To me the starting point is to make sure senior managers and even the Managing Director to fully understand what is going on within the department and I know this will sound a little simplistic, you have to educate your MD and Senior Management team really understands the process from start to finish. Most confuse credit management and collections and view the function simply as the process of turning debtors into cash. Hopefully after reading this you will agree with my thinking and put a plan in place to implement the changes.
So what additional responsibilities could the credit department incorporate into your remit?
To me the credit function reflects the customer’s journey with you for as long as they are buying from you and you can increase the value of your contribution to the bottom line of your company.
Before you even start to read the following ideas I can see a large number of credit managers switching off immediately, we couldn't possibly do that with our current resources, and I agree with you, chances are that additional resources will be required, the reality is that additional resources will not be required in an overall context, it could require resources being redeployed from other departments to strengthen the credit function – properly managed that would be a good thing.
The scope of the credit department should begin before sales and marketing begin their involvement. There is great value in checking out new markets from a credit perspective before any time, effort or money is spent. Any experienced credit manager is in a position to identify the key players in any market and give the sales/ marketing team a graded list based on an agreed criteria of the customers in that market you want to do business with and the ones you will only deal with on a cash or pro forma basis.
At the end of the process, credit management are well placed to offer a simple treasury role for the business. That is by knowing the cash flow requirements of the business in the short and medium term, you can decide how much is required in the short and medium term and make sure there are no significant funds left sitting in a current account, not gaining interest or acting as an offsetting interest on another account.
If you accept my challenge that the credit manager should be the manager of the margin – these two suggestions will not be as way out as they first appear. Managing the margin is the task of making sure every sale is turned into a profitable sale through receiving prompt payment and making sure that sufficient resources are retained to deliver excellence in business processes every step of the way.
The more areas that are placed under the remit of the credit function and as long as the credit manager in question knows what he or she is doing, the company will benefit greatly from this intelligent, financial, commercial and risk aware approach to business.
It is time for the credit managers to assert their authority and start contributing to their companies at the highest level.