Credit Management As An Art Form

The owner of a large distribution company told me he believes that credit is more of an art than it is a science. You need to know the principals, he says, but credit is still more about people than numbers. Smart man. He is having a problem however. The sales department and the credit department are not getting along. Seems the sales department cannot get orders to their customers released fast enough and the credit department is reluctant to release orders that exceed the credit limit or to delinquent customers. This is a dilemma that’s been driving the company nuts for the last couple of years. I tell him, it’s an easy fix.

I had already met with the sales manager and later a couple from the credit department. The credit group has not had a manager of any ability in quite sometime and they are not being really managed by senior executives either. This leaves the credit group to wing it the best they can.

Oddly, no one is complaining about the collection levels, the delinquency levels, the bad debt, reserves or the DSO. They must be okay. I asked the credit group, why; if the revenue is flowing just fine thank you, why not just open the flood gates? They are not being blamed for anything other than holding up orders. So don’t hold up orders.

It is not that simple of course. Somewhere in what little training they’ve had, they were taught not to allow orders to delinquent customers and not to allow orders when the orders exceed the credit limit. Those are the rules. You can’t change the basic rules of credit. It’s the salesmen who are trying to bend or break the rules that are the problem.

As I’ve said before, credit is the conscience of the company and they just cannot allow run away sales. The sales reps are all on straight commission, regardless of payment by the customer, so naturally, the sale is more important than the payment. Too make matters worse, the sales reps are responsible for the initial collections. If a customer is past due, says the owner, the sales rep is not doing his job. Well, while sales reps sell refrigerators to Eskimos, it is a rare one that can collect.

As to those pesky credit limits, they are no guidelines. No one is doing a credit check, no one has any idea what the limits should be. They are set low so that the orders will come up on hold allowing for a review of the situation and causing an instant delay in the delivery.

This is where Strategic Credit Management Solutions can help turn things around. It’ll be a snap, but it’ll look like I’m performing magic. I’ll keep you posted.