Leveraging a Tough Economy to Improve Risk Management: How Credit Managers Can Take Advantage of a Difficult Economic Environment to Implement a Consensus-Building Credit Policy. (Selected Topic)

Article excerpt

The current economic downturn offers credit managers an opportunity to exercise their influence and implement better credit policies on behalf of their employers.

For much of the go-go decade of the 1990s, credit managers saw their job of minimizing risk consigned to the back burner. As corporate strategists focused almost exclusively on growing revenue at any cost, companies grudgingly accepted higher levels of bad debt in exchange for marker share. Often, credit managers were discouraged from following existing credit policies for fear of losing potential sales.

Everything has changed since the recession of 2001, which, along with a series of high-profile corporate bankruptcies, caused corporate strategists to rethink their growth strategies. With many companies now forecasting flat sales for at least the next two quarters, their focus is once again on profitability. As a result, credit managers find themselves with an opportunity to implement new credit policies and procedures that will have a lasting and positive impact on the bottom line--even after the economy rebounds.

To be sure, the softer business climate has not given credit managers authority to unilaterally turn off the credit faucet to questionable customers. Credit decisions that surprise sales personnel already grappling with difficult market conditions run the danger of igniting internal turf wars and alienating important customers. Rather than acting rashly, credit managers can enhance their reputations and careers by building consensus and following these six strategies.

1. Think Strategically

In the new economic environment, the credit manager's overriding responsibility is to develop a risk management protocol that aligns the company's credit policy with its overall business strategy. In a profit-over-growth environment, this means maximizing the profitability of each customer. One of the best ways to do that is to improve customer service. Credit managers can help by encouraging their companies to allocate sufficient resources to ensure that customers feel they are being treated well--even as their debts are being strictly managed. They also should develop policies and procedures to quickly address any problems that could give customers an excuse to pay late, from unclear terms to late shipments to quality control issues. Dunning letter campaigns that ignore these all too common internal causes for poor service will generally prove counter-productive and should be avoided.

One strategy that many companies have implemented with great success is "proactive collections," which involves placing a courtesy call to customers one week after their invoice has been mailed to them. The call is used to verify that the customer received the appropriate shipment or service and that the invoice detail was correct. However, it also gives the caller an opportunity to identify any valid reasons for payment delays and resolve those problems before the invoice becomes delinquent.

For accounts that do become past due, credit managers should create an aggressive debt-recovery program, particularly for those situations in which a customer files for bankruptcy protection. (Think about all the creditors waiting to be paid by Enron and Worldcom.) Even in cases where there appears to be little recourse, a corporate strategy that emphasizes profits over growth demands that companies spend the time and effort necessary to recover as much money out of the bankruptcy court as possible.

Credit managers also can help to keep customers happy by staffing their organizations with career credit professionals skilled in the art of convincing people to fulfill their payment obligations. To minimize staffing problems and to encourage qualified collectors to remain a part of their team, credit managers should develop career paths within the company that allow collectors to migrate to supervisory and managerial positions. …