Faced with a business problem, many managers resort to answers, implementing solutions that do not solve the problem. Sometimes you get better results by starting with questions, and using the available facts (data) to answer these questions.
Here's a case in point. A company that leases industrial equipment observes that unpaid damage claims weigh on profitability. The answer is to implement a system to better track the claims and go after the delinquencies. This system will identify the aged claims so employees can contact lessees to ask for payments to cover the damages.
The system is implemented and the employees dutifully contact delinquent lessees to recover the damages but success is limited; less than 15% is recovered. Management is puzzled because unpaid claims are still a big problem and the new system serves only to highlight the severity of the problem.
In this case, the observed facts of the problem are as follows:
- We lease equipment, often to repeat customers that are loyal to our company
- When preparing the equipment to be re-rented, we observe damages which we repair
- We send the repair bills to the customer who most recently rented the equipment
- More than 80% of these bills never get paid
- The outstanding bills affect customers' credit standing and our ability to lease equipment
Here are some questions that could be posed, before taking action.
- Why would repeat customers refuse to pay for damages they caused?
- Is it possible that the damages were not caused by them?
- Could damages be caused by our own employees?
- How long after returning equipment do customers receive damage claims?
It's not immediately clear why repeat customers would refuse to pay for damages they caused. It is possible that the damages were not caused by them or that they do not believe that they caused the damages. An analysis of a representative sample of lease transactions yields an interesting point. On average, nearly 14 days go by before returned equipment is cleaned and inspected. Following inspection, the equipment is serviced and a report is made of normal wear and tear vs. customer damage. After nearly three weeks, a damage claim is prepared and sent to the customer. Not surprisingly, the customer is reluctant to pay for damages that could have occurred in the rental facility.
Rather than badgering loyal customers to pay for damages for which they do not feel they have responsibility, the company made some fairly simple changes to its equipment return process. Equipment is now inspected immediately upon return and customers are presented with a damage report. The result: unpaid damage claims drop from more than 80% to less than 5% over the following six months.