Written by Marc Bishop
Posted on 01/02/2018

The Future Credit Manager no longer has a financial profile

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Assessing opportunities, striving for profit, coordinating ...  The credit manager of the future will no longer be exclusively concerned with granting, rejectingcredit or collecting outstanding invoices. Instead, they will be presented with a much broader and diverse to-do list. The modern credit manager therefore no longer has a financial profile.

Perhaps we should come up with a new name for the modern credit manager. The credit manager 2.0 must not confine themselves to chasing down outstanding debt. On the contrary, they have to put down their financial hat and assume a much more coordinating role. First and foremost, they should focus on the profitability of the entire company whichgoes much further than ensuring correct payments.

In an ideal world, the credit manager coordinates the entire sales process, from prospection to payment. Why should they not, together with sales, scrutinise potential customers? The fact is that solvent prospects will as customers pay better, generate fewer complaints and provide higher profitability.

Credit management and complaints management

The new credit manager should therefore also take account of complaints management. Complaints do not just arise out of the blue. Often, there is an underlying issue. Customers with financial problems, for instance, will also give priority to their main suppliers while other trading partners have to wait for their money. In most cases you will discover this by supplementing your own data with information from external suppliers, but it is crucial information for the credit manager. The credit manager’s remit should therefore extend well beyond the financial department.

Short-sighted vision

In adopting this attitude, you will be able to detect a lot of opportunities. Because bad payers are not necessarily a problem. They also offer opportunities. Why not give bad payers a discount in return for cash payment?  It is a win-win situation. The customer gets a discount, sales increases turnover and credit managers collect money more easily. Admittedly, this attitude calls for a completely different mentality. Today credit managers still often focus too much on granting or not granting credit while the sales department takes the view that without credit there can be no sale. Both views are short-sighted. By looking for solutions together, you will come to a wide range of successful sales arguments.

“Credit management and sales each have their own vision but both are short-sighted.”

Granting credit to customers is costly

First of all, granting credit to customers is risky and always costly. Below are a number of arguments against granting credit too easily:

  • Prefinancing cost
  • Loss of profit
  • Risk of late payment or non-payment

For many companies, granting credit makes the difference between profit and loss. Too often, entrepreneurs assume that credit is a good thing for the business, but this is not necessarily the case. Customers who have been granted credit and eventually fail to pay constitute a considerable loss for the company. Your company will have to realise many other sales to make up for that loss. The same applies to customers who do pay but not in accordance with the payment terms agreed. They also constitute a considerable loss.

The opposite is also true. Companies that do not grant credit miss opportunities. Credit managers are therefore well advised to map out the decision-making process with chances and opportunities. Our advice: agree good arrangements with sales.

Graydon’s latest study on payment behaviour has shown that 30% of all invoices are paid late. 2% are never paid.

Customer scoring for all

Credit managers today also have an exemplary role. They increasingly use customer scoring, an objective way of categorising customers. This approach need not remain confined to credit management. Other departments can also draw benefit from it. Customer scoring is a technique that unambiguously maps out risks and opportunities. Credit managers can persuade other departments of the use of this exercise.  

“Credit managers can persuade other departments of the use of customer scoring.”

In practice, this process will pass through the general manager or someone in a distinctly coordinating executive position. They can roll out best practices throughout the company. In this operation, the credit manager can take the lead. On the basis of their own experiences with customer scoring, they can clear the way to more objective and especially more efficient and across-the-board corporate processes.

Moving away from traditional thinking

Should the new credit manager possess financial, analytical and commercial skills? Certainly! But can it be a little bit more? Credit managers should also bring people together and coordinate them. Their main concern: how do we achieve maximum profitability? In some (or quite a lot of) cases this will even mean lower turnover.

This mind switch will undoubtedly also have consequences for the training of future credit managers. Most credit managers start their career sending out notices and  reminders. This is a fundamental problem. Credit managers “grow up” with the idea that all customers are bad payers that have to be prodded into action. Purposefully abandoning this frame of reference is a first step in the right direction.

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