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Jerry York's advice to CFOs: "Watch your receivables like a hawk."
Tim Reason, CFO.com | US
March 11, 2008
I think we all have good reasons to be concerned, because we are talking about serious flaws in the fundamentals of our system: 1) uncontrolled money creation by the banks 2) exponential growth 3) complete nations who have been raised with the idea that credit (cards) is as normal as sleeping. 5) individual interests are prior to collective interests 6) instant and uncontrolled consumerism (I want I now, even though I don't have the money, but I do have a credit card) 7) lack of investments 8) greed, now, greed, now, greed, now What is the problem with all this (especially in the US and UK): due to the fact that people have spend too much on credit we have forgotten to realize, that spending on credit now means spending much less in future. Unless you get a higher paid job, but spending USD 1000 with a credit card means paying back USD 1150 - 1200. This will of course lead to serious problems. The same with house owners: if you cannot afford to buy a house, banks or mortgage companies should simple not sell you a mortgage. As long as prices / value (bubbles) go up, everyone smiles. But the system has been overloaded and now decline is accelerated by the built in cross links we have created ourselves. It is all very basic: if you earn USD 100 and you spend USD 105 each month, then there comes a time when your banker will tell you to reduce your debt. That means that you go from a spending pattern of 105 to 95 or maybe even 90. That is >10% less! Multiply this and here you have a scenario with a lot of problems. Survival of the fittest is about adaption. It may be very painful, but we all knew this was about to happen. But we should not cry, because there is nothing new out there. If you cannot afford something now, you start saving until you have enough money to buy it. If you cannot afford to take an (overseas) holiday, you just stay at home. But many people have been raised with the knowledge, that instant satisfaction is normal....a right! I think we need to reinstall the old values again and get realism back into the equation again.
Posted by Marcel Wiedenbrugge | November 21, 2008 07:52 pm
What I would like to know is who is going to make momey out of this "end of days" prediction.
Posted by Rick Macchiarulo | March 20, 2008 09:16 am
It is absolutely necessary for companies to understand their risk in receivables and unbilled revenue. Segmenting your customers and assigning specific strategies and risk indicators for your credit, collections and sales organizations to follow are crucial to managing your risk.
Posted by Hye Yu | March 13, 2008 07:29 pm
While I do concur with the majority of what Jerry York communicated during his discussion, I am not convinced that we looking at a long, ugly and deep recession. Oddly though, in some ways due to many of the things discussed during his presentation. This will not be a typical slow down or recession driven by high inventories of raw materials, finished goods or lack of demand from consumers. It is a top down driven correction due to greed and creative financing techniques and schemes from the financial community. And, it is not the result of poor peoples inability to pay their bills and absorb reasonable interest rates. When you have Katie Couric making $ 16 million in one year or more than 400 teachers or the top hedge fund manager in ?06 making $ 1.7 billion with a ?B? in one year or more than 77,000 average citizens, that should be a concern regarding compensation versus value creation. The top 25 hedge fund managers made $ 14 billion or an average of $ 560 million each that was after making on average only $ 362 million in ?05 and $ 251 million in ?04. They can only sleep in one house at a time or sit in one car at a time or eat just so much food, so think about that in relation to the average consumers that are needed to drive the economy to new heights! It has been interesting to see how there has been essentially no discussion of the real causes for the current turmoil in the markets. It is obvious to me that Jerry is knowledgeable and understands the drivers of business performance. The ?perfect storm? that he describes is the result of too many in business, finance and average citizens not having that level of understanding. The use of derivatives and a variety of creative financing vehicles are at the root cause of many of the problems in the markets today. Additionally, many of the business drivers have been outsourced and the businesses have failed to realize that you don?t outsource the responsibility for the function/activity. The automation we have experienced has been good but many in financial functions no longer have a ?feel? for the numbers and that has lead to lost or reduced control. There have too many instances of throwing out the baby with the bath water and that has lead to poor forecast of revenue, costs, margins and earnings. When the numbers are missed, the market levels punishment in the form of stock price loss and that often leads to turnover in the financial ranks. The sad thing is that those folks are replaced with individuals with the same lack of fundamentals and the cycle continues. I hope these events will be a wake up call for business to get back to the basics, remove the unnecessary complexity, simplify the financial markets, correct the problems with derivatives, and operate with the needed level of integrity. We have transitioned from a strong manufacturing economy to one that consumes goods and services often on plastic while not saving anything. When the media tells us that times are bad, we stop consuming and business slows down. By the way, managing receivables is one of those clear early warning signs that those with the fundamentals use to understand not only how their balance sheet looks but also how their customer are doing
Posted by Robert Donald | March 13, 2008 02:11 pm
Nobody wants to hear bad news especially a 'perfect storm' recession. But I have known Jerry from a previous life and he is probably one of the best ecconomic minds out there that is in the trenches, not the classroom. Time to be careful.
Posted by Gary Saulter | March 13, 2008 10:25 am
Finally! It's about time someone talks about the need to tightly manage trade receivables. Companies are simply clueless about the risk in their portfolios. We see credit files that are 5 years old, companies still calling trade references to set limits (based on matching other people's limits--yikes), as well as customer financial statements in files that have never been analyzed by someone who knows what they're doing. On top of the risk problem, calls aren't made by collectors when invoices are due. In the meantime, orders just keep on shipping. It's time to wake up before it's too late and creditors wonder why they're writing off exorbitant amounts of bad debt. Pam Krank President The Credit Department, Inc
Posted by Pam Krank | March 12, 2008 10:18 am
My name Dr. Daniel Muffoletto ND. I am not a politician. My current job is chairman of the audit committee, at Reed's. Although I do have degrees, and graduate studies in American government, international relations, and public- administration. I understand the theory of government. I am a retired naturopath doctor. I understand health care. I ran a senior citizen center, and I am a speaker for AARP, in addition to geriatric studies at Harvard Medical School of Public Health & Hygiene. I have an understanding of seniors, and social security. My Dad Sam was on the Commercial Law League board, and I worked with him at WMJ,a financial services company. In addition I was a consumer publisher, reporter, and editor. So I understand the basics of communication. My mentor was Jerry Sonafski, Nader's boss, and Senator Abe Ribnacoff's consumer law advisor. He also taught at Georgetown Law, and worked for clients such as Mercedes Bentz, while at Hogan & Hartsden. My experience training police,special forces,and ninjas,has me aware of war and terrorism problems. I need your help to get on the ballots. Will you, and your family and friends help me? I do not accept money from anyone. Enron and Abramoff are not spoken here. My government is not for sale. As a Christian,I am pro life,and a 4th Degree Knight of Columbus,and an Alhambra Shriner. For these reasons you should vote for me. I am for lower taxes. I am for health care for all, but not socialized medicine. I will appoint Dr. Patch Admas. MD as Minister of Health. Our troops will leave Irag in 30 days. They will be replaced by our Muslim allies soldiers. Pakistani, Indian, Lebanese, Bengali, Saudi Arabian, and Turkish troops will serve as peace keepers. We can have a booming economy by cleaning up the environment. My platform is clean water, clean air, clean food. Safe peaceful borders. All perminent residents, and visiting workers need to have identification. votemuff.com is my page. I have chaired 5 Outstanding Harvard UN teams. We have already solved these current, and future problems in committee. The solutions were sent to the United Nations. Senator McCain has served his country. Thanks. His health is not good. He has taken millions of other people's money for the campaign. The final candidates are incumbents. They did not solve the problems, or created them. Ralph Nader has health problems, and is asking for other people's money. Senator Clinton and Senator Obama are both pro abortion, and have spent hundred's of millions of other people's money, during their campaign's. We can not afford special interests to control our last chance to clean up the enviroment. Vote Muff better than Bush. Vote Muffoletto and live! One generation plants the seeds,the next reaps the shade.
Posted by daniel muffoletto | March 11, 2008 04:35 pm
It is time to train staff to look at unsecured credit customers as though you have a minority positions in their business. You need to monitor them closely. Watch for consistent settlement patterns. Pay very close attention to your largest exposures. If you have been lax on payment terms, partner with your sales staff on each major customer and firm up credit terms on weak customers. Losses are effected at the point of sale. When the trade accounts begin to show up on your ageing schedules, it is likely too late.
Posted by RW Thompson | March 11, 2008 03:32 pm
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