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Calm, Cool and Collecting

How HVAC giant Lennox International transformed its credit and collections function.

REL finished the customer segmentation in a couple of months, says Dacus. The result wasn’t a classical 80-20 situation—where 20% of the customers would be responsible for 80% of the past-due receivables—but a fairly small percentage of customers were responsible for “the lion’s share, by a long shot,” says Dacus.

In the meantime, REL also performed a thorough evaluation of the function’s staff and recommended a new organizational structure, says Dacus, who was hired to lead the change-management initiative.

Building New Habits
Once the customer base was segmented, Lennox was ready to implement new, standardized collection processes for each segment. The priority: A3 and B3 customers who accounted for a large percentage of past-due dollars.

13Sept_CaseStudy_p49aWith these high-risk customers Lennox now takes a more proactive approach. “We assume every customer will pay on time,” says Dacus, but in some cases the company will call a high-risk customer before an invoice is due. The calls, made by some 25 collectors in the residential group and six on the commercial side, are meant to be constructive, not threatening.

“We want to help customers build new payment habits,” explains Dacus. “It’s really more of a problem-resolution call. We say, how can we help you? Do you have any billing issues or disputes that we can help you with? We have different statement cycles; would you prefer to get invoices on a weekly basis?” More than 70% of Lennox’s customers have adopted electronic invoicing; the company would like to increase that share.

Lennox’s standard terms are 15 days from statement date, “but many of our customers prefer to pay by invoice, in which case it’s net 30 days,” says Dacus. The difference between the two averages out to a couple of days, he says. The company does not offer carrots to speed up payments such as special terms or dynamic discounting. “We don’t want to sacrifice profitability for the sake of cash flow,” comments CFO Reitmeier.

Instead, says Dacus, “we go through the process of finding the root causes of why customers aren’t paying sooner, addressing those root causes and creating a rhythm for payment. We want everyone to be treated equally across the board.”

Closer Collaboration
Essential to the project’s success was closer collaboration between collections and sales. “It wasn’t simply about us developing processes where we go out to our customers and seek payments,” explains Reitmeier. “It was about working cross-functionally, collaborating with our sales force. It was about adopting a philosophy in which our sales folks on the front lines, who deal face-to-face with customers every day, own the complete relationship with the customer.”

Sales and collections weren’t always in sync. Before, collectors were “very independent, and as a result they solved problems very differently,” says Jackson. “Creativity and flexibility are wonderful in certain contexts”—but not when a fairly large sales team is involved, where one collector supports multiple salespeople and some salespeople are supported by multiple collectors. The lack of a standard approach to collections “created a tremendous amount of confusion,” says Jackson. “It made things very difficult and, frankly, argumentative at times.”

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