So, what is Credit Management?

So, what is Credit Management? 4 juli 2016

For many years now I have been training, educating and speaking about credit. I have worked in the area most of my working life and anyone who knows me will be aware of the passion I have for the topic.There are times that I stop and wonder - do business people understand what credit management is? Often the answer I find is - No. Oh, they think they do and will tell you - "it is about finance", or "it is about Debt Collection" or "It's about banking"  Now part of the reason I am so passionate about the topic and seek out opportunities to help people, is because I believe it can be much more than that.

The first thing in business is, and always will be, the customer. When you decide to grant credit there are three essentials:

  • Who am I trusting?
  • How much can I trust them with?
  • How long can I trust then for?

Your credit management function should be able to answer these three questions for every single customer you have, and for every new customer you are looking to do business with. So many businesses lose fortunes every year because they don't know the answer to these basic questions. When it comes to customer care, I have heard it said - "If you don't like people - go into customer service". In my experience really good credit people really care about their customers, they deal with their issues, complaints and queries, often with minimal support from other departments. If your customer experience is important - so should your credit person or team. Credit professionals have a passion for getting things right. They know that a correct invoice is an important part of the service you provide customers, they know that correct invoices not only makes your internal reporting more accurate, it also keeps your customers happy and paying. Sending correct and complete invoices to the correct person in the correct company with the correct order number, correct price and correct quantity, doesn't happen all the time and it certainly doesn't happen by accident.

Oh yes, cash flow! Professional, trained, supported credit staff can ensure a steady flow of cash that is vital for your business to survive. Most businesses worry about cash flow and in most cases the solution to all their problems lies in the overdue columns of their Debtors Ledger. When it comes to asset management - The credit function has responsibility for one of the largest assets in your balance sheet - your Debtors Ledger. So you see, the four cornerstones of your business: sales, service, support and quality are best left to your credit team to manage, as long as they know what they are doing!  In addition to all of the above, your credit function can ensure the smooth flowing of your business from marketing to treasury or in different words "from the sales lead to the money in the bank", if it is done correctly, and most importantly a true credit professional will ensure that margins are being maintained across the board.

Yes, they do collections and even debt collection at times as well, they persuade, cajole and motivate your customers to pay on time, and negotiate the best possible deal if they can't, in a way that gets the money and keeps the customer buying.  If you think that your business could benefit from expanding the role of credit as outlined above, you know I am happy to help, and you know where I am!

Article written by Declan Flood, The Credit Coach