To Surcharge or Not to Surcharge

You have likely heard that merchants will be adding, or at least now can add, the fee charged for credit cards to the price of a sale. It is being referred to as a “surcharge.” There are many misconceptions and there are still many unanswered questions about how this is to be handled. It may sound like a great idea as a merchant – then again . . . well, that is up to you.

(Please do not substitute this article for sound research on your part or the help of your credit card services provider. You need to discuss your particular situation with your service provider if you determine you want to add a surcharge. Be advised that your service provider may not be happy to help.)

Perhaps a little background will be helpful.

Whether a merchant can add a fee to a credit card sale has not been regulated by statute in the past. It was and is the subject of contract between the merchant and the service provider. However, Visa and MasterCard were sued on this issue because they refused to negotiate on the issue. After all, who, besides the government, really had the power to negotiate with these giants?

The credit card companies don’t want merchants to add a fee for fear purchasers will stop using credit cards. A settlement agreement was reached in the lawsuit that allows for merchants to add a surcharge to the sale for the cost of the credit card fee previously borne by the merchant.

But it isn’t as simple as now you can charge the fee or not charge the fee. Debit cards were not included in the settlement, so, as I understand it, a surcharge is not allowed on debit cards. Next, some states have weighed in and prohibit the surcharge. Utah does not allow the surcharge for transactions under $10,000. The settlement only applies to purchases in the United States. American Express and Discover were not part of the law suit and, therefore, not part of the settlement. There are lots of technical rules in the stipulation and merchants are subject to the rules unless they opt out of the lawsuit and file their own lawsuit (which is not a real good idea.)

Point of Sale. You need to understand where the point of sale is because some of the states have created statutes where none existed on the issue. You may or may not be subject to any given state’s law on the issue. It is important where the sale takes place. Is it at your bricks and mortar store? Is it from where your . . . read full article

The Partnership between sales and credit is imperative for success.

Why the sales driven organization must encourage partnership between sales and credit to succeed.

The selling team of yesteryear would have a hard time getting along, or even understanding the business world of today. Things have changed such that a client’s credit worthiness is just as, or even more important than, the gross revenue potential of that coveted client. In the old days when the “big sale” ruled all, we (the selling organization) kept the credit department quite busy cleaning up when one of those big sales turned into a big collection nightmare.

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Have you experienced ballistic moments dealing with sales people? If you have, you are not alone. At times, the friction between credit & sales produces a duel of epic proportion; well it seems like it at the time.

Sales: Excited voice “I have a new customer that is ‘golden’ and they want to buy A LOT – RIGHT NOW!”

Credit: Up go the hackles . . . “Ummm, looking at their credit report and payment history, the only possible way we can sell them is cash in advance.”

Sales: Angry “Oh Come On! They’re good for it!”

Credit and sales have very different personality traits. No wonder there is friction between credit and sales – they are complete opposites.

 Personality traits of credit & sales

 While credit and sales are two separate departments yet they do have common goals . . .

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Business credit fraud is an intentional plot to scam a business out of “value” without payment. This may be accomplished by providing a credit department with carefully crafted inaccurate information hoping that it goes unnoticed thus allowing the flimflam artist to get away with as much value as possible.

Let’s look at an attempted fraud scenario that happened recently in Utah.

An NACM member received a phone order from a caller in Ohio declaring that they had a “staple emergency” and needed product to be “shipped immediately” through their preferred shipping agent. The member contacted the shipping agent through the Hotmail email address provided and requested a freight quote. An International Shipping Quote was received. The Member received an email from the customer’s Gmail account with instructions to ship overseas and to send them an invoice for full amount of project (product plus freight). Credit card information was provided for payment. The Member was instructed to pay several thousand dollars in freight charges upfront to ship the material. This is where the red flags went up.

The Member asked for the name on the credit card and was given a man’s name. When they called MasterCard to verify they were informed that the card had been issued to a woman.

When your gut feel tells you something is wrong – start reading between the lines and look deeper. Let’s take a closer look at the warnings signs of fraud in this scenario.

Payment upfront - If a customer asks you to advance costs (or pay upfront in their behalf) be cautious. Even if you’ve been given payment in the form of a credit card, a check or even a cashier’s check, you may get left holding the bag when you find out the money is not there. Always verify funds are received before paying up front or refunding money. Asking for the name on the card, the billing address, zip code, card authorization number – any and all information you can as a standard procedure is a good business practice.

Does it make sense? Why is someone in Ohio calling Utah to order material to ship to Denmark? Are there closer sources of supply for this product? Is the request routine to your business or is it unusual?

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I am often asked by creditors whether they can file a lien against their customer’s property because the customer is seriously delinquent. The creditor is usually looking for a simple “yes” or “no” answer. But, it really isn’t a simple question so I respond either with the standard “depends,” or launch into a series of questions. Why? Because some liens can be filed without the debtor’s consent and some require the debtor’s consent.

Both voluntary and involuntary liens are governed by statute and case law. Examples of involuntary liens include things such as mechanics’ liens (preconstruction and construction liens in Utah), repairman’s lien and livestock feed liens, etc. The law allows a creditor to file a lien in these situations when the debtor isn’t paying (or you have serious concerns about being paid) and the legislature has seen a compelling interest in helping the creditor attempt to get payment.

Secured transactions can be referred to as a type of lien which is an interest in somebody else’s property, but one that requires the debtor’s consent. Transactions with a debtor can be secured by either real property (land and/or buildings) or personal property (anything that isn’t real property.) But typically when we use the term “secured transaction” we are referring to transactions governed by Uniform Commercial Code (“UCC”) Article 9. The UCC governs only personal property. So, in this article we are covering only those voluntary liens regarding personal property.

Think of the loan on your car. You want the car but have to take out a loan. The bank/credit union is willing to loan you the money but wants to make sure it will get paid. They don’t want to take possession of the car to protect their position and, of course, that would defeat your purpose for acquiring the car. So they take a security interest: you have possession and ownership but they can take the car from you if you don’t pay timely.

So with that introduction, what is required?

1. Unless the creditor takes physical possession of the collateral . . .

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In our industry credit group meetings, each of us follows along as the Anti-Trust Compliance and Anti-Defamation Statements are read and then we quickly move on to the names submitted for discussion by each of the group members. I sometimes wonder how often members take the time to read and contemplate the information contained on the page entitled Canon of Business Credit Ethics that is located between the Anti-Trust Statement and the individual credit reports. I believe that it would be beneficial for each of us to review these cannons on a regular basis.
The Canons of Business Credit Ethics evolve over time but the essence remains the maintenance of high ethical standards. You may remember the previous statement which is still good advice: 

1. Justice, equity, and confidence constitute the foundation of credit administration.
2. Agreements and contracts reflect integrity and should never be breached by either party.
3. The interchange of credit information must be based upon confidence, cooperation, reciprocity, and confidentiality.
4. It is deemed unethical to be a party to unwarranted assignments or transfers of an insolvent debtor’s assets nor should creditors participate in secret arrangements.
5. Creditors should cooperate for the benefit of all in adjustment or liquidation of insolvent estates or companies.
6. Creditors must render all possible assistance to honest debtors who become insolvent.
7. Dishonest debtors must be exposed and referred to the authorities.
8. Cooperation, fairness, and honesty must dominate in all insolvent debtor proceedings.
9. Costly administrative procedures in the rehabilitation or liquidation of an insolvent debtor shall be avoided at all times.
10. Members pledge themselves to uphold the integrity, dignity, and honor of the credit professional in all of their business dealings.

The newer version of the Canons of Business Credit Ethics is more generalized to fit a wider variety of situations but calls upon the credit professional to exercise more individual thought when applying the provisions to a much broader global market. view full article at http://www.nacmint.com/news-and-resources.php?v=583

By Shane Inglesby, CCE, Geneva Rock Products, Inc.

Credit and collections - it’s what we do for a living. Without collection opportunities, we would not be employed. As much as we bemoan the challenges we confront on a daily basis, we have to admit that this challenge is what puts food on our tables. This reality aside, one signature on a simple agreement can assist in the credit review process and help streamline collections. Obtaining a personal guarantee can literally change the way a credit manager determines credit worthiness and, ultimately, in a worse-case scenario, help collect on a past due balance.

The ultimate goal of a personal guarantee is to bind a third party to pay your company in the event of default on the part of a business that entered into an agreement to purchase and pay for goods and/or services to your company. A properly drafted guarantee agreement can be invaluable in providing additional collection options. If, for whatever reason, a company fails, you have the ability to turn to another source for payment if an individual has signed a personal guarantee.

The obvious question, however, is whether or not the individual providing the guarantee is a good credit risk. There is no point in obtaining an individual’s guarantee if that person is not credit worthy. For this reason, it is imperative that the guarantee agreement contain language that authorizes your company to pull a credit report on the individual signing the document.

NACM Business Credit Services has the ability to access personal credit reports for its members. These reports can provide an invaluable tool in further assessing the credit worthiness of an applicant at a very reasonable cost.

Depending upon who you talk to, personal guarantees can be on the same form as your credit application or on a separate page. Some attorneys believe a separate form from the application lends greater credibility to the binding nature of a guarantee if it is referenced separately from the credit application. My company always includes the personal guaranty on the same document as the credit application. It is a separate agreement from the terms and conditions section that we require to be signed on all applications. As a result, every applicant has the opportunity to sign the guarantee when an application for credit is completed.

There is no question - every applicant will not sign the guarantee. Business owners who have been well-schooled by their attorney and/or accountant will, in many cases, refuse to sign it. Some will even make their position perfectly clear by crossing out the guarantee. The position of my company is, “nothing ventured, nothing guaranteed” (pun intended).

You are assured of receiving no personal guarantee if you do not ask for it. Referencing a personal guarantee communicates to potential customers that additional agreements are or may be needed to move the relationship forward. If there is not sufficient information to make a credit decision, we will ask that a personal guaranty be provided, if one has not already been signed. In most cases, the guarantee allows for a more informed decision based upon the personal credit history of the guarantor.

Most guarantors are typically an officer/owner in the company. The personal credit report can offer insight as to how the individual will administer the affairs of the business based upon their personal business dealings.

In the event an application is received without a personal guarantee and the determination is made that a guarantee is needed, it is not uncommon for the business owner to state that their lawyer and/or accountant had directed them to never sign such an agreement. My response, as politely as possible, is “So you are asking my company to take a greater risk in your business than you are willing as an individual?” I would like to say it works 100% of the time, but it has not. But, in all honesty, it has been very effective.

If, even after all of this deliberation, you still cannot in good faith extend credit, you can always ask if there may be someone else who is willing to provide a guarantee for the company. In most cases, no one else will come forward but, by simply asking, you show a willingness to try and help the customer explore all options before declining the application for credit.

Corporate/business guarantees are another option that can be considered. This approach, in my experience, is far less common but can be used in the event of a less than credit worthy customer that can locate a business entity willing to provide a guaranty.

After credit is extended, ideally all goes well with a positive and profitable relationship having been established. However, there will be times when the benefits of the personal guarantee must be invoked-when a business does not honor its commitments and the guarantor must be brought in to actually “guarantee” payment.

The threat of taking action against the guarantor can sometimes be enough to get the company to make its needed payment. If not, the ultimate purpose of the agreement can be implemented. Approaching the guarantor can often times expedite payment. However, a worst-case scenario may be filing a legal suit where both the customer and the guarantor would be listed as the defendants.

A word of caution regarding personal guarantees - just because an individual signs the guarantee and appears to be credit worthy, it does not mean the guarantor necessarily has assets. Many games can be played, especially by owners of businesses who move personal assets to a spouse or a trust to further limit any potential liability. Personal guarantees can be of great help but they are not the end-all-be-all to providing a remedy for payment issues.

Any company that is not providing the option of a prospective customer signing a personal guarantee is missing out on what can be a very effective tool to gain more customers while helping to reduce credit risk. If you do not have a personal guarantee agreement, consult with your attorney and come up with an agreement, policy and procedure on how to best obtain a guarantee from future customers. Sales will increase and potential losses will be minimized.

Times are tough – we all know it. A credit department incentive program may be just the thing to motivate and stimulate credit and collection performance and boost cash flow.

A credit department incentive program should be constructed with several considerations in mind.

• What are your organization’s goals and objectives?
• What specific goals do you want to motivate participants to achieve?
• Is the program in line with your organization’s overall strategic objectives?
• Do participants posses the knowledge and skills to perform or is additional training and education needed?
• What type of recognition and/or reward will be effective?

The performance outcomes must be measurable. The program should be tailored to fit the participants and the organization’s culture and industry.

 An incentive program is a team effort! W Edwards Deming affirmed that trying to lift the performance of workers one-at-a-time yields no improvement. He encouraged management to find ways to lift the performance of the whole system.  Participants must have a clear understanding of the goals and the ability to measure the progress.  A well structured incentive program should boost morale, loyalty, and job satisfaction.

 Quarterly measurements and incentive rewards keep department members focused on the goals. Visible evidence such as graphs and charts of progress can bolster motivation.

 Select measurements that balance the objectives of the program:

1. Percent current
2. Doubtful/write-off
3. Collection of doubtful/write off
4. Days sales outstanding (DSO) or best possible days sales outstanding (BPSDO)

Create a matrix for each category beginning with recent measurements. Whether rewards are monetary or non-monetary, they should spark participant’s interest and should encourage both short term and long term performance.  Rewards that include branded merchandise increase engagement and provide a trophy factor. Cash, gift card and gift certificates are also valued rewards.

 % CURRENT

85% current = $__

87% current = $__

90% current = $__

 DOUBTFUL/WRITEOFF

> $X = $__

> $Y = $__

> $Z = $__

 COLLECTION OF DOUBTFUL/WRITEOFF

< $X = $__

< $Y = $__

< $Z = $__

 DSO/BPDSO

> X days = $__

> Y days = $__

> Z days = $__

The real rewards to the company are a reduction in DSO and increased cash flow. Adjustments should be made when targets are reached to promote continuous improvement. Incentive rewards for innovative new ideas and process improvements can also be included.

An incentive program should increase credit/management collaboration and reinforce the goals and objectives of the company. The credit department should be strategic players in helping management achieve their financial and operational goals. All the credit department needs is an invitation, some information, and a bit of motivation.

As managers we sometimes hold onto team members believing we can rehabilitate them. You tell yourself that they can do the job and you have invested a lot of time and energy in developing their knowledge and ability, but there comes a time that you need to let them go!

How many of you have finally terminated a team member and gotten a response from the rest of you team like, “what took you so long?” Then you find out how much damage they have really done over the years.

Today it is more important than ever that we have team members that not only can do the job, but positively influence the rest of the team. We need team members that are accountable for their own actions, believers and innovators, that strive to learn and grow with the company.  Read more

If only ________________ (insert job title or name) understood that _______ (insert credit wisdom here).”

Has that phrase ever slipped from your lips at work? Credit is a tough and challenging job! You probably wear multiple hats and have numerous irons in the fire. You get caught between customers, sales and management and it can be frustrating. So, how do you get management, sales, customers and others to trust and value your knowledge and experience and to take you seriously? Become more credible and influential.

Credibility

Increase your credibility by learning everything you can about your job and company. Take classes, attend seminars, read books and read newsletters, search online, network with other credit professionals, find a mentor, go back to school, obtain a NACM Professional Certification. Know your job inside and out. Learn everything you can about your company’s products and services. Learn, understand, practice and don’t take shortcuts. As you increase your knowledge and abilities, you will have a positive impact on those you work with. It will show by improved performance and bottom line results.

Larry Brooks, Credit Manager, ARUP Laboratories, has a 4 year degree and is a CPA and had many years of experience. Larry states that when he achieved the NACM Certified Credit Executive (CCE) designation, co-workers viewed him differently. They saw him as a true credit professional and sought his advice.

Attitude

Develop a “whatever it takes” attitude. Read full article