Typically most credit departments are looked upon as a cost center – only demonstrating their value when your customers begin to extend your terms.
Let’s look at what you actually have in a typical credit department.
1. Credit Manager – could have formal training, but not necessarily. Generally it is invaluable experience having been in the position for several years and likely in several industries.
2. Credit Administrators – one or more credit-related staff either in “head office” or spread throughout your trading area in branch offices, often very familiar with the local business scene.
3. Sales Manager – at first this position may seem counter-intuitive as part of the credit team; however they are the key customer-facing people.
4. Accounts Receivable Clerks – these are the men and women who work with your slow-paying customers. Often these people gather valuable market intelligence as it relates to your industry and that of your customer base. Given proper attention, these people can become fantastic negotiators.
So we have a risk management professional with great “street smarts”. A team of local “detectives” familiar with your customers’ geographic location. A rainmaker that understands the value of getting paid; and finally a group of “hands-on” negotiators whose job is to listen to the customer and understand what is really going on.
What Else Could They Do for Me?
The cost of sales is ever increasing, especially when it comes to a face to face meeting, so it becomes vital to determine the profitability of bringing a customer on board before you consummate the deal. Have your credit team develop a list of prospective customers for you ranked by credit quality. No sense chasing a potential customer if they pay too slow or not at all.
Invite your credit team into a marketing meeting. Solicit their feedback with respect to the various customers and geographic factors. You may be shocked at the market intelligence you have already paid for!
Vendor contracts like leases can often turn into nightmares that you are locked into for an unreasonable time frame. Use your Credit Manager to take a preliminary review of contracts you are considering. The Credit Managers' risk management skills will prove invaluable – pointing out clauses that you may have overlooked and helping you to avoid personal liability. Sometimes the best deal is no deal.
Finally, encourage your Sales Manager to foster good relations with your credit team, ensuring that all sales representatives and credit staff get to know each other really well and on a personal level. Together your sales and credit personnel form a formidable team of profit generators.
I Know That Already
Many of you are saying “I know all that already” and thinking how will I get the last minute of my life back after reading this far?
Have you considered building your business through acquisition? What about opening a new location? Maybe you’re considering selling your business? Or perhaps you are contemplating a new software system for your business.
In all of these cases and many more – you would do well to engage your credit team early. Avoid paying too much for your acquisition targets' receivables. Gathering market intelligence of that prospective branch office trading area. Getting your receivable team to bring your Days Sales Outstanding (DSO) well into your industries acceptable norms. Be an attractive purchase. And finally, make absolutely certain that your new whiz-bang software actually gives your Credit Department all the tools they need to get the job done.
The faster and more efficient the credit team is – the better will be your margins, cash-flow, and most importantly your customer satisfaction and staff morale level.