Credit managers must balance the conflicting needs of revenue and business credit. But there are core best practices which are universal to all our efforts to “bring the money in”. Below are 5 mistakes credit & collection professionals make and how to fix them.
- Not giving reasons for your credit decisions…
You should verbalize your well thought out, sound reasons to the stakeholders when presenting the “bad news”. Too many people impose, rather than sell their credit & collection decisions. When someone simply says NO, even if they have the authority, their credibility and reasoning can be questioned. If you always support your decisions with facts, data, and experience, then stakeholders will come to understand your decisions are based on sound judgement.
- Not meeting folks halfway…
Rarely are credit decisions black & white. Yes, there are situations where we need to stick to our assessment and give solid reasons for our decision. However most day-to-day credit decisions exist in a grey area where we can control company exposure by limiting credit lines, modifying terms of payment, or maybe allowing other functional groups to take a portion of the financial risk. Collaboration with other stakeholders can make all the difference between a new business partnership and no revenue.
- Operating in a silo…
No department or function can operate in a vacuum. A company is made up of individuals who work in groups, and they must rely on each other like it’s a living ecosystem. So have weekly meetings with your staff. Have weekly meetings with your direct stakeholders. Get out of your office/cube and visit with your internal customers – who knows who/what you might run into along the way…
- Focusing solely on bottom line savings, while ignoring top-line growth…
Let’s face it, credit & collection managers have a reputation for wanting to collect all of the receivables, at the expense of not making every sale. You’ve heard it; they’re known as the “sales prevention” department! Well you can have your cake and eat it too. (at least most of it) You have to find a balance between the two – develop a certain appetite (pun intended) for risk that is based on historical bad debt expense, as well as current data & information regarding the true financial health of your customers in both the short and medium range. I stop short of saying long term financial health as that is something which can be managed throughout the life of the customer relations. It is dynamic and always changing. To keep it all in check, put in place strong processes and procedures to monitor exposure and periodically evaluate current and future risk.
- Not identifying the root cause of collection issues…
What’s stopping the money from coming in the door? There’s always a reason when invoices aren’t getting paid. And typically the least common of these reasons is a customer’s cash-flow. The most common reason for non-payment (or late payment) is that the invoice is incorrect or not in a “format” that your customer can use. The ultimate goal(s) of any order-to-cash process is to make the customer happy and to allow them to be a “self-payer”. In other words, you should provide them no excuses not to pay the bill. This needs to be a constant driver for your organization, and is one which requires a great deal of collaboration and diplomacy between the various order-to-cash stakeholders.
About the Author: George Waters a Global B2B Credit Professional. He can be reached at: georgegwaters@gmail.com
Source: ICTF – The Association of International Credit and Trade Finance Professionals
