Peer Review of Your Credit and Collection Processes

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A Great Loss Prevention Idea for A/E Firms:
Peer Review of Your Credit and Collection Processes

by Andy Harmelin

President, A.I. Consulting, LLC

The practices of Architecture and Engineering are professionally challenging balancing contractual terms and conditions, with providing a professional and aesthetically pleasing design within budgetary guidelines.

Unfortunately, the design professional has to occasionally deal with a difficult or unhappy client. This client may feel that the architect did not design exactly what they envisioned, that some part of the work product was delivered sub-standard, that their budget was exceeded or disregarded, or simply that the project took too long to complete. Once a design professional starts down the path with an unhappy client it becomes a slippery slope, leading to lost revenues and possible litigation.

Fortunately many of these situations can be avoided with a small ounce of prevention in the form of a Peer Review of your Credit and Collection practices and procedures. Our firm has recently performed this type of Peer Review for several of our A/E client firms. As an independent third party we are able to evaluate the subject firm's credit and collection practices and procedures with a "fresh set of eyes". It has been said that "a peer review is as important to (a) firm's health as a physical is to yours."

We have developed the following Peer Review evaluation to better assess a firm's present credit and collection operations. The areas to be examined all pertain to boosting the firm's cash flows and preventing disputes. The evaluation consists of meeting with key operations and office staff to examine the firm's credit policy towards prospective clients, contracting process, routine collection efforts and key personnel involvement in the resolution of client issues and collection process. We interview each staff member involved with the following areas for about 30 to 45 minutes getting their feedback on what is working well and what needs improvement.

Credit Policy:
* Is there an in-place policy to ensure all prospective clients are credit worthy?
* Are all projects supported by contracts with clients?

Contracting Policy:
* Are contracts thoroughly scrutinized and deemed fiscally sound prior to services starting?
* Are there any side deals with clients, such as pay when, or if paid?

Routine Collection Efforts:
* We review your Accounts Receivable run and analyze for percentage over 90 days.
* We also look at past experience with delinquent clients and their payment history.

Key Personnel Participation:
* Are PM's aware of client balances?
* Do key personnel get involved with client issues?
* At what stage do they get involved?
* How do they deal with clients?

Typically, we take an objective and positive approach while interviewing the firm's employees with their responses kept in strict confidence. We record the firm's strengths, reaffirming good practices within the firm, and note issues that need modification, providing suggestions for change. Every effort is made to draw out as much information from employees in an optimistic participatory spirit while avoiding their fear and embarrassment. Our goal is not to pass judgment on a firm, just to help them improve. Sometimes we will tell a principal that they have good people but need a better process.

A good Peer Review helps to save the design professional from costly write-offs, as well as the expense and embarrassment associated with errors and omissions that could occur as a result of a faulty credit and collection program.

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A.I. CONSULTING, LLC
P.O. Box 611
Narberth, PA 19072
Office: 610-667-3422
Fax: 610-667-3425
info@ai-consultingllc.com