The five points that make a good credit manager

Is the mark of a good credit manager their ability to accurately assess credit risk, their success in collecting outstanding invoices, or even their mastery of relationship building?

Coface, the credit solutions provider, recently helped judge an international `Credit Manager of the Year` award.

"In determining the criteria for the award, we found that the best credit managers needed to be adept at more than just collecting money or refusing credit," says Coface MD Garth de Klerk.

"In fact, in discussing the criteria, it prompted a lively discussion about what constitutes the model credit manager. While our conclusions may not be definitive, they do represent a fairly comprehensive guide to the demands of the job," he says.

Chasing customers for payment is obviously not for the fainthearted. However, while the description of "the iron fist in a velvet glove" might be applicable to many credit managers, the best clearly offer something more. Perseverance, for example, to chase unwilling payers; a sense of humour to respond to the excuses of the "cheque`s in the post" and diplomacy to resolve invoice disputes.

Perhaps it is easier to list personal characteristics and behaviour which would spell disaster in any credit control department. Gullibility would certainly be the Achilles Heel of anyone working in credit management. On the other side of the coin, cynicism is equally unhelpful when it comes to developing a good relationship with customers.

Over-familiarity with customers inevitably leads to problems should the customer default on an invoice, while displays of bad temper, or even shouting is regarded (within Coface at least) as the worst crime a credit manager can commit.

The best credit managers are able to motivate their staff and make them feel valued. High staff turnover, which plagues many credit departments, inevitably causes disruption, making it difficult to adopt a consistent approach towards customers. This forces managers to bear the expense of recruiting and training yet more credit controllers.

The eventual winner of the `Credit Manager of the Year` had developed a team with an average of six years experience and had lost only two staff members in the previous three years. The result was a settled, well-motivated team who could offer continuity of service within the business and to customers.

For the best credit managers, it is not enough to simply process invoices. They should have a good working relationship with the sales department and be involved in the sales process from the moment a customer is given credit terms. No matter if it is the greatest sales force coup in years; a sale is not a sale until it has been paid.

The credit professionals recognise the best way of minimising the risk of extending credit is to conduct a thorough check on the customer through established ratings agencies, rather than trusting the instincts of a sales representative, who is probably more concerned about the commission.

Having agreed credit terms, the model credit manager will monitor clients and establish good business relationships with them, including making the effort to visit their offices, and understanding the peaks and troughs in their business cycle.

The ability to recognise the indications of financial difficulty as early as possible is key to successfully limiting losses. In addition, such tactics inevitably make it less awkward for customers to admit to having cash flow problems and make it easier to arrange a different payment schedule.

The personal touch works when resolving disputes. If a customer won`t pay, a phone call will always produce results faster than a lawyer`s letter. Indeed, most organised credit control departments now use electronic diary systems to plan the clients to be called that day. Electronic systems can also pay dividends if used for the retrieval of invoices and signed orders in the event of a dispute.

Given the level of safeguards which should always be in place, bad debts are sometimes seen as a sign of failure by the model credit manager. However, an experienced manager will recognise when an invoice will not be paid and when to either take expensive legal action, place the debt with a professional collection agency or sell it on. The skill lies in identifying the most cost-effective solution and ensuring that every department, particularly sales, are aware of the action taken and why.

The `Credit Manager of The Year` was expected to validate and verify around 1000 orders per week against client orders and advertisements in three major weekly titles, four consumer monthlies, four monthly business-to-business titles and a variety of exhibitions and conferences.

With such a workload, it is therefore essential that accurate measures are used to gauge the effectiveness of the credit control policy and the processes in place and establish benchmarks for future performance. Regular measures to determine the DSO (days sales outstanding), cash collection (particularly as a percentage of sales) and the level of bad debts and credit notes issued, are a vital part of any credit manager`s duties.

Without such data, it is often difficult to convince sales departments of the value of credit control procedures. For example, an experienced credit professional will often find it particularly useful to track all transactions that are approved against the advice of the credit department. Any time such a debt is written off, management and sales people should be made aware that the transaction was not credit approved.

Historically, credit managers have been in what may be called a Cinderella profession. They have generally been regarded with disinterest by senior management and with occasional distrust by the sales force. Their image has been in marked contrast with IT managers who have been key to developing new Internet sites and e-commerce opportunities.

But the signs show that things are changing. There is increasing recognition of the credit management`s crucial role within businesses. Albeit, when the economic outlook is less positive, credit control departments are finally being appreciated as key to a company`s financial health.