Magazine article Business Credit

Conquering the Challenge of Overridden Credit Decisions

Magazine article Business Credit

Conquering the Challenge of Overridden Credit Decisions

Article excerpt

A common frustration many fellow credit professionals experience is "conquering the challenge of overridden credit decisions." In many organizations, the decision to grant credit terms to certain high-profile accounts has already been negotiated before the credit professional has even had the opportunity to conduct a thorough investigation and determine the credit worthiness of the account. By the time the credit department gets involved, the company has expensed many hours working the account. They have already involved purchasing, operations, marketing and transportation, and at that point if they don't take a chance and extend credit terms to the account, they stand to lose the investment they have made thus far. This puts more pressure on the credit manager to approve higher-risk accounts that would not normally be approved on open terms, and as a result, the company will take on higher-risk accounts with a higher probability of increased bad debt write-off.

While sales management is pleased for landing a new account, the credit department is wondering how they are going to collect on an account that may have previous liens, judgments and a history of slow pay. The result can be a strained relationship between them, instead of working together for a common goal, the "blame game" begins.

Here is an example of the the process I went through that steered the culture in our organization from one of the "blame game" to a highly effective credit and sales team working together for a common goal. In order to achieve this, you need to effectively educate and gain the support and backing of upper management. Once upper management is on board and has provided clearly defined goals and objectives for both credit and sales, the process of educating, training, tracking and developing a fine-tuned credit and sales team can start.

There are three critical stages that will gain the support and backing from upper level management:

1. Identify opportunities. Evaluate the credit and sales department and determine opportunities and areas of improvement. Determine where you are and where you would like to be in terms of DSO, best possible DSO, bad debt write-off and collection efficiency ratios. Once realistic goals and objectives are established, you can quantify the benefit in terms of improved cash flow, improved efficiencies in credit and sales departments, interest savings and overall impact to the bottom line. It is important to establish a new credit policy supported and backed by upper management and discuss why commission charge-back programs are a necessary and effective tool in holding team members accountable. …

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