The need for credit training to increase profitability

Credit management is one of the least understood of all business functions. At senior management level the thinking is often that credit is solely around the collection process and getting paid within a reasonable time. The fact that success is still being measured by DSO and percentage overdue is proof of this mind-set. For the function to progress a number of things must happen:

  • We have to see the function from start to finish as an all-encompassing role that begins with assessing the market to find suitable customers we are prepared to do business with. I see it as pre marketing and definitely pre sales. To avoid wasting time talking to potential customers that we are not prepared to do business with on a credit basis after the order arrives is the wrong way to go about doing business in the first place.

  • The credit function should be rooted in the commercial area of the business bringing a finance oversight to the function, whose responsibility is to ensure that all sales become profitable by being paid in full and on time.
  • Credit management has an important role to play in the area of customer service by ensuring that correct and complete invoices are sent to the correct person on a timely basis. Most businesses would not tolerate substandard work or services, these same businesses seem to accept or at least tolerate invoice queries as a part of doing business. The entire administration function from order to cash should be the responsibility of the credit team to make sure everything flows seamlessly from start to finish.
  • Setting proper terms and conditions along with clear enforceable credit terms should also be part of the credit function, as leaving this important role to any other department, including Legal will not have the desired effect.
  • The credit department are uniquely placed to know exactly what the customers require and with a clear knowledge of the internal systems from start to finish they know exactly what can be done and what will cause difficulty, and with a positive attitude can make anything work as long as it makes sense for the business.
  • The collection function has to have two main objectives: To get the money and to keep the customer. Doing one or the other is a recipe for disaster. Taking the time to build strong working relationships at the appropriate levels within every single customer, is the key to success here and its importance is often overlooked.
  • Regular reporting is a key area and too often I see a monthly debtor’s pack that is generated and circulated to key staff and management, and it is often not even read. I think that time should be spent defining who wants what information and customising the reports to meet the needs of the recipients. Everyone receiving the report should easily see how their efforts are impacting on the bottom line results and maybe more importantly what they are expected to do in the coming month to resolve all outstanding issues.
  • Sales people often view the credit controller as a nuisance who has an endless list of queries and credit requests, if we could change their attitude to this area to let them see that this is about keeping our customers happy. If we send in wrong invoices or fail to deal with their issues within a reasonable time, we risk losing the customer and the money and this certainly is not in anyone’s interest.

So, to get to the title of the piece, what is needed more than anything else is trained, educated, motivated credit controllers and managers who know exactly what has to be done and how to do it. They need the insight and the confidence to perform their difficult role in an excellent manner. They need to know the latest risk assessment modelling and scoring to fully understand the levels if risk that exists in their ledger and they need the practical advice on what to do about it.

The job of credit is not to eliminate risk that cannot be done. When you give credit there is always going to be risk. What you need to be able to do is to understand the risk and the steps you can take to mitigate that risk while maintaining profitable sales. You need to be able to rank your customers in risk order and put in appropriate steps to minimise your exposure to bad debt.

On the collections side they need to be excellent communicators and know the latest techniques to get the best possible results.