Music on Loan

Published: June 26, 2007

Music & Arts Center takes a creative approach to financing and collections.

Music & Arts Center, a division of Guitar Center Inc., has been renting musical instruments to the parents of school-aged children for the past 55 years. But providing easy access to trumpets and flutes isn’t only thing unique about the retail music chain.

With 100 stores nationwide, Music & Arts Center provides financing options to its customers for musical instruments, usually during a 12-month period. Anyone looking to finance an instrument can apply for credit and will be assigned a code upon approval.

Curry Palm, credit and collection manager for Music & Arts Center, said customers aren’t required to pay anything up front if they purchase an instrument for the school year in the fall.

The difference between Music & Arts Center and other rental centers is that the contract customers enter into when they rent an instrument can be broken as soon as the instrument is returned. From there, the renter is only responsible for any leftover rental fees.

“Most contracts aren’t longer than three years, but you can return [the instrument] at any time,” Palm said. “You’re not locked in to the contract, and if it’s paid off in a year, it’s 12 months same as cash.”

He noted if the full payment hasn’t been received by the end of the school year, the 30-day in-house collection process begins.

Palm manages nine collectors in the Frederick, Md.-location’s accounts receivable department. He said they continually work to improve their in-house collections by offering incentive programs to their collectors and researching the latest technology. In fact, productivity increased by 40 percent since the introduction of an incentive program that awards a gift card to the collector who collects the most each month.

“You try as many things with your collectors to get that debt back,” he said.

Using the latest technology has helped Music & Arts Center collect more efficiently and effectively. The accounts receivable department recently implemented a new skiptracing program that has sped up the process significantly.

“We’re able to get to our customers much more quickly,” Palm said. “I’m always researching new products and comparing reports; you need to read about ways to get your receivables in.”

Another aspect unique to Music & Arts Center is the relationship between the accounts receivable department and the schools where parents rent instruments. Because parents rent their child’s instrument at the school, there can be confusion over who they think they owe payments and who they actually owe the payments.

“The customers don’t call the company,” Palm said. “They call the band directors with questions.”

He said this can actually help their collection efforts because the band directors already have an established relationship with the customer and, as a result, can help answer the customers’ questions.

“Sometimes the directors act as an extension of our business since they communicate with the parents about their accounts,” Palm noted.

In addition to the company’s in-house efforts, Palm said a portion of Music & Arts Center’s unpaid accounts are sent to third-party collection agencies. Approximately one out of every 20 to 25 accounts ends up getting written off and sent to an agency.

“I’d like to make [that number] better,” Palm said. “It has improved in the last year, though. It used to be one out of every 15 accounts.”

According to Palm, the company made the decision to outsource a portion of its accounts 10 years ago. “There’s always going to be someone out there who can do a better job than you do,” he said.

When looking for an agency to do collection work, finding an agency that understands how your company does business is important. It’s especially important if the company is as specialized as Music & Arts Center, for example. Palm said collection efforts need to be handled differently because most of the customers who owe money are parents of children who needed instruments for their school band.

“We can’t be as stringent because of what we do,” Palm said. “We have to be creative in our process.”

Music & Arts Center has been working with the same collection agency for the last six years, which has enabled the company to create a successful relationship. Keeping track of what an agency collects is crucial to a business’ success.

“If you view the collection agency as an employee, then you’ll make out well,” Palm said.

Constant communication with the agency is key. “I’m in touch with my agency at least three times a day,” he said.

Palm stressed the importance of finding a balance between the two forms of collections. Some of his long-term goals include hiring more in-house collectors, updating the department’s systems and reporting tools and increasing its training tools. “Hopefully we won’t have to send as much of our accounts to the agency as we do now,” he said.

Overall, credit departments should make sure they know their market and company procedures well. For Palm’s accounts receivable department, that means having everything in place and being acutely aware of what’s coming in the door and what’s going out.

Rachel Remley is a communications specialist for ACA’s Creditors International Division.