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This document provides 100 tips across 10 categories to improve various aspects of credit department performance. The tips include ways to improve relations with sales and other departments, accelerate collections, evaluate financial statements more quickly, avoid bad debt losses, communicate with senior management, mentor and motivate employees, make other departments more responsive, and handle irate customers. The overall recommendations are focused on strengthening relationships, increasing efficiency and productivity, and reducing risks.
![10 Tips for Increasing the Influence of the Credit Department Stop thinking of the credit department as apart from the rest of the company. Consider yourself to be a part of the company. Volunteer for tasks outside of the traditional “boundaries” of the credit department. [Example: If you do not currently forecast cash inflows volunteer to try do these forecasts each month]. Look for ways to help the company achieve its sales goals. Stop thinking of the credit department as sales prevention and stop acting as if you have to control all aspects of credit risk.](https://image.slidesharecdn.com/presentation1-100726150006-phpapp01/85/Presentation-1-20-320.jpg)
![10 Tips for Increasing the Influence of the Credit Department Guard against an attitude that it is us [meaning the credit department] against them [meaning sales and/or customers]. Remember that our adversaries are delinquencies and bad debts, not salespeople and customers. Visit customers. Attend and make presentations at company sales conferences. Develop a reputation as a problem solver, not a problem identifier. Think outside the box. Be creative in helping your company to achieve its overarching goals.](https://image.slidesharecdn.com/presentation1-100726150006-phpapp01/85/Presentation-1-21-320.jpg)
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- 1. 100 Ways to Improve Credit Department Performance © 2007. Michael C. Dennis. All Rights Reserved Presented by Michael C. Dennis To: CMA Business Credit Services
- 2. Disclaimer The opinions presented in this program are those of the presenter. His opinions and recommendations do not necessarily reflect the views of this organization, or its Officers and Directors. Participants are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.
- 3. 10 Ways to Improve Relations with Sales Don’t use technical terms, or slang when discussing problems or decisions with sales. Take time to explain your decisions (not to debate, just to explain). Be open to input from the sales department about problem accounts. Think of the relationship between sales and credit to be a balancing act, not a tug of war. Look for win-win-win outcomes. Give the sales department advanced notice of bad news. Ask them to tell you what credit limits their customers require.
- 4. 10 Ways to Improve Relations with Sales Disagree in private. Public arguments tend to entrench each party in their current position. Communicate openly. Don't hold things in, and don't hold back facts. When you disagree with the sales department's position, ask the salesperson to suggest a creative solution . If you think you "might" be wrong, get a second opinion before making a final decision. Respond to inquiries from sales as soon as possible --- and always on the same day they are received.
- 5. 10 Tips on Accelerating Collections Eliminate grace periods before calling delinquent customers. Use the two and up rule. Avoid having to leave voice mail messages by looking for ways around voice mail jail. If you must leave a voice mail message, make it sound important… which it is. Make the telephone your primary collection tool. Prioritize collections…. it sounds simple and it seems obvious but you would be amazed at how often it does not happen.
- 6. 10 Tips for Accelerating Collections Make the fax your primary mechanism for delivering required documentation to delinquent customers. Enforce your cash discount policy. If you do not, you will almost certainly see an increase in the number of customers paying late and taking the unearned discount anyway. Remember that the best way to control delinquencies is to carefully control the new account review and approval process . Confirm commitments for payment for large past due balances and for accounts that are seriously past due in writing
- 7. 10 Tips for Evaluating Financial Statements More Quickly. Determine how carefully you will evaluate customer financial statements based on the credit limit requested and the level of risk you believe is present. In other words, do not perform the same level of analysis irrespective of the credit limit requested. Always begin the process with a quick overview of the financial data to determine which statements require immediate review. If you can, train and then delegate the task of calculating ratios to a subordinate. It is good experience for them, and will give you more time to focus on decision making and risk assessment instead of number crunching.
- 8. 10 Tips for Evaluating Financial Statements More Quickly. If your customer is a publicly traded company, find and use a website that calculates and presents financial ratios, an trends, and industry comparisons so you don’t have to do the work yourself. Don’t calculate ratios that you do not understand, or do not have a direct bearing on your credit decision. When in doubt, toss ratios out. Focus on trends, not on snapshots. Hint: You need two or more periods of accounting statements to perform trend analysis. Don’t over-do it. For example, if a customer is reporting a net loss, an analysis of that customer’s gross margin, operating margin, and pre-tax margin may be unnecessary.
- 9. 10 Tips for Evaluating Financial Statements More Quickly. Don’t reinvent the wheel. Develop a specific methodology for reviewing customer financial statements and stick to it – at least until someone shows you a better way to review financial information.
- 10. 10 Tips on Avoiding Bad Debt Losses Remember that sometimes it is necessary to require rather than to request customer financial statements. Develop rules of thumb for your team such as this: At 30 days past due, an account could go on credit hold. At 60 days past due, an account should go on credit hold. At 90 past due, credit holds are the rule, not the exception. Don’t automatically re-establish open account terms just because a delinquent customer finally gets around to paying off a past due balance. Always look a gift horse in the mouth…
- 11. 10 Tips on Avoiding Bad Debt Losses Review active accounts no less frequently than once a year. Flag customers that have not purchased for more than a year into an inactive/dormant status and evaluate those accounts before re-establishing open account terms. Join trade credit groups because they can provide valuable insight about the risk of selling to one or more of your customers. Consider risk mitigation options including personal guarantees, letters of credit, perfected security interests, and mechanics liens to name only a few options available to trade creditors.
- 12. 10 Tips on Communicating with Senior Management Senior managers hate surprises. Make sure you do not “disappoint” them. Find out how often senior management wants to hear from you and communicate only as frequently as they want or need information. Find out how they want data delivered and present it only in that manner. When you disagree with your manager, ask if he or she wants to hear your perspective before offering it. Never complain about your manager or their decisions at work. It invariably gets back to them.
- 13. 10 Tips on Communicating with Senior Management Do not look for ways to get around or go around your manager. Accept full responsibility for what happens in your department. Senior management does not respect managers that want to try to pass the buck to their subordinates when things go wrong. Acknowledge your mistakes and indicate what you learned and how you plan to work differently in the future. The only thing worse than making a mistake is not learning from it. If you have poor presentation skills, like stage fright of fear of public speaking, work on it. Senior management expects/requires “polished” presentations from their subordinate managers.
- 14. 10 Tips on Mentoring and Motivating Be selective. You can only mentor one or possibly two people. Avoid playing favorites. Doing so tends to demotivate and demoralize the those not selected as the favored employees. Never shoot down a suggestion by an employee in front of their co-workers, unless you never want another suggestion. Motivate by delegating tasks to individuals that express or demonstrate an interest in their professional growth. Provide feedback more than the one time a year that most companies require managers to discuss performance.
- 15. 10 Tips on Mentoring and Motivating Remember that there should be no surprises in an annual performance review. Share the credit when things go well, and accept some (or most) of the blame when they do not. Make certain everyone understands in detail what performance is expected of them, and how their performance will be evaluated. Encourage subordinates to offer their ideas, comments and suggestions. Offer feedback and suggestions, and quickly adopt and implement good ideas. Explain both how a certain task is done, why it is done… and why it is important that it is done in a certain way.
- 16. 10 Ways to Make Other Departments More Responsive Develop cross-functional teams with other departments to address and resolve problems such as finding and fixing the root causes of deductions, disputes and delays in payment. Publish information about the number and dollar value of deductions resulting from errors made by other departments. Publish the same information about payment delays that result from errors made by other areas of your company. Go out of your way to develop rapport with managers of other departments that are important to your department’s effectiveness.
- 17. 10 Ways to Make Other Departments More Responsive Request feedback from other department managers about how you can make their jobs easier… and then follow through. Remember that all departments have time and resource constraints. Sometimes a personal appeal will move your request to the top of the pile.
- 18. 10 Tips on Handling Irate Customers Never respond in kind to customers looking for an argument or a fight. Kill them with kindness. Accept blame on behalf of the company even if your department did not make the mistake. Keep your promises… For example; if you promise a response by the end of the day keep that commitment. Clarify the issues before making statements or offering opinions. When in doubt, give them the benefit of the doubt…at least until you can verify the facts independently.
- 19. 10 Tips on Handling Irate Customers Stop talking and start listening. Make sure you take notes. Ask questions initially only for clarification. Make sure that you know what an irate customer’s needs and expectations are. For example, they may need nothing more than someone to listen to…. Or they may want a letter of apology. It is up to you to know these needs and expectations before the call ends. Under commit and over deliver. For example, if you are pretty sure you can get the problem resolved in two days and are certain it will be resolved in three days, tell your customer three days.
- 20. 10 Tips for Increasing the Influence of the Credit Department Stop thinking of the credit department as apart from the rest of the company. Consider yourself to be a part of the company. Volunteer for tasks outside of the traditional “boundaries” of the credit department. [Example: If you do not currently forecast cash inflows volunteer to try do these forecasts each month]. Look for ways to help the company achieve its sales goals. Stop thinking of the credit department as sales prevention and stop acting as if you have to control all aspects of credit risk.
- 21. 10 Tips for Increasing the Influence of the Credit Department Guard against an attitude that it is us [meaning the credit department] against them [meaning sales and/or customers]. Remember that our adversaries are delinquencies and bad debts, not salespeople and customers. Visit customers. Attend and make presentations at company sales conferences. Develop a reputation as a problem solver, not a problem identifier. Think outside the box. Be creative in helping your company to achieve its overarching goals.