In Focus Commercial Credit
Left-right: John Turner; Alan Smith; Brendan Clarkson; Frank Johnstone; James Connolly
How can we improve the quality of our collections work? FJ: If you properly drill down to understand the customer and get the segmentation right, you are more likely to get a successful outcome. If you have appropriate strategies in place at the front end, and are allocating the right resource at the right level, then you enhance your chance of effective recovery. Especially in bigger collections operations, collections is increasingly being driven by the intelligent use of data. It is a way the larger businesses can provide a USP: the larger companies will tend to be able to be clever with their data, they will analyse it correctly and then use it to understand their customers to find the best course of collections and the best methods of communication.
VH: It is also about understanding and knowledge within your teams. I see many different teams and, in some of them, they have very good credit managers and credit professionals, and some of them do not and, as a result, the performance suffers. So it is a question of how we can get them to believe that they can do well and then they can introduce all the best-quality practices and get their stakeholders to buy into that.
BL: There is an issue of consequences here: if credit turns down a sale, then there is a consequence to that – and if sales push something through that is not wise, then there is a consequence to that. So we need to get away from the silo mentality, it is very much an education piece: the sales people need to read the credit policy, and credit people should read the sales policy.
MF:My role is as a credit risk manager, so I see these decisions on several different
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fronts. Somebody will come along with a £10m turnover and the sales people are promising them the world. And, as the risk manager, you do notice the pressure: you know what the sales targets are and you know where the sales people are at versus their targets. You know that the company needs to make sales and what the leeway is, so you can veer on the sales side if that is what is necessary. Once you have hit target, then you can tighten up to be a bit more cautious. Then you have the SMEs and they are on much less flexible terms. There is a different relationship with a different dynamic. And then, with consumer sales, the thing that we have not yet mentioned is the regulator, or the ways in which policy groups will engage with the consumer relationship. There we do not have a two-way relationship anymore: you have a third-party intervening, and maybe a broker on top of that. It can be hard to pin down exactly what was said at the time. So the relationships and the influences can be varied.
VH: It is a question of the nature of the firm. If you are in a credit-driven business, then you can get the information and agreements that you need. If you are in a sales-driven business, then you do not have a chance: the terms will be extended and there will be little chance to put a customer on stop.
CW: Every firm is going to draw a different line in that tension between sales and credit management. Yesterday I read a case study of a business that had sent all its credit staff out to have a day with the sales team. It was very interesting how measurable that benefit was, both as to each side understanding the other’s perspective much better, and the fact that the formation of the contracts sales made in the period after that was different. Instead of not even caring about their business terms, they were now getting pre-paid contracts, because they actually understood the point of view of another part of the organisation. Every organisation could probably apply that principle, wherever that line is drawn.
BL: The other thing about extended terms is they will increase your own risk exposure. So why would you want to do that? Even if you are getting a payment for that, then you do a simple cost-of-capital calculation to decide whether it is actually worth it. If you do so, and put that calculation in front of the sales people, then you can explain what kind of margin would be needed to make a profit on it. Many people do not get the correlation that increased credit means increased risk.
If you are in a credit- driven business, then you can get the information and agreements that you need
www.CCRMagazine.co.uk
How successful can cooperation be with the sales team? VH: It has a lot to do with the profile of the credit manager. Many credit managers are now taking a more outward-facing role, so the sales team have to take notice of what is being said, particularly when they can show the impact of the decisions made. It is a question of respect within the business.
BL: It might be old-fashioned, but I still like to go out with the sales team. We will go to them to ask if there are any problems and
January 2017
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