It's Time to Upgrade

At the core of the national economic collapse are bad credit decisions. Lenders extended credit to high risk borrowers and in many cases, people who were just down right crooked. Who is to blame? Banks have credit managers just like other companies. Did all the bank’s credit managers make the same bad mistakes? Or, as I suspect, were the aggressive loan officers and their senior managers over-riding their credit analyst’s decisions?

There has been a trend in the recent past to ignore risk in favor of the almighty sale. The sale must go through. Anything or anyone standing in the way is viewed as anti-sales. One company I know labeled any delay in allowing a credit sale as being bureaucratic, meaning, any thoughtful analysis of the facts and assessment of the risk was a waste of time. During the last couple of decades, companies have sought aggressive sales people to lead the charge and have at the same time, hired accounts receivable clerks to perform the credit analysis functions. The meeker the person the better. When a credit person raises any kind of concern that a pending sale is likely to default, it is seen as a crying wolf and it is over ridden. Credit managers are no match for the high paid, persuasive sales managers. Instead they are told to be “team players” and to be “creative” and to always figure out a way to approve the orders. Turning down a credit sale has become an anathema. No credit manager in his right mind would do it and hope to keep his job.

Now we’re paying the price. Companies, banks and lenders of any kind are learning that you cannot make money making bad loans. They do not generate revenue. It is better that the loans were never made. You can sell all of the goods and services you can, but if the customer does not pay for them, you lose. It sounds so basic, but that’s the fact banks in particular seem to have ignored.

Perhaps it is time to reconsider the credit manager’s role. Credit managers must warn sales of impending dangers and their concerns must be heeded. Obviously, the argument must be credible and backed with sufficient research. The intent should not be to find a reason to deny credit in every circumstance, but instead to find a means to at least dilute the risk and manage the sale in such a way the recovery is made more likely than not. This may take a different kind of credit manager. One who can stand up to a highly charged must-make-the-sale-no-matter-what type of sales person. Perhaps it is time to upgrade the position, so that the credit manager and the sales manager can go face to face as equals. Maybe then they’ll work as real partners and manage risk and avoid the hits.

This is where CreditPowers can help. We know how to work with sales and we know how to analyze credit. We can help develop the proper credit – sales relationship that will take you into the future.

For more information e-mail us at patrickpowers@sbcglobal.net.