Credit Departments Measure Up against Upper Management

By Diana, Tom | Business Credit, November-December 2006 | Go to article overview

Credit Departments Measure Up against Upper Management


Diana, Tom, Business Credit


What impact do performance metrics in the credit department have on the overall operation and decisions of the company? The answer to that depends upon how well the credit department is integrated with the upper financial decision makers in the company and, to a lesser extent, the business style of the credit manager. NACM examined the role of several credit managers to get a picture of how different credit managers interact with upper management, what business credit metrics they analyze and what impacts those metrics have on the operation of the company. Generally speaking, those companies that respond to the performance metrics and analyses of the credit department, and include credit professionals in key financial decision-making, are most successful in maximizing sales while keeping credit risk at acceptable levels.

Credit managers have the difficult task of managing credit risk, while also trying to analyze how credit policies affect and are affected by company finances and outside economic factors. The demands of the day-to-day functions of a credit professional often leave little time for such analysis. As Lyle Wallis, Vice President of Research for Credit Research Foundation (CRY) said about many credit professionals, "They're spending more time running around beating out fires than engaging in fire prevention." However, despite the day-to-day challenges, many credit professionals do manage to analyze performance metrics of their department and communicate the results to their company's upper financial management. Scott Chase, CCE, Director of Credit & Collections for Covalence Plastics, headquartered in Minneapolis, MN, said, "I'm a statistics freak and I want to dig down deeper into the numbers that I submit to upper management." From his analysis of the numbers, Chase is able to determine trends, what effects changes in credit policies are having and indications as to what credit term changes may be needed for individual accounts or portfolios.

The organizational structure of a company may give the credit manager a direct line of communication and authority to the president of the company. This helps to ensure that credit department results and recommendations are given the highest consideration in corporate financial decision-making. Chase said he participates jointly with the chief financial officer of his company on decisions to open up credit terms for selected companies after consulting with sales people. "There are customers from a sales standpoint where the sales leaders see opportunities. We sit down with the business leader or CFO with the big issue being, 'how much risk are you willing to take?'" Terry Russell, V.P., Credit & Financial Services, J.J. Haines & Co., Inc., headquartered in Glen Burnie, MD, pointed out how in his company the credit department is well integrated into upper management decision-making. Russell said he meets at least once a week with the CEO and attends a monthly staff meeting. He noted he was very involved in a recent decision to expand the company. The performance metrics his department analyzes are a big factor in overall decision-making. "The CFO wants to know that we're not only crunching the numbers, but we're analyzing them and explaining them throughout the rest of the organization."

Chase said that among other duties, he compiles relevant credit data and presents the analysis of the results to upper management. In his company, as with those that fully take advantage of the skills and knowledge emanating from the credit department, the credit department is viewed as a vital component to financial decision-making. "Credit's job is to provide the facts, and for anything subjective we come across to say, 'here's what we have? I sleep well at night when I know I've provided upper management with everything we know." In Chase's company, a final component on a decision to change credit terms for a customer can involve a personal visit. …

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