Rocket Science or Coffin- Theory of credit controller de mystified
Dear Readers, well come to my blog. i have developed this newest frame work in the filed of credit controller.
This work is also accepted by the assistant editor with certain modification at the first instance. Paper No (JEBS 02-140) Journal of Economics and Behavioral Studies (JEBS) InternationalFoundation for Research
and Development (IFRD) www.ifrnd.org
2) This article is since accepted and published after scrutiny by “upublish.info” “idea marketers.com” “premier-magazine.com” “facts-and-figures.org” Please go through the same and leave your valuable comments to take this theory further.
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Mr. Nandan Madhukar Vartak
I worked for 16 years with SIDBI (small industries development bank of India) and then in MNC like Budget rent a car, AVIS India for last three years. Have an eye for details and penchant for innovation and research.Currently working as credit controller in a fastest growing car rental company. This will be very help full for service industry for Finance officials under the Debt Management”.
The purpose of developing this framework is to underline the importance of the role played by the credit controller in a company especially in the present market scenario; to put forth some sagely advice to the new entrants into this field. At the time of entry to this field when I turned to literature to help me in understanding the role of a credit controller to my utter surprise I could not find concrete material on this area.
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Abstract
Credit controller is an important function of any company. Rocket and Coffin are used as metaphors to underline the importance of this function. If this function is handled efficiently and effectively then the company will reach the stars like a rocket and if this function is not taken seriously then the company will enter the coffin. This framework assumes importance when the breezes of second imminent recession are touching the shores of our country. The choice –as they say – is in our hands. The primary objective of this framework is to de-mystify the credit control mechanism and underlining the importance of a credit controller in a company.
Introduction
Credit Control is a strategy employed by smart companies to increase sales and decrease bad debts, thus improving a company's cash flow. Credit control is an important component in the overall profitability of many firms.
“Credit Controller” in today’s is proving magical words to everyone. I have developed a theory called “Choice of rocket or coffin”. One will understand the meaning of the same while going through the diagram given below.
The diagram depicts two pictures by and large. One is identical with Rocket and another is a look alike of Coffin. ( i am not able to load the most important diagram in this. the same is available if you follow the link)
http://www.slideshare.net/NandanswatiVartak/rocket-or-coffin-theroy-of-credit-controller-de-mystified-by-mr-nandan-m-vartak-9227479
The metaphors are detailed as under:
2) ‘Coffin” is similar to “failure” – failure to take and implement decisions as suggested by the credit controller from time to time. Once this happens even though the sales will increase so as the debtors, company may face cash crunch and this may adversely affect the growth of the company and ultimately the company will end-up in the coffin.
New definition of CREDIT
a) C- CUSTOMER
“Customer is king” in every situation. He is the purpose of the company’s existence. The basic function of a credit controller is to retain the existing customers, recover bills in time from the customer and help boost sales by bringing good new customers. Cost-Wise retaining a good customer is cheaper to attracting a new customer. When there is a competition, both retaining and attracting a good customer becomes increasingly difficult. Remember - Companies have competition and the Customer has Choices. Contacts / rapport with the customers are an essential ingredient of any credit controller’s job description.
b) R- rating the customer
Sales review meetings on a regular basis are very essential for any company. Credit controller should be made part of this meeting if not already done by any company. One very good thing the credit controller brings to the meeting table is market intelligence. He will bring-in his expertise on various aspects of credit monitoring which interalia include · In depth study of balance sheets , Annual reports Grasp about the history of company Knowledge about the credentials of the company Market intelligence about the current orders in hand with the company knowledge about the development plans of the company · Market Feedback about the company
c) E- emphasis on SOPs
Once the credit controller is satisfied with the data/feedback/visit report of the new client while approving the contract he should emphasis on the exchange of expectations between the two companies. One may call it as understanding the requirements of each one to start the business. A meeting with finance team, admin team, sometimes with the bookers/secretaries is required before he instructs operations department to start accepting booking of cars for the new client. Terms and conditions of the deal (both negotiable and non-negotiable) are to be finalized during these meetings on mutual agreement.
d) D- Directives to the end users of policy
After signing SOPs there is a need to issue directives / guidelines to all the concerned before the deal is executed. If required, training is to be imparted for the same. Controlling & monitoring mechanism is to be put-in place firmly and the same is to be communicated to all effectively.
e) I-Impact
Credit controller should check the impact of all the above four points from time to time. Constant monitoring of results will help him realize the impact of various procedures laid down by him. The power to negotiate / modify the SOPs is to be delegated to the credit controller
f) T- timely recovery of bills
Recovery of bills is the important job function of the credit controller. He should have the ability and expertise in preparation of aging report, meeting/follow up with the clients to know the status of bills as per contract, fixing the problems if any, timely recovery of bills before they become over due and infusion of expected cash into the system as projected and deciphering the early warning signals of debts turning bad. Last but not the least, to keep the management abreast about the status of recoveries regularly
Job description of Credit CONTROLLER
Credit controller is one who” controls roller coaster of receipt and payment” efficiently.
1) 1) Collections
The first and foremost role of credit controller is accept the collection targets set by the management, mold the same into a workable action plan, execution of the plan and rigorous follow up with various staff/officials/clients, fixing the problems if any and collect predicted funds within time frame given by the management.
2) 2) Keeping control on sales department/monitoring sales activities
He has to ensure that sales department is bringing only good clientele into the company. The credit limit and the volume of business allowed on credit are to be decided by him after reviewing all the data of the new client. He should make use of his power delegated to him by virtue of his role and communicate necessary instructions to operations department for execution of the action plan and also direct them not to accept any further booking for the defaulting client. He should be a go getter and should take along all the people with him in discharging his duties. He should keep keen eye on any commitment done by sales manager to the new customer with regard to maintenance of new account.
3) 3) Customer grievance settlement mechanism
Many a times it is noticed that a customer relates operational issues with the release of bills which is unnecessarily. At this juncture he should take help from customer service manager to understand the nature of failure of duty, strike out solution with the managers and take up the same with the finance/admin authority of the customer. This will help him to solve the disputes amicably and prevent revenue loss to the company. By this way he can retain the old customer and also ensure collection of all payable bills in promptly. It is a visioning function of the credit controller.
4) 4) Liaison between new customer and operations/sales department
He should monitor the flow of work, exchange of data, reports obtained from customer service manager to satisfy himself that all is well. If there is something lacking he should take initiative to bring the confidence back in the mind of new customer. Regular visits should be scheduled along with sales team for the same. He should be receiving report of feedback form from the service desk at regularly which will help him to protect the interests of the company in times of crises.
5) 5) Liaison between accounts department of his company and the customers
He should get correct aging reports from accounts department from time to time. He should get the balance certificates duly signed by the accounts manager once in a month for each party. He should then arrange to issue the same to all the customers and get the confirmation of the customers before the month end. By this way ledgers of both the companies will go hand in hand, there will be no billing dispute, recon will be in control, he can project the collections in an accurate manner; monthly closing of account ledgers /MIS will be accurate. Balance confirmation certificates are also useful tools in case of litigation. This will also help accounts department to keep the position of debtors in control, overdue bills can be monitored effectively, and revenue losses can l be minimized Regular meeting is to be conducted with the accounts team to keep all this under control.
6) 6) Reporting of debit and credit notes to credit controller
He should be in full control of the vouching the data of debit and credit notes passed by accounts department to various parties. Whenever required he should call explanation from the respective head of the departments for the same. A report of all such debit and credit notes passed during a month should be called for by him from accounts department to monitor the same. This makes the control function very effective.
7) 7) Rectification of earlier mis management of accounts or ledger
Credit Controller himself goes through the corrective action plan endlessly. He should not only take control of present accounts but also rectify the short coming observed in the process of recon with the old customers. This way he can correct the past and take care in future. SOPs are to be developed and implemented by each one down the line for the same
8) 8) Implementation of effective software in the company
He should be consulted while implementing new credit monitoring software in the company. He should be able to retrieve the data like debit/credit notes, bills dispatched, aging, total receipts vs. total sales etc at a click of a button. In a way it should be a kind of MIS which helps him in taking effective and timely decisions. Handling huge data is possible only through leveraging technology. But this should be done effectively and efficiently. The more he reduces the dependency on others to get various types of data the more effectively he can function.
9) Role of mentoring
While implementing various SOPs at all the levels he should ensure that staff/officers accept the same with a right spirit. There is every room for resistance by users as people generally resist change. Because people are scared of change they like orthodox methods to be followed. He should have a knack of dealing with people and steering them through change. He should also see that sales staff should be under his watchful eyes to prevent them from accepting bad clients but at the same time also encourage sales team in pursuing with their new sales targets.
10) Review meetings and visit to branches
10) Review meetings and visit to branches
He should conduct review meetings with staff attached to operations, accounts, billing from time to time to review the progress. Any deviation to the procedures and practices are to be handled firmly He should also conduct periodic visits to the branches, customer’s premises and to all other stakeholders. Branch Manager and his / her team are responsible for the business development and they should be made accountable for all the lapses. Minutes of the meetings are to be prepared to make every one responsible. Visits and reports are helping tools in monitoring the credit.
At the end, we can say that Credit controller plays a vital role in the credit management of a company. The company and the incumbent should take the role seriously. The credit controller’s office should be equipped with proper human resources and the infrastructure to smooth delivery of results. As the metaphor says effective functioning of the Credit Control mechanism will decide whether the company will reach the next higher level like a rocket in the sky or will rest in peace in a coffin. Ultimately, credit controlling is no rocket science; what are required are right knowledge, right attitude and right skills of a credit controller.
Declaration
I declare that this theory is developed by me. Any resemblance of this theory available with anybody may be treated as purely coincidental in any manner. I have tried my best and searched on all available theories on Internet and confirming the originality of the same. The more elaboration of role played by credit controller i.e.for the 10 duties and responsibilities will be submitted in the next frame work
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Dear readers, earlier you have
seen the theory of rocket or coffin in the context of service industry
especially with regard to car rental and other similar service providers. Now I
am further elaborating this theory with regard to supply of earth moving
equipment to construction giants on rental basis.
The companies may either purchase
the equipments from their own resources or may acquire the same on loan basis
from financial institutions or banks. I am not going into further details since
I am not authorized to comment on this but focusing mainly on engaging these
equipments on hire basis or on contract basis. My focus is the content of the
“bilateral contract” duly signed by the supplier and hirer of these instruments
while engaging the instruments on monthly or weekly basis.
By and large I have seen
companies (who are giving these types of equipments on hire basis) losing money
on the grounds of not sufficiently covering each and every aspect while
preparing the contract. The companies/agencies whose intentions are not to pay
the debt of the service providers are taking advantages of these loopholes and
succeed in looting the rightful money they owe to the service providers. At the
end service providers are compelled to do one time settlement and lose major
chunk of profit in this process. These companies also end up waiting longer
period to give justice by the court of land.
Format of contents of contract
which will be signed by both the parties at the time of supplying and hiring
the earth moving instruments.
1) Check
whether purchase order number and date has been mentioned in the beginning of
the contract by the hirer
of the machine
2) Check
whether the work order is addressed to the right authority and registered
address of the hirer
of the machine
3) If
the work order is issued after earlier issue of LOI then please check the
number of the said LOI is mentioned in this contract
4) Check
whether scope of work has been mentioned while start of the contract with
mentioned of unit/period and rate. The rate is per equipment per day basis.
5) Check
whether rate is covering day to day shift basis work and also over time (if
any) by the operators who are running these equipment.
6) Check
whether period of contract is mentioned on the contract correctly. For IT
department, they should immediately fix alerts on the system one month before
end of the contract. This will trigger alert to the sales manager, head of
sales department, operations manager and head of operations, credit controller
and accounts head to take suitable action in this regard.
7) Check
rate is giving inclusive of what? Means whether it includes cost of men, power,
machines, spares, lubricants, oils and greases, maintenance of machine or parts
there of.
8) Check
whether standard per liter diesel consumption average has been mentioned in
case of transit mixtures and for drum separately.
9) Check if the transit mixtures are not giving
specified average at the site, then whether the penalty clause to the supplier
of the machines has been mentioned on the contract.
10) Check
whether proper rate of deduction of Tax Deducted at source (TDS in India) is
mentioned on the contract. For this supplier of the machines has to provide PAN
and service tax registration numbers, copies of certificates to the hirer of
the machines. They will deduct appropriate
TDS while paying rent and other charges to the supplier of the machines from
time to time.
11) Check
whether the hirer of the machines has also accepted the duties like service (In
India) tax also while accepting the terms of contract.
12) Many
a times rate is quoted inclusive of all rates (just to make it competitive) and
win the contract. But if the person/staff entering the contract is not aware of
the same or have not gone through the contract thoroughly, then he may enter
basic rates + applicable taxes/duties on the system. This will create billing
disputes with each other and delay the payments. Credit controller is dragged
in this eventually to recover the money before the bills turns into old.
13) Check
whether supplier of the machines is abiding by all the Labour Laws, other
statutory obligations and WCP ( work man compensation policy in India) of land.
The supplier should give all the documentary evidence to the hirer of the
machines that he is authorized to deploy labor for the purpose.
14) Check
whether all the equipments are properly insure before hirer starts deploying
the sate on site.
15) Please
reject any machines which is being deployed
without adherence the clause number 14 and 13 to avoid any future
difficulties or litigations.
16) Check
whether cost of mobilization of equipment is bare by whom. Generally if the
contract period is less than six months then the hirer of the machines bares
the same. If the contract period is more than six months then the supplier of
the machines bares the same.
17) For
this point IT department should fix alerts while entering the contract. Bill of
mobilization is to be generated automatically keeping in view the above
mentioned point.
18) Check
where supplier of the machines is adhering to the safety standards set by the
industry. Get this point checked properly by the engineering department
thoroughly.
19) Check
whether hirer of the machines is ready to give food, stay, water and power to
the operators deployed on the site. Sometimes hirer of the machines do the same
on chargeable basis or sometimes it is
free of cost.
20) Check
whether the operators deployed on the site by the supplier of the machines are
up to the standard fixed and accepted by the industry norms. Check their
driving license for the purpose.
21) Check
the billing period and terms and conditions mentioned on the contract by the
hirer of the machines. Sometimes the billing starts from the day the machines
arrived on the sites. Sometimes the billing starts once the machines get
started.
22) I
have seen many a times that the person/staff entering the contract on the
system makes mistakes in this. This leads to wrong generation of bills, billing
disputes, delay in payments, un necessary raising of questions or fingers on
each one. Credit controller has to handle this situation diplomatically; train
the staff to avoid such mistakes, balance the situation and recover the money
before the bills gets aged.
23) Check
whether there is proper system in place by the hirer of the machines to keep
track of daily work done by the operator inter alia machine. Normally Log Sheet
is provided to each operator for each machine. He enters daily work done during
the day and at the end of the day the same is counter signed by the supervising
authority of the hirer of the machine.
24) This Log Sheet is the Bible for the service
provider. All the billing disputes has to solved within the preview of the data
recorded on the Log Sheet.
25) Check
where proper maintenance clause for the machines supplied has been incorporated
by the supplier of the machine. Check whether the machines are maintained
properly as per the norms set. If not done or ignored this will lead to any
accident and halt the project work.
26) Check
whether possible losses which may arrive at the because of the point number 25
has been incorporated by the hirer of the machines. Check whether the same has
been negotiated and accepted by the supplier of the machines.
27) Check
whether hirer has admitted to pay security deposit to the supplier of the
machine. Normally the sum is equivalent to the one month rental. Check whether
the said clause has been added by the supplier in the contract.
28) Check
whether hirer has added clause of break down of machine in the contract, if the
machine is break down for more than 24 hours then the supplier should replace
the same with the new one. If not supplier will pay charges to the hirer as
agreed mutually as per the terms of contract
29) Check
whether clause of indemnity against all the liability, losses, charges and
expenses including third party has been added by the supplier in the contract.
30) Check
whether hirer has mentioned the clause of termination and the same is agreed by
the supplier as per the terms of contract
31) Check
whether the clause of arbitration is mentioned in the works contract by both
the parties and the said is not objectionable to either parties.
32) Check
whether hirer has mentioned the clause of jurisdiction in the case of any
disputes arising of the currency of the said contract
33) Check
whether both the competent authorities from both the sides has signed and
sealed the contract
Check points from legal point of
view which will help the supplier of the machines to safe guard the interest of
his money entirely.
1)
Please collect registered address of the client
2)
Please collect incorporation certificate of the
client
3)
Please collect PAN (permanent account number)
and residential address of the directors
4)
Please develop system to get notice of any
change of address by the hirer of the machine
5)
Please develop system to get known any change in
the authorized signatory of the hirer of the machine
6)
Please develop system through which all the
proof of dispatch of each bill will be collected, scanned and preserved in good
manner. Needless to emphasis the importance of the same.
7)
Please develop system through which supplier of
the machine will get commissioning report of each report. This will help
accounts department to generate bill correctly.
8)
Please develop system through which every single
log sheet of each machine is preserved in a good manner. This is only document
through which supplier can prove them correct and demand law full money from
the hirer of the machine.
9)
Please develop system through which every single
letter of extension of contract of machine is collected from the hirer of the machine
with out fail
10)
Please develop system through which majority of
the terms and conditions are standardized to avoid any avoidance of any point
in future
i have since created an account in the name of "askcreditcontroller@yahoo.com". Please feel free to share your thoughts, suggestions through this mail ID.
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