In Focus Risk
Colleague perceptions We asked individuals about how colleagues within their company perceive credit management. As expected, in proactive companies, credit managers and controllers are considered very important in terms of providing information on customer risk and bringing in the cash. However, those with a reactive credit-
management approach see the credit function as non-core, and so often regard it as an overhead. They are considered as debt collectors and do not have much say in credit decision making: “We sell to everybody to survive… then we put all our effort into collecting.”
Relative status The most interesting aspect of our research is the outcome, as between proactive versus reactive credit-management approaches is often determined by the importance, given to the credit function and its position within the hierarchy. In firms operating proactive trade credit
management, the function is considered an integral part of the trading activity and a core area. Thus, credit managers and controllers are valued and sit on the board of directors and this gives them the support they need.
However, in reactive trade credit-
management organisations, most of the emphasis is on collecting debts, so the credit function is not a mainstream activity, while credit staff are seen as ‘trade restrictors’. Some of the firms that operate reactive
credit management tend to outsource certain key credit activities, such as credit- risk assessment, and to deal themselves with more mundane tasks. While this may save money in the short-
term, it reduces the potential to use trade credit to gain competitive advantage. What is surprising, however, is that, while
most reactive credit managers and controllers tend to spend much of their time performing
‘back-end’ activities, such as chasing unpaid debts, many still use debt collecting agencies as well. Do companies choose to be in one
category or another? Those that invest in the credit function are expected to perform better. We argue that, although knowledge, qualification, skills, and experience are at the heart of good credit management, the position of credit managers in the organisational structure, and their relationship with others inside and outside the company, both play a big role in adding value to the company. Finally, the integration of the credit
function’s objectives with the overall aims and mission of the company makes a significant difference. Based on the analysis, to date, of a limited
However, in reactive trade credit-management organisations, most of the emphasis is on collecting debts, so the credit function is not a mainstream activity while credit staff are seen as ‘trade restrictors’
number of companies, we have concluded that there is a distinction between firms where trade credit is, mainly, a debt-collecting function, and those where it has a higher status management activity. We have also noted that the lack of credit policies has often led to a reactive approach to credit decision making. The next stage of the project is to look at
relationships between firms’ performance and the ways that their credit functions are managed. CCR
November 2017
www.CCRMagazine.co.uk
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