10 Things Credit Managers Regularly Do:
After spending over a quarter of a century dealing with credit managers, you see all the good (and not so good) things credit managers do.
There are the standard set tasks of a credit manager such as credit assessment, processing, collecting monies and supporting their business overall. However, I've observed some smart, and not so smart things credit managers regularly do, see my list:
5 Smart things:
1. Training the sales team – the credit team definitely functions much better when the sales team are on board with good credit management practices. Simple elements such as identifying the correct legal entity of who they are selling to, raising the subject of credit as part of the negotiations and acknowledging that a sale isn't a sale until paid for, goes a long way to improving the credit process and building a strong relationship between sales and credit.
2. They meet with clients – business is a 'people game' and this does not exclude the relationship that client should have with their suppliers credit teams. Building a good rapport (face to face) allows credit managers to have an 'awkward discussion' (if needed) regarding late payments or understand their business better to help them through seasonal trading conditions. The clients are likely to tell you more if they have a personal attachment.
3. Conduct annual credit reviews – I don't know how many times an insolvency occurs and I hear "but we've been trading with them for years and they've never skipped a beat". Constant review of a customer's capability to pay should be done on an annual basis as a minimum requirement. Owners, shareholders, funding levels, losses, profits, products and markets change on a constant basis and a small change in one of these elements may have a great effect upon your clients ability to pay.
4. They monitor their customers against adverse information – as an extension from annual reviews, having a 'third eye' on your debtors through a monitoring tool can help with early alerts in your ability to react to potential non-payment. There are many tools in the marketplace such as bureaus, mercantile agents and unique databases which can support third party alerts.
5. They seek security – I realise that in many industries, seeking security from your customer may reduce your competitive edge. However seeking personal guarantees or registering your security interests on goods supplied, may allow your business to provide more 'free credit' to your customers, plus may assist your business in getting paid before others and gain recoveries in the event of an insolvency.
5 not so smart things:
1. Extend terms – terms of payment or deadlines for payment are a condition in the contract of sale. So why is it ok for customers to continually ask to pay later? Yes, of course there will be circumstances from time to time which justify extending credit. However, this decision should be made with an informed view. Extending terms for the time to pay without further reviews supporting a higher credit limit, is placing your business at risk. Normally these decisions are taken in haste with increased pressure bearing down from an "excellent new sales opportunity" or "I know they're good for it, give them a couple more weeks".
2. Don't listen to their 'little person' – if your little person in your head is telling you "something is fishy" about a credit assessment, there probably is something fishy about that credit assessment. It is too late in hindsight for the credit team to say "I knew there was something not right about this business".
3. They fail to keep up with the times – being a credit manager is no different from being an accountant, lawyer or other professions where legislation, conditions and new tools change. Therefore, consistently stay informed with updated or new legislations or tools to help you manage credit. Not only will this save potential issues into the future, but it could also save time and money with new practices available in the credit industry. A typical way of keeping up to date is joining a credit professional body, attending conferences or industry workshops.
4. Let sales staff override their decisions – Most sales managers have an incentive to make sales. Therefore why would their 'conflict of interest' be allowed to override an impartial, rational credit manager's position? I've seen companies only pay sales incentives once monies have been collected, not purely just on when the sale is made. It changes the sales teams attitude!
5. Give problem payers second (or third!) chances – history shows that customers who are consistently poor payers have issues beyond just poor cash flow. When businesses cannot pay on time, there may be management issues, capital issues or just pure disorganisation of the business which will eventually come to a head. After spending extraordinary amounts of time, money and sometimes lengthy legal action, why do credit managers then give business a second (or more) chance?
Credit management, credit managers and the credit team are a critical part to a business. There is no point working so hard on developing products, marketing those products, selling those products, never to be paid.
Kirk Cheesman is the Managing Director of National Credit Insurance (Brokers) and has been working in the credit industry for over 25 years.
July 2017 - FNSCRD504 - Manage the credit relationship - FNS51520 Diploma of credit management