In Focus Collections Understanding your value
Outstanding credit professionals can be the keys that unlock profits for their businesses
Philip King Chief executive, Chartered Institute of Credit Management
philip.king@
cicm.com
When money is tight and cashflow is critical, prompt payment is essential, regardless of how large or small the enterprise. Prompt payment, however, is a two-way
street. Most media coverage tends to highlight the poor treatment of SMEs by larger customers. But why should large companies pay SMEs on time when they have their own cash position to manage? And what about the relationship the SME has with its own suppliers?
Best practice At the heart of payments and managing cashflow is best-practice credit management and professional credit managers. But do we really understand the true value that our professionals deliver? At its most fundamental, a credit manager
will oversee the sales-ledger function, including raising invoices in a timely and accurate manner, speedy cash posting and accurate allocation of that cash, agreeing invoice formats with larger customers, and ensuring sales teams are capturing data accurately to prevent subsequent invoice queries. When times are tough, it is these ‘fundamentals’ that become more important than ever.
Credit managers may also be assessing risk
on new accounts and existing customers by way of credit-information providers, reading financial accounts, and establishing trading histories, something that is becoming increasingly important as they are obliged to share greater risk with their insurers. They may be involved in the creation, maintenance and management of a full credit policy – internal documents that identify all set and agreed procedures and policies that govern the credit function. They may be negotiating and agreeing
terms of business with new and existing customers or suppliers, including payment terms and setting up service-level agreements and credit limits, and reporting to directors on age and profile of debt, potential risks of bad debt, overtrading accounts, areas of suggested training, and general customer- service observations. They are also likely to be overseeing, or
monitoring, the activities of tracing agents, debt collection agencies, solicitors, insolvency practitioners, and other third parties; and finding alternative ways of doing business such as escrow accounts, guarantees, and back-to-back deals, when other methods may have been rejected.
Credit is never going to be ours by right; we will all have to earn it, and that means being able to demonstrate best practice. And best practice comes from professional credit management
January 2018
True impact However, when the multitude of activities and tasks outlined above are put to one side, what credit managers really do – and what the impact of good credit management really delivers – is to help firms to grow. Credit exists because businesses want to
make sales, and credit management creates the environment in which two businesses can trade profitably, and in a sustainable manner.
www.CCRMagazine.co.uk By managing cashflow and credit
effectively, credit managers enable businesses to invest in new systems, equipment, and staff. They help companies to take on new business and markets, which, in turn, contributes to a growing economy. It is a theme that I was able to promote at the recent Festival of Business, hosted by the Daily Telegraph, and will be a core theme too of our joint venture with ITN Productions, appropriately-named ‘Credit Champions’. Credit is never going to be ours by right;
we will all have to earn it, and that means being able to demonstrate best practice. And best practice comes from professional credit management. Those that manage their credit – and
their cash – effectively will be those who enjoy the greatest success. CCR
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