7 top tips for successful credit managers

Transcription

1 Smarter Receivables 2011 Moreton Smith Ltd. All trademarks, service marks and trade names referenced in this material are the property of their respective owners.

2 Following our recent webinar with Bill Dunlop, founder of the Association of International Credit Directors, we ve put together these seven top tips for great credit management based on Bill s expert insights. Here they are: Content 1. Consider your customer s ability to pay 3 2. Get paid quickly 4 3. Win future business 5 4. Nurture the relationship 5 5. Don t fall for classic distractions 6 6. Sustain your credibility 7 7. Apply retrospective justification 7

3 1. Consider your customer s ability to pay In credit management, we often talk about can t pays and won t pays. As a commercial Credit Manager, one of the first things you need to consider is whether your customer has the means to pay you. There are several checks you can carry out: Look at previous payment performance: Look for past trends. Does the customer have a history of late payment? Do they pay on their own terms? Tangible net worth: Investigate your customer s financial affairs; can they afford to make the payments requested? Liquidity: What is the business cash flow position and dependencies? Plan to close the curtain : Keep the customer in business for as long as you possibly can and consider working with the customer to enable them to make payments. Consider your options regarding security: Consider utilising bills of exchange and leveraging other types of security. Retention of Title ( ROT ) planning: If you re supplying goods and you have appropriate ROT clauses your contract, consider using them and be aware of the impact of any impending insolvency that might compromise your ability to do this.

4 2. Get paid quickly Delayed payment is a strong indication of financial problems within a company. One of the primary reasons for business failure is cash flow shortfall. As a Credit Manager, you need to be aware of the cash flow positons of your customers. When payments are delayed, it s usually for one of three reasons: The customer can t pay The customer won t pay The customer shouldn t pay Let s look at these three behaviour types in more detail: The customer can t pay If the customer can t pay, it could be a simple cash flow issue causing the problem. They may be waiting for payment from their customers before they pay suppliers. Review the previous payment performance and their tangible net worth before agreeing to provide services/supply products to them. The customer won t pay A segment of your customer base will almost certainly be cash managers ; those who can pay but won t stick to contractual terms because they are managing cash flow at the expense of their creditors. The aim in situations like this is to discover the game and play it harder and better than yourcustomer. The customer shouldn t pay This cohort includes customers with defective invoices or some other reason why they shouldn t pay. These issues are usually resolved by closing the feedback loop into the part of the business that is giving rise to the queries.

5 3. Win future business A Credit Manager can be the biggest catalyst for new business in an organisation. If the Credit Manager shows a willingness to work through cash flow issues with a customer, that customer will place a much higher value on the relationship. Make the most of these opportunities, whilst remembering to balance the risks involved! 4. Nurture the relationship Be the best relationship manager in your organisation. Stay professional and emotionally detached at all times; credit management is never a battle or a war. Relationships forged between credit managers and customers can be some of the strongest and longest lasting of business relationships and this is what we should seek to achieve.

6 5. Don t fall for classic distractions Most organisations will, from time to time, look at organisational objectives. In the Credit Management industry, the following are classic questions that most organisations can struggle (and take inordinate periods of time) to answer: Should our credit and risk functions be separated from collections? This may seem like a logical progression, but it rarely works successfully in practice. The combined function is to maximise collection and manage risk and the two are inseparable. Should our credit and collections be centralised or de-centralised? There s a clear cost-saving by centralising credit and collections, but there is almost always a price to pay with regard to customer satisfaction. The consequences are clear and it s a simple matter of what s more important to your organisation. Is my reporting right? You should limit yourself to a suite of standard reports that meet your organisational needs. Don t report for the sake of it and resist if you are required to report by a colleague or manager and there is no obvious value to producing the reports. Reports take time and time is money!

7 6. Sustain your credibility When writing a credit policy, you must first understand the difference between philosophy and policy. You will need to answer to following questions: How does your organisation feel about its customers from a credit and collections perspective? How does it want customers to be treated? Once you have the answers to these questions, you can write the policy with the philosophy in mind, meaning you are less likely to be compromised in the future. On a personal basis, be predictable. Say what you re going to do, do it and tell them that you ve done it. If you issue a threat to a customer (for example, using a debt collection agency or insolvency), be prepared to follow it through and make sure you have the authority to do what you proposed. 7. Apply retrospective justification It s easy to level criticism when a Credit Manager is seemingly left carrying the can after the failure of a large account. On the face of it, this is not an enviable situation to be in. If you find yourself in this position, assess the circumstances and look at the level of business that you ve successfully transacted (and been paid for!) during the customer s trading difficulties. If you ve successfully managed a relationship with the customer for some time, you might find that the value from this eclipses what you ve lost as a consequence of the eventual business failure.

8 You can find the full recording of Bill s session here. Bill Dunlop is a fellow of the Chartered Institute of Credit Management and is Founder of the Association of International Credit Directors (AICD). Bill has worked in credit and collections for some of the world s largest organisations in a highly successful career spanning four decades. For more information on the work of the AICD and details of the AICD s Credit Professional MBA in conjunction with the Open University click here.