TOP 10 WAYS TO AVOID BEING LEFT HOLDING THE BAG

1. TOP 10 WAYS TO AVOID BEING LEFT HOLDING THE BAG Or “How to Collect on Business Accounts”

2. With apologies to David Letterman Cheryl Gilbert Anaheim Public Utilities APPA Business and Financial Conference September 20, 2004

3. Disclaimer • All information presented is the opinion of the author and does not constitute legal advice. • Before implementing any of the suggested policies/procedures you should follow your internal procedures for approval/legal advice.

4. 10. Develop a written credit and collections policy • Should include your policies for deposits, payment extensions, etc. • Should be presented to, and approved by, senior management • Everyone needs to have the same understanding of what your policies are, including your customers • This is crucial if customer calls for payment arrangements, etc. are taken in a Call Center, and other financial activities are handled elsewhere

5. 9. Collect a deposit when the customer establishes service • If your existing policy doesn’t allow you do to this, start lobbying for a change in policy • Present evidence of the expected improvement in bad debt write-off • Be sure that Senior Management understands that it will take 2-3 years for the change to be evident in the write-off results • Provide alternatives for cash deposits, such as a Credit Reference Letter from another utility, or an Irrevocable Standby Letter of Credit • Refund deposits if the customer pays their bills on time

6. 8. Don’t let the customer get into a hole they can’t dig out of! • There are many indicators that a company is in, or getting into, financial trouble • Late payments • Returned checks • Broken promises • Accounts Payable won’t return your calls! • Media reports (rumors that the company is for sale, a key officer resigns or is fired, significant litigation is filed, etc.) • If publicly traded, stock price dropping • Change in consumption

7. 8. Don’t let the customer get into a hole they can’t dig out of (Contd.)! • Monitor major customers • Use your CIS system, if it has the capability to monitor changes in payment habits, consumption, etc. • If not, select accounts that are potential problems and monitor them manually using • Consider using a service to score your portfolio and identify potential problem customers • Read the Financial/Business section of local and national newspapers • Consider subscribing to an “alert” service that will notify you of critical events, such as an officer leaving, or filing of litigation

8. 7. Consolidate financial functions in your organization • The same group that is responsible for collecting closed accounts should be responsible for, or in close contact with, the group that performs other financial functions. • Within this group, establish a method of sharing information about major accounts • Returned checks • Non-payment disconnects • Requests for extended payment arrangements • Unusual requests, such as months or years of duplicate bills and consumption history • Bankruptcy filings

9. 6. Use the Internet as a Credit and Collections tool • SEC filings for publicly traded companies are available on the Internet • Stock-tracking services are available and can serve as a warning device for large customers • Skip-tracing services can help you track down sole proprietorship owners, or officers of a defunct company • Company web sites can provide information you may not be aware of, such as a merger or acquisition • Remember, companies only put good news on their websites! • News searches, such as Google, can alert you to media reports

10. 5. To Disconnect, or Not to Disconnect • Once you have identified your major customers, and/or potential problem customers, flag the accounts • If the account is eligible for non-pay disconnection, you need to be involved • The Accounts Payable person is not who you should be talking to! • Recognize that disconnecting the customer could put them out of business and you will not collect what they owe you

11. 4. Get a deposit or additional deposit • If you can’t reach a workable solution, or the customer is not keeping their promises, a deposit can protect you against loss • Your credit and collections policy should be flexible enough to allow you to collect a deposit even if they are paying their bills on time • For example, if they have returned checks, or you read in the paper that a loan has been called, or they lost a major contract • Be aware that asking for a deposit may put them in further financial jeopardy. Be prepared to discuss alternative solutions, such as advance payments, or an Irrevocable Standby Letter of Credit.

12. 3. Don’t ignore bankruptcy actions! • If your customer files bankruptcy, stay abreast of what is happening • At the very least, file a Proof of Claim • If eligible and practical, serve on the Creditor’s Committee • If possible, attend important hearings • Vote on Proposed Plans of Reorganization • Respond to demands for preferential payment returns • You don’t have to automatically return the money! • Most City Attorney’s offices are not equipped to deal with a bankruptcy • Hire outside counsel if you stand to lose, or recover, a large amount of money

13. 2. Keep Senior Management informed by providing • Monthly estimates of your annual bad debt write-off • Updates on major issues with large customers • Developments in large bankruptcy cases

14. 1. Educate, Educate, Educate! • If I used any terms that you are unfamiliar with, find out what they mean • Attend seminars, join professional groups, subscribe to publications • Educate yourself, your staff, senior management, and your customers on • Your policies • Collection laws • Bankruptcy proceedings and laws • The more you know, the more successful you will be!

15. Organizations APPA National Association of Credit Managers State Revenue Officers Associations Publications The Kiplinger Letter Wall Street Journal Manual of Credit and Commercial Laws (Bankruptcy) Mini Code, Mini Rules Published by AWHFY, L.P. 3950 Doniphan, Ste. E El Paso, Tx. 79922 Suggested References

16. My contact info • Cheryl Gilbert • 714 765-5133 • Cgilbert@Anaheim.net