This is the difference between doing the job you want to do and the job that is right to do.
Somewhat confusing at first glance, however, if you look at it from a holistic business perspective, there is an equilibrium of action a credit department can reach that supports the corporate strategy. If a ‘better’ job is done, this could be detrimental to the organisation and certainly counter-supportive of the corporate strategy. This is also verbalised in many circles as a ‘commercial’ view.
It is difficult to pin down an exact explanation for ‘commercial’, given it has so many contextual connotations. For our purposes though, we will define ‘commercial’ as an internal view of the organisation where external risk and reward are balanced against the corporate strategy.
It is certainly outside of the normal mode of conversation to discuss a Credit ‘strategy’, particularly when it doesn’t necessarily involve reducing DSO. But there are a myriad of strategies in the Credit sphere of influence that may indeed result in an increase to DSO against current results but still be within the key performance indicators; indeed still be aligning with and supporting corporate strategy.
For example, where the corporate strategy is one of increasing market share, where extending credit terms, relaxing on hold constraints, and viewing/reframing rejection decisions become necessary in order to support the growth strategy. Where the organisation increases its appetite for risk with the view to gaining a greater market share, may mean strategies that result in an increase to DSO, provisions, and terms. In this instance, the strategy may only be short term, with a view to re-stabilising once the growth target has been met. This would suggest the change to the Credit strategy would also be short term, and a move back to a more traditional Credit strategy will occur sometime in the near future.
I am certainly not moving into a realm of hands off and turn a blind eye, but more into the space of controlling what you can and supporting the corporate strategy with energy and action, to the best of our ability. I know credit professionals are very passionate people, and as such do have at times overwhelming feelings about these kinds of ‘negative’ movements, but discussion of these feelings is probably for another time and place.
Feelings aside, it is easy to see how these two strategies, the credit strategy and the corporate strategy, can get out of alignment, given the ‘normal’ credit strategy is to minimise bad debt and bring payments as close to terms as possible. Where the corporate strategy is requiring a different Credit strategy is where we move from doing the job we want to do to doing the job that is right to do.
Certainly, where the corporate strategy is to create stability in finances and reduce risk to its minimum, the two forces meld into a single vision. It is a more natural motion from the Credit professional to reduce DSO, decrease risk through more stringent on boarding/limit increase processes, and reduced time frames for collections actions. Where this supports the corporate strategy, happy days. In fact, the majority of external Credit resources are there to aid in this very noble pursuit.
The irony is that more skill is applied and indeed required to maintain control and ‘guard’ the ledger in times when corporate strategy is requiring the credit strategy to be outside the norm. Without the full weight of the standard set of tools, it comes down to the softer skills: relationship building, problem solving, influencing others, etc.
In this fast changing world we live in, corporate strategy is not the slow turning behemoth it once was. Organisations realise how intrinsically linked being able to change quickly is to their survival, so to have as valuable an asset as Credit moving with the same speed means the organisation’s desire to change their corporate strategy will be fully supported and ensure the success of such a potentially life changing moment.
As Credit professionals, we need to be ever aware of the forces bearing down on our organisations, and where possible, be proactive with our strategies and support. Our credit policies need to be robust enough to survive any test, but flexible enough for us to move through the myriad of changes likely to descend upon us, usually from a great height.
How is it possible to have a robust yet flexible credit policy I hear you ask? By constantly questioning the ethos at its core, but placing each clause or point against the strategy in front of us/in our near future, and by testing each value proposition we share with the organisation. This is the way we ensure a robust yet flexible credit policy designed and administered for success and will stand the test of alignment.
Adding to our suite of tools is the ever increasing requirement for softer skills, to balance the how with the why. Being able to use both sides of our Credit brain, the logical and creative, to harness all of our skills and abilities and turn them into value for the organisation under any strategy/market requirements.
If we go back to the original statement, and look at the ‘commercial’ view, we understand this as an ever moving set of variables that is driven by the market, corporate strategy uses this to the benefit of the organisation, and credit strategy does not allow fatal or wounding blows to be freely felt in the ledger. Probably the most challenging of all aspects of a Credit professionals life.
It falls to the modern Credit professional to protect the organisation’s greatest asset, the AR ledger, with all of our ability in the way the organisation needs us too. That comes back to aligning the Credit strategy with the corporate strategy, being ‘commercial’ in our view, applying the highest level of soft skills we possess or are working to possess, and seeing the organisational processes holistically. It comes to us having supportive rules of engagement in our credit policies and applying our craft in ever more valuable and creative ways.
With this in mind, we change our view of the job we want to do and reframe our thinking into doing the job that is right to do. We achieve Credit equilibrium.
Authored by Paul Burgess bbuscom CPA FIML MICM CDec (Qld)
National Credit Manager
Steelforce Australia Pty Ltd