Credit management and growth are sometimes diametrically opposed. Our experience shows that the traditional indicators dso and depreciation are still high on the agenda of the credit manager. A conservative policy with good data and monitoring leads to low depreciation and a low dso. But do these indicators help you to achieve your company's growth objectives?
Business is about taking risk. The more risk, the bigger the payoff can be. It is therefore important to have a good understanding of what risk is acceptable in your industry/sector. After all, you don't want to have to close your doors due to a risky decision.
The credit management role is often seen as a financial function within organizations, however, from a growth and customer retention perspective, this function has very much in common with the commercial function. This may mean a more flexible style of approach, but with the right focus and monitoring can lead to stimulation of growth.
A practical example to illustrate:
In a consultation with one of our clients, the credit manager proudly told us that write-offs had never been so difficult. The policy proposed during the session was quite conservative and excluded almost all risk. The result was also a 0.01% write-off. In the discussions with the commercial director, we learned that sales found it difficult to find good customers who were also accepted. She wanted to have more insight into the customers that are good and would also come through acceptance to shift their focus. All of this sounds very positive, but what was striking about the numbers is that since the conservative policy had been implemented, sales had also been declining significantly. An analysis of the companies that had not been accepted resulted in 90% of them now being solvent and therefore presenting minimal risk. If they had been accepted, the figures might have been different.
Take aways voor de moderne credit manager
So good data is important. Data about your customers, your sales market and the risks. Reflect this against the risk appetite of the organization. What I have learned over the past 25 years is that there must be a good balance between your strategic objectives as a company, economic conditions, mission and the vision to get there. A good translation to your underwriting policy which is periodically re-evaluated as market conditions change. An underwriting policy that looks closely at strategy and market stimulation is becoming increasingly important in the dymanic (digital) environment we work in today.