A review of the key aspects employed by three pulp &paper mills’ credit departments provides insight into developing teamwork between credit and sales

Optimal Mill Cashflow Management Requires a Total Team Effort to Succeed

The reason? The key to a successful business, one that continues to grow, is a strong and constant influx of cash—in a word, cashflow. While production, sales, and other departments play important roles in building cashflow, the credit department, by virtue of its policies and activities, may play the most important role. Only when teamwork exists among credit, sales, production, customer service, accounting, and other departments can a paper mill expect to build and maintain a strong cashflow picture.

In many organizations, credit is referred to as the “sales prevention department” because of its practice of coming up with reasons why sales can’t be made. However, some credit departments are as committed to sales and growth as are the production and sales departments. By agreeing to work as a team, all of these participants find ways to continue to make sales and aggressively help to build business.

Outlined below are the thoughts of three credit professionals who understand the value of such teamwork. They discuss the major elements that are necessary to build and maintain strong cashflow:

• Sales relationships.

• Customer relationships.

• Collections activity.

• Deduction management.

Sales Relationships. Potlatch Corpora-tion of Spokane, Wash., utilizes a centralized credit structure to create a successful teamwork environment. (Some companies have centralized credit, where all activity and decisions take place at corporate. Others utilize a decentralized credit structure, with local credit people interfacing with the mills and with customers.)

While cooperation with a number of departments is key to success, the relationship between sales and credit is probably the most important, according to Bill Kempker, director of credit. “We feel that we have a superb relationship with our salespeople,” he states. “Our salespeople are credit-minded, and our credit people are sales-minded. We work hard to maintain daily contact with salespeople in the field.”

The credit and sales departments work closely to find mutual ways to sell to customers. The sales department also takes the time to inform credit of information they hear “on the street” that can either help the company protect its assets or open up new business opportunities. For example, when sales hears of a customer who may be struggling, a call to the credit department can set wheels in motion for further investigation that might result in a tightened credit limit that ultimately protects the company from bad debt losses. “We never react to rumors,” emphasizes Kempker. “We always appreciate the information we hear from salespeople, but we always investigate further before making any decisions on an account.”

Conversely, when sales hears of potential customer expansion or new business opportunities, they quickly relay this to credit so the latter can begin the credit investigation process and explore ways to accommodate sales requests with minimum risk.

Credit and sales also work closely at Consolidated Papers Inc., Wisconsin Rapids, Wis. “One way sales helps us is to make sure payment terms are spelled out clearly to customers,” reports Dan Huotari, assistant to the corporate credit manager. “In this way, when it comes time to collect, customers understand what is expected and when it is expected.”

Credit also helps sales by being responsive to email and voice mail messages. “When it comes to getting new business, timing is critical, so we respond as quickly as possible to their requests for information and assistance,” explains Huotari.

Credit also helps sales track their customers’ payment performance. “We send them quarterly reports on how their customers are paying,” he adds.

International Paper, which utilizes a decentralized approach to credit and collections, is equally committed to sales teamwork. “When I first arrived here, I attended a sales meeting in order to begin to get to know everyone and establish professional relationships with them,” recalls Christina Houseknecht, a senior credit analyst at International Paper’s Odenton, Md., facility.

“On an ongoing basis, we keep the sales staff informed of the status of their accounts with aged trial balances,” she continues. “This helps them understand where each of their customers is in terms of credit and collections.” In most cases, if a customer is falling behind, the salesperson will take the initiative to make contact with the customer to discuss the issue before the credit department needs to get involved.

Customer Relationships. While many credit people prefer to do all of their work from within the four walls of their offices, Potlatch’s Kempker and his staff enjoy getting out and meeting customers in person. “Sometimes we travel alone; at other times we will travel with the salespeople,” he explains. There are four key times when it is valuable to visit customers, according to Kempker:

Assessing the creditworthiness of a new account. “We always meet with the financial people, and, depending on the size of the company, we will also usually try to meet with the president,” he states. The purpose of the visit is to gain an understanding of the prospect’s current operation, its plans for the future, and how Potlatch and the prospect can work together to achieve their mutual goals. “We work very hard to find ways to make sales that help our company grow, but, at the same time, protect our assets,” emphasizes Kempker.

Addressing customer short-term or long-term financial problems. During these visits, Kempker and his team attempt to work out mutually-agreeable payment plans.

Evaluating customer business expansion. Kempker sees these visits as offering significant opportunities. “When we can find ways to increase sales, we’re helping them grow and helping us grow,” he explains. During one recent visit, for example, Kempker met with the president and financial people, listened to their projections, reviewed their financial data that supported these projections, talked with the customer’s banks, and then created a plan to increase business. “We are now able to sell them the volume they need to grow,” he states.

Paying a courtesy call to customers to thank them for their business and for their support. “If possible, we would like to visit everyone at least once every other year,” states Kempker. Do customers care? Indeed they do. “I have had several customers tell me they have never been visited by financial people,” he reports. “One executive told me I was the first financial person to visit him in his 25 years of being in business. It is surprising how you can build excellent and long-lasting customer/credit relationships through face-to-face contacts with your customers.”

“Customer visits are key to establishing and maintaining good working relationships with customers,” agrees Consolidated Papers’ Huotari. “For example, if a customer has missed a payment, or if we are dealing with a discrepancy, it’s important to have already established a personal relationship with the customer before you call to discuss the problem. Without having met the customer in person, you risk strained relationships if your only contact occurs when problems arise.”

Collections Activity. While building relationships with salespeople and customers is important to building business, there is little sense in having salespeople make sales to customers in the first place if you can’t ultimately collect on the sales. “The real key to cashflow is to keep accounts current and within terms,” states Potlatch’s Kempker.

Again, cooperation is critical here. While the sales department is responsible for collections, the credit department will either assist in the process or, in some cases, even take over the collections process for a customer if sales is struggling with that customer in the collections process.

“Our department handles the collections process,” adds Consolidated Papers’ Huotari. “Any time we experience a collection problem, the first step is to contact the salesperson and let him or her know what’s going on.” This offers the salesperson the opportunity to make first contact with the customer and attempt to understand the problem and help resolve it.

“We handle collections, but we may request the involvement of the sales department if we are running into lack of response on the customer’s part,” states IP’s Houseknecht. “This allows us to take advantage of the close, personal relationships the salespeople have with their customers.”

Deduction Management. As with most organizations, Consolidated Papers is involved in finding ways to address deduction issues (which it calls “discrepancies”). Its goal is two-fold:

• Reorganize work processes so as to reduce the number of discrepancies in the first place. “We want to find the causes of discrepancies and then address the process steps that are involved,” explains Huotari. “For example, when prices change, we want to be sure these changes are entered into the system as quickly as possible.”

• Create systems to speed up the resolution of discrepancies as they occur. “If you fail to resolve discrepancies quickly, it can have a negative impact on customer relationships,” adds Huotari.

Both initiatives will involve close working relationships with a number of departments. “Everyone will be working together to identify the causes of discrepancies, find ways to prevent them, and also suggest ways to speed up resolution,” he continues. “As we move further into this area, we expect to have more interaction with the people at the mills.”

One tool that Huotari envisions will assist in the process is a software system that will communicate discrepancy status to and from the credit department, sales department, and the mills. “It will provide real-time communication for all of us,” he notes.

At Potlatch, credit also works in a team environment with sales, customer service, accounting, and other departments to address deduction management. “Providing the customer with correct orders, on schedule, plus accurate and prompt billing aids in preventing deduction problems,” explains Kempker. In sum, it is everyone’s responsibility to ensure that all orders achieve 100% quality. When everyone works together to this end, deduction problems are less likely to occur.

“If and when we do have deduction problems, we often assist the sales department in resolving them if we can,” he concludes. *

William Atkinson is a freelance writer located in Carterville, Ill.