Bad debt is a bummer....

[kansashat]

The corporation I temporarily work for, has a bad debt policy where the sales staff, after a no foul write off of 1/10th of 1 percent of sales in your territory (in the accrued year), the sales rep is liable for 25% of any write off in the territory.

In my $2,000,000.00 territory that means they would write off about $2,000.00 (no foul to me) if we wrote off bad debt at the end of the year. Since we are at the beginning of the year, the write off, no foul, will be negligible.

I have a bad debt reserve of money, that has been deducted from my pay, of somewhere between $3500.00 & $4,000.00. This money was to be returned to me, upon leaving the company, after everyone that I had sold to had paid their tab.

There are 2 guys in my local community that probably will have their debt written off sometime this spring.

I have given cigars to these guys. I have befriended them.

The 1st just couldn't manage a business to save his life. He owes $4607.42. My share of his tab will be $1151.86.

The 2nd got involved in online casino gambling & just frittered away a chunk of change. I have zero sympathy for him. His bill is $8461.36. My share.....$2115.34.

My total liability for these two "friends" is $3267.20.

So long to most of my bad debt reserve.

After the money is written off I will probably see them in small claims court cause I ain't writin' off squat.

[AAlmeter]

I take it there is no little Italy in kansas that could do some collecting for you.

[galaga]

I don't understand how your company can hold you responsable for someone else's debt. Is that even legal?

[miketafc]

A corporation cannot hold you responsible for the debt of another individual or client of the corporation. You are not in charge of the collection process and cannot share in what is the risk of the entitity.

Even if you signed a contract to that effect it may not be enforcible.

I would consult with the state agency to determine how to secure your rights.

[Da Klugs]

Risk and reward.

Khat you obviously must receive commission on these sales and they are adjusting your commission payments not salary. The previous posts are technically right but as yoiu appear to be an experienced sales person, you know that commission plans can be the land of creativity and typically take backs over time. If the amount you are liable for in bad debt is equal to the commission you were to be paid on the bad debt then it might be fair. If they are dinging you for more than the commisson rate then it looks like a "new Idea" that some senior sales management type is getting a bonus on paid for from your pocket. I'll bet you and your peers are alot more interested in open receivables and credit worthiness now.

Sometimes unreasonable things are proposed and implemented with an underlying belief that they will have to be renegotiated. In the meantime the company receives the "excess benefit" from an unreasonable policy.

If you are a publically traded company or have access to financial statements you might want to determine what % of sales bad debt represented for the company in the past several years. Whatever this is should be the "normal" level beyond which some form of adjustment to incentive compensation might be in order. 1/10 of 1% seems real low.

You guys need to start the process of getting to a more reasonable position.

[FunkyPorcini]

Originally Posted by Da Klugs

You guys need to start the process of getting to a more reasonable position.

Whoa, Da Kulgs, that response was the (what do the kids call it these days) BOMB! Nice job. May I ask what you do for a living?

[Da Klugs]

I am CEO of a logistics company. Simplified Logistics Sold my last company where we had about 400 employes 4 3/4 years ago. That's the partial explanation as to why I have had some excess time to post here. The non-competes expire in March so it's gonna be fun real soon. Have been in sales and run sales depts before that's where I was coming from. Yea I guess I'm the man but the best path to success is to be fair to all parties not look for some short term gain especially from your valued sales team who create the blood all companies run on, cash.

[AAlmeter]

Hmmm....I think my second cousin was in logistics out in Chicago. He was an IE

[kansashat]

Thanks everybody. Thanks in particular to Klugsie.....good info brother. When I told my Dad about this, his response was, "That's not fair!"
I replied, "Fair's got nothing to do with it Dad. It's just the sales business."

The corporation I work for, is the second largest shipper of groceries in the USA. They are owned by a Dutch company that may be the largest food purveyor in the world. My company generates @ 19 billion in sales a year. What's the point of me telling you this?
They have a very large legal dept. I am sure they have run this by legal to see if they can make it stick. On the other hand, I may just call my prepaid legal service & run this by them. Can't hurt.

Large corporations are always trying to defray their losses & other costs, by getting the workforce to help shoulder the responsibility. I don't particularly blame them, or even resent it. I guess it's kind of like asking the scorpion why he stung you.
They have a very nice bonus system where, if you hit salesplan quotas, percent of profit, profit dollars, average order size, percent of brand sales, percent of current on AR, etc., you can make a nice chunk on your paycheck. These can be earned on an individual basis, except at the end of the year, where you can make up some periods, if you hit salesplan quotas, & hit the numbers, in any given category.
Now I've had a different perspective about the bonus system for years now. I see it as a system of fines that are levied against your commission at the beginning of each period. If you don't hit your numbers, we keep a percentage of your commission.
Cynical, aren't I?
I ran into a corporate rep for brand sales a year or two ago. After being introduced, he told me I needed to get my numbers up, so I could get my bonus. I replied that I was trying & almost there & that I had to get back that money that the company had stolen from me. He laughed, but turned beet red & said, "You don't pull any punches do you?"
"Not generally," I replied.

[LeafHog]

Originally Posted by AAlmeter

Hmmm....I think my second cousin was in logistics out in Chicago. He was an IE

IE, the imaginary engineers.................

[slowhand]

This is all very standard arrangements in the sales arena.

Some companies pay on goods/services shipped, others on account recievables. Why should a company pay a commission for a sale when the customer never paid for it? The company doesn't benefit, why should the employee?

Back in the '80s I ran a company that did certain home improvement jobs. We paid commissions for the sales. But I started to notice that two guys, when they were very close to hitting their quota would always squeak in with that last sale. Two weeks later the customer would cancel the deal. I found out that the salesman was setting these up with the intention of the customer canceling just so he could meet his goals. From there on, we paid on paid accounts.

[miketafc]

Before you discuss anything with management you need to request the detailed audited financial statements and their current statements.
You have a right to them as a stockholder and you have rights to any part of financial reporting, as an employee, that effects your commission. That is law. You need to find out how much of the debt was actually written off, not how much was recorded, and why. There is a big difference, between the two.

Having been an entrepreneur in several companies, I can assure you I have taken much financial risk and so have my investors. Being a salesman is the next closest thing to being an entrepreneur, as your compensation is often based on your ability to bring in revenue. I assume your corporation records are on an accrual basis and therefore they record sales at the time of sale and not collection of the debt. Debt is reliant on a proper collection process and also on the delivery of good product. Therefore most laws protect the individual employee from having to absorb this risk in their salary & commission structures. That being said contracts are very binding, but may not be enforceable, if they are not written within the limit of the law. I can assure you most sales contracts do not get reviewed by legal staff and are usually drawn up based on corporate objectives not corporate law.

Get the financials, reread your contract and follow Da Klugs good advise to negotiate and resolve this in a fair manner to both parties.

Good Luck

[kansashat]

Originally Posted by slowhand

This is all very standard arrangements in the sales arena.

Some companies pay on goods/services shipped, others on account recievables. Why should a company pay a commission for a sale when the customer never paid for it? The company doesn't benefit, why should the employee?

Back in the '80s I ran a company that did certain home improvement jobs. We paid commissions for the sales. But I started to notice that two guys, when they were very close to hitting their quota would always squeak in with that last sale. Two weeks later the customer would cancel the deal. I found out that the salesman was setting these up with the intention of the customer canceling just so he could meet his goals. From there on, we paid on paid accounts.

Yep. Nothing is sold til it is paid for. I don't have a problem of losing commission on the sale. I'm not even sure I will quibble about the bad debt policy, because I have known how it worked for some time (it's not like I just woke up & went "Oh sh*t!").
It ain't over though........the 1st guy has set up pay arrangements with the county attorney, so I don't believe that they will write his off (I found this out about an hour ago).
The second guy will be sued, so we will see what happens.

[LeafHog]

Originally Posted by kansashat

The second guy will be sued, so we will see what happens.

good luck w/that..........

[Roger Miller"]

Originally Posted by kansashat

The corporation I work for, is the second largest shipper of groceries in the USA. They are owned by a Dutch company that may be the largest food purveyor in the world. My company generates @ 19 billion in sales a year.

A company that is this size should have a Credit Department whose job is to assess credit risk. New account approval should go through them. Extended DSO (unpaid bills) should be investigated by them. This is too much work for a sales person imo.

I am all for holding Sales accountable for the current assets that they incur in their territory. They should share in the risk of the business. But their prime responsibility should be to sell, and they need the support of other parts of the organization to help them utillize and protect these assets.

i think your plan is a bit harsh in that it assesses a rather large penalty for bad debt. You should not be spending your time pouring over the Dun & Bradstreet reports and calculating the DSO of all your clients.

anyway, my 2 cents, and i expect change

_____
rm