth projects. but under the terms with our bank, we need to file a claim if you don’t pay us within X amount of time.

And we really don’t want to have to file a claim, Mr. Customer, because Kofoss has over a hundred thousand clients worldwide. And chances are very good that other suppliers of yours are utilizing KoFoss. And if we file a claim, it’s going to send off red flags with all of them and it’s going to negatively impact your business. And that is the last thing we want to have happen because we really care about your business.

⁓ and that goes back to Rick’s point about relationships. If you and everybody at your company put a lot of effort into building that relationship, you can have those conversations, you know, and people won’t think, you have trade credit insurance because you think they’re not gonna pay you. No, that’s not why people get trade credit insurance, right? So

You know, I just wanted to reiterate that point. But that’s a pretty large claim filing window. And obviously I have clients that have 180 day terms. So that claim filing window isn’t 180 days. That’s it’s it’s way longer in that specific example. So we carve out the program. they’re all customizable to whatever fits your needs. You don’t have to insure anybody. You can insure just everybody that owes you a hundred thousand dollars or more.

Or you can exclude Walmarts, Kmart’s. We have the most amount of coverage on Walmart globally, so people do insure Walmart. I have a client that has a ten million dollar limit insured on Target. so you know, but you don’t have to insure those entities. Great. Right. Okay, so let’s move along to a few other areas that I want to cover briefly. Early warning signs to watch. They may sound obvious, but sometimes they’re overlooked.

And every organisation has blind spots. Some things that you just don’t notice or don’t see, or for some reason skipped, you know, went into a black hole. If payments start arriving later than usual, if customers request repeated extensions, order volume rises suddenly with a clear business re without a clear business reason, which we’ve discussed.

There are organizational changes, layoffs, legal issues, adverse market signals affecting the customer. Be aware of all these. If you insure receivables, your insurance company will give you early warnings in a lot of these cases. And that’s a big advantage of having it. Collections and escalation practices. Separate relationship management from risk management.

Support sales, but avoid uncontrolled exposure. As ⁓ Ryan mentioned, sales guys want to do sales, they don’t want to collect money. I’ve had situations where the sales guy has asked to get involved, but they have an emotional reason not to upset the customer. You have a very vital business reason to get paid.

So keep bear that in mind. Define what to place account when to place an account on hold. There should be a standard procedure. I had a standard procedure. If a comp customer is 10 days late, no shipments until we’ve sorted it out. Period. It may be a simple matter, but at least it was brought to attention before more got sold with a problem.

You the most this must include orders not yet prost produced. Don’t go running up more in product, which is unique to a customer, when you’re having a problem collecting what you’ve already delivered. Stop them. In rare cases where you need a long lead time and other issues, try and get deposits to cover at least your basic material and labour costs, or only your material costs.

But take measures to protect the risk. You don’t want to lose a customer, but you don’t want to lose a lot of money.

Remember also, be regular with your follow-ups. There’s no harm in asking by telephone. Why have I not been paid yet? They can give you a check number and something that you can stand by, fine. But also remember, the squeaky wheel gets the grease. So be the squeaky wheel. And I’ve seen that happen.

I mean the automotive industry got into a little difficulty. We had a we we were quite big in the automotive business, a third of our business. And ⁓ they started pushing out payments. So that got to CFO to CFO, and I discussed it with him. And we got better payment realizations than they were doing before.

But he couldn’t do that with everybody. So if you’re not in the line at the first, you’re going to land up in the line with everyone else. Those important little things that happen along the way, but they all leave their mark and a lesson learned. And this esc I mentioned CFO to CFO. Escalate unresolved delinquences quickly to leadership, internal leadership, and then our leadership internally deals with it.

Set a fixed time or set certain customer names. If they go late, let me know. We’ll decide what to do. We’ll look at the situation, the circumstances. CFO to CFO is better than owner to owner. Or is it controller to controller? They talk the same language, they may have the same problems, and they work with each other a little bit if you’re in the line first.

Review root causes of late payments to the process gaps. There may be reasons why you’re getting paid late. There may be continual requests for copy invoices or for proofs of delivery, things like that, or short deliveries. They don’t tell you about over deliveries. But all of these erode profit margins at the end of the day. Closing takeaways.

Protecting credit sales is not about saying no. It is about approving the right risk with the right controls. Strongest results come from combining disciplined processes, policy, report monitoring, and follow up.

Senior people should be looking at reports at least monthly of the AR and the ⁓ the whole aging and who’s late and why and what are we doing about it. It will not get fixed on its own.

Even small process improvements can lower bad debts. The little things that I’ve just mentioned. Shorten collection cycles, strengthen cash flow. Again, organizations should review their credit policy regularly as customer risk, the economy, and market conditions change. Ryan gave several examples of things that happen out there that come back and affect your business.

Be aware of it. Take measures when you can. Be careful when you can. And consider this. If you have a net profit of ten percent, it takes a hundred dollars of sales to recover ten dollars of items.

If your profits only 5%, $200 of sales to recover $10 bare debt, that’s a big mountain.

Don’t put yourself in that position. Open to further QA, please.

⁓ I found that fascinating. I asked my questions along the way.

Anyone else? Anyone have anything they want to jump in to ask or I’ll I’ll jump in for a question for Rick if nobody jumps in. my question to you, Rick, is ⁓ in your many years of doing this, would you agree that a lot of businesses get into you know, not the term, but like too comfortable with some of their ⁓ longstanding customers that they’ve done business with years.

and then so they start, you know, getting comfortable and selling more to those customers so that now, you know, over eighty percent of their revenue comes from less than twenty percent of their customers. did you find that in your career? And did you find that kind of now where companies are still getting too comfortable you know, and and having so much of their revenue coming from such a handful of customers?

You know, generally, I mean, we we were watching, you know, the ⁓ the the amount of debt with any customer is a part of the total. And I don’t think that we ever actually ⁓ got to the point where it was too much because of comfortable. What was too much was giving extra terms when you get too comfortable. And then if they start buying more from you.

You know, the owner will say, I’ve known him for twenty years. Come on, there’s no problem here. Well, he can be as honest as the day is long, but when he doesn’t have the money, he doesn’t have the money. If he’s not making a profit, it’s going to come back and hurt you somewhere. So yeah, the point is well taken. It’s an important issue.

Yes, sir.

speaker-2 (46:07)
Yeah, I I have a vested interest in the question, but I was curious, do you generally use collection agencies? I know you have the insurance, and that’s a fascinating approach. but how about collection agencies for clients?

speaker-0 (46:22)
Never, sir. I’ve never used a collection agency.

speaker-2 (46:25)
And can I ask why that is?

speaker-0 (46:27)
Well, b first of all, because we’ve managed like over ninety percent of the time to get paid, if even if it’s late. Secondly of all, because the cost of collection can exceed what you’re trying to collect. And I don’t think the collection agency can be any more efficient than I can. That’s what I’m gonna I’m gonna jump in too. ⁓ I’m gonna jump in too, because I’ve been doing this for a long time, not as long as Rick.

speaker-2 (46:35)
Okay.

speaker-0 (46:53)
⁓ but so I’ve met with hundreds of credit departments, and I will say this Rick is just on a whole nother level. So so he might not use a collections company, but I have recommended to my clients ⁓ to use collections companies because I find that collections companies are very, very good. ⁓ they have all kinds of great tools. However, Rick

is on a whole new level. And if you implement strategies that he’s recommending we implement, you you won’t need to use a collections company as much because of how great I’ve seen him do. I mean, I know personally when I worked, you know, when when one of his companies he worked for over the years, they had our our service for a small part of their business. But I watched all the stuff that he had in place. but to your point, Vito,

I meet with credit departments all the time and they don’t do anything that Rick’s talking about, none of the recommendations. They don’t do any of it. And so I’ve always recommended that ⁓ if a credit department is not going to implement all these internal strategies, which most of them don’t, that yes, it that it does ⁓ it it does add a lot of value to go with the collections.

speaker-2 (48:05)
The the idea here is that most people ⁓ that I talk to, business owners, not the size companies that I think you are generally working with, but small business owners, people think that you gotta be a guy named Vito from Jersey to be in a collection agency, which is really fun. because I’m a coward, I don’t do any collecting, but I love

speaker-0 (48:27)
My baseball bat, Vita.

speaker-2 (48:28)
and but we are a fixed fee agency. So the average in America is thirty-three percent. That’s the contingency fee. Whereas we have businesses that we collect their money for twenty bucks, the max is thirty bucks on the flat fee side. And they are astounded because what happens is if you know it’s gonna cost a twenty or thirty dollars, you’re not waiting six months or a year.

which is also the average age when people put debt with collection agencies. So it’s a high percentage and it’s older debt. And that’s why they get the result they get average around nine or ten percent today. our average is much higher, ⁓ could be twenty, thirty, forty, fifty percent in some instances. we do a lot of medical and that you know, dentists and that kind of thing.

But I I appreciate your direct answer. And Ryan, I should have said on the survey that I wanted to talk to you.

speaker-0 (49:28)
Just reach out to us.

speaker-2 (49:29)
Yeah,

because I I think that I would like to explain the details to you since you do use it sometimes. Thank you. This is great. Thank you guys.

speaker-0 (49:40)
Thank you. Thank you to all of our guests. If everyone can take a second to fill out the survey, that would be great. and thank you to our two speakers. We really appreciate all of your insights. And yeah, thank you. Great job. If anyone has any questions, hopefully the speakers could stay for another minute or two. I have one thing I want to ask,

the question is on the collections. does who you’re collecting from make a difference? So, like when you’re collecting from Kroger’s versus when you’re collecting from mom and pop business, does that change Rick, who I know is not a big fan of of needing collections agencies, but would that change your approach? Yes. If

Yes. And Vito can answer because you know he can answer from his own collection standpoint. But for Kofos, we ⁓ we partner with Altis receivable management for our ⁓ all our collections. and so they do ⁓ every situation is different. So you know, a lot of the times if it’s a Kroger or a company like that, and I’m not gonna Vito, you can hop in, but you know, they’re not going to take the same approach as if they’re, you know.

Dealing with somebody that they think is on the verge of bankruptcy. and Vito, if you want to hop in and answer that.

speaker-2 (50:46)
Just quickly, what we do is we have two types, we have a series of written demands that we use for that fixed fee. And there’s one set of demands for consumer debt, and there’s another set of demands for commercial debt. So that the language is different and it’s you know, and it’s very effective. once it’s used, you know, when people get the demand, first class mail, and they look at it and they say, my god, we’re in collections.

They don’t know who we are, they don’t know it cost you 20 bucks. They don’t know that. All they know is psychologically, my God, we’re in collections. And that’s the advantage when it’s done early. If you’re sending somebody a two-year-old debt, ⁓ a demand like that, they’re ignoring everything. So this this works because the best, happiest clients use us at 60 to 90 days.

Everybody says 90 days, but they don’t do it. You know, when do you use your ninety days? If they haven’t paid in 90 days, we’re going no you’re not. You know, most people just don’t do it. They know that’s a good answer, but they don’t do it.

speaker-0 (51:55)
And and to reiterate.

speaker-2 (51:56)
Twenty-three years, Ryan. I know you give fifteen. This is my second career, but ⁓ you know, the idea here is that it it’s an education thing. It’s letting people know that there are options. You know, you don’t have to just browbeat pe we even have a reminder service that is not collections. Same idea with the flat fee. But our clients were saying to us, look

I don’t want to put these people in collections, but I don’t have the staff that I once had to do the reminders. And so they like our little flat fee thing, five touches for the same flat fee. So, you know, we’re trying to be honoring what the clients are asking for. And ⁓ I’ll tell you this, and you can check any agency you’re working with now. We have over 2700 Google reviews.

nationally and our average is four point eight five out of five and we’re a collection agency and over seventy percent of those the the debtors went beyond the flat fee they had collectors calling them they were so taken with the way the collectors treated them they gave the collectors a five star review we’re very proud of that so it’s different that’s all I’m saying it’s different

speaker-0 (53:14)
Yeah, and I I want to reiterate that too, because I think that’s really important thing that he brought up is time, right? Our time is the most valuable thing all of us on this call have in the It’s the most valuable thing, right? So if you have people like Vito or company that we use who specialize in this arena, it’s it’s so much more ROI to, you know, let them do it. And and as a credit insurer, you know, I like when

People don’t file claims, right? Because then I don’t have to negotiate and spend hours of my time trying to keep their premiums low because they’re having people try to help them collect that debt before it gets to the point where they even need to file a claim. So, you know, if somebody files a large trade credit insurance claim, obviously it’s like any other insurance, right? The premiums go up. And then I have to spend hours negotiating internally with my underwriters, my leadership team.

to keep those premiums low because they keep filing claims. So you know, I I’m all for

speaker-2 (54:12)
Yeah, Ryan. That that’s so important. And one thing that we talk a lot about, ⁓ that wasn’t mentioned, your your work is protecting the staff in your in your clients’ companies, because then they don’t have to deal with those folks that are not paying. And ⁓ in in my experience, people in the companies that we’re working for, they don’t like collections, they don’t want to do collections.

I know that’s their job, but it’s not the most comfortable thing. And so this service helps them protect the the clients and their their staff. So that’s a big big point we we talk about.

speaker-0 (54:52)
You know, if I may say there’s a very big difference in the different reasons why you’re not getting paid. And if it’s a straight we haven’t got the money, that’s one story. If it’s an argument about a quality of goods received, it’s another story. I mean, some of them should be resolved without having to collect. If there’s if there’s just a straight out, you know, they’re gonna go under if we don’t do something, then maybe I would get somebody else to do it.

speaker-2 (55:17)
Yeah.

speaker-0 (55:18)
But I I didn’t mention I didn’t have the the facility or the services of Vita at that time. So

speaker-2 (55:26)
Well, the other interesting thing is that we don’t on that flat fee, there’s no percentage. So it’s it’s twenty bucks. It’s thirty bucks, it’s eighteen bucks, depending on the volume of how many accounts. But you get paid directly from the debtor. It doesn’t come through the agency. It’s directly to the debt. They love that. Business owners love that. So different paradigm.

speaker-0 (55:50)
And to go back to Rick’s points though, if if companies and their credit departments would make everything you know, follow these strategies that he li laid out, they’re going to get paid and they’re not going to have to f file as many things with a collections agency because the companies they’re doing business with is going to take them far more serious if all of their invoices are perfect, if they have all the dotting of the I’s and crossing the T’s.

set up so all these strategies you know that i’ve seen rick use over the years it’s you know it’s it’s ⁓ companies should be using and and that’s why i don’t need a conviction agency yeah i know i would agree rick you don’t but a lot of companies don’t follow those strategies and they should be following those strategies so all right thank you both

speaker-2 (56:30)
It was a

Yeah, you know.

speaker-0 (56:41)
Thank you all for participating. Hope to see you again sometime soon. Thank you. Great day, everyone. Thank you guys. Thanks, Sean.