Walking the Line with Risky Customers

A telecommunications company is often called a revenue generator. The perception is that one can simply set-up shop and the dollars will pour in. And that's the reason why hundreds of telephone companies exist today in both the long distance and CLEC markets.

But for many CLECs, revenue does not always transform itself into cash. Many companies have followed the salesman's dream-sell, and they will come, and offer a better price and they'll flock to our doors. Of course, however, those companies are thinking only of billed revenue and not paid revenue.

The chore of managing the raging sales hordes and their barbarian customers often falls onto the credit manager. He is often considered the enemy of any self-respecting salesman as he holds the key that can provide or deny access to the company's products and services. The credit manager is a lone wolf that holds back the hungry pack of hounds who are out to flood the company with anyone who can pick up a phone and dial a number.

His title varies from credit manager to risk manager, but the function is always the same-mitigate the risk of not being able to collect payment for a company's services. The risk manager uses many tools in the determination of risk. He has at his disposal; credit reporting, Dun and Bradstreet reports, BBB information, industry contacts, and, in the telecom space, a history of prior bad debtors, on both the consumer and business side. These tools are used judicially as they come at a cost, but not using them can have an even higher cost.

Risk determination is not a black art, but one that has developed over time. Consider the parameters that a risk manager has to work with, which are all considered risk management indicators.

Sales contracts 
Services requested
Type of business
Time in business
Prior service vendor
Copies of recent/prior vendor billing
Owner's identification
Estimated revenue
The source of sale
A retail dealer 
An agent
A company salesperson
Customer service
Unsolicited orders
Service items ( call forwarding, voicemail)
Products (calling cards, Private networks)

From this information, the risk manager is expected to make an educated guess as to whether the potential customer will pay for the services rendered. If there are any doubts, deposits or surety bonds are requested against possible loss.

Some CLECs are more proactive and attempt to protect the company from the deadbeat customer. But the barriers put in place can often be so restrictive that they impede the sales process and discourage even good customers from buying services.

Other CLECs perform a cursory review, which is a salesman's dream. Only the potentially worst customers are questioned or requested to place deposits. In many cases, the risk managers in these organizations are not strong enough to handle the escalations from sales management on the creditworthiness of the potential customers. These are the same managers who are replaced when billed revenue does not become paid revenue.

Even more important than the credit check or risk evaluation is the activity required of a good risk manager after installation. Many risk managers follow standard follow-up collection activities once bills are not paid. They make their required phone calls and send out the necessary dunning notices. If payment is not made, they cancel the service and write off the account so a more aggressive collection agency can make money.

Some of these risk managers may even look at extreme high usage at the billing cycle, yet still wonder why they can't reduce or eliminate the bad customers from getting onto their company's network. What they forget to realize is risk management never stops. It doesn't take a break. Risk management occurs every day that a customer is on the network.

One of the processes that reduces bad debt and increases revenue is known as "transactional collections". This is the process of proactive and continual evaluation of a customer from the moment he gains access to the network until the time he no longer has access. Strong risk management will use transactional collections as its backbone. One benefit is that bad customers are identified faster for early termination, but the true benefit is that good customers are identified and may be moved into better service levels to reduce churn.

In the end, risk management is a fine balancing act that isn't there to pit the sales force against the risk manager, but is a concerted effort on the part of everyone to improve the odds that revenue will be collected. And, ultimately, this effort will increase a CLEC's bottom line. 

Jim Marsh is a senior consultant for The Management Network Group, a telecom consulting organization.  Jim has worked in telecom for 15 years and is an expert in revenue assurance, risk management and fraud. Jim speaks and writes on improving operational systems and functions to improve bottom lines.