Whatever you believe is true...at least to you.

Averages, don't you love them? What mama ever said to her children that the goal in life
is to be "average"?

Lowly manager...Largest asset

Sometimes it's more but on "average" 40% of a business' assets are in the form of
accounts receivable...short term money due from the sale of a product or service. In direct
contrast to the size of the asset that they are responsible for creating and managing,
credit managers are most often lower echelon managers who are at the very least one
step removed from the corporate decision makers...and their paycheck reflect it.

Forget the traditional organization chart with branches that in turn branch off and so on.
Instead of organizational charts think of totem poles...the carved columns erected by
the Native Americans of the Pacific Coast.

Totem poles are representations of men and animals and of their relationship. Now
forget about corporate titles, initials after names, and the size of the paychecks earned
by different business managers; instead focus on their ability to influence profitability.
Where would credit managers sit on the totem pole; close to the top, in the middle,
at the bottom...if at all?

The Pay Back

When allowed, encouraged, and supported by "upper management"; credit managers
can and should seek to find ways to say yes to new profitable sales, to keep existing
credit customers current and buying and to identifying and communicating cost reducing
opportunities for improvement through out the entire business chain of suppliers,
sellers and customers.

A credit application can represent the successful result of marketing and sales efforts,
a customer wanting to buy, or a risk for non-payment...of loss if the customer fails to pay.
Corporate attitude will determine how performance is measured and if DSO (days
sales outstanding) and % bad debt are used the message to the credit manager is clear,
"be real careful who is approved for credit and if a credit customer fails to pay within
terms ..throw them on credit hold/stop". The end result of focusing on and measuring
for risk will be great DSO and bad debt numbers ...but at what cost/loss?

Instead of measuring for risk a company should measure for profit and if it does credit
approval becomes the process of finding a way(s) to say yes to profitable sales . The
profit measurement looks at the % of applied for dollars approved, or exceeded.
Measure for profit and past due A/R management (it's not collections) becomes the
"Completion of the Sale" with the goal being to keep credit customers current and
buying. With repeat sales often being the most profitable, companies should measure
for % of credit customers current...and buying. If the total credit line (never credit limit)
for all credit customers is $10,000,000...what % of the total line is being utilized?
...and are those customers with an unused line being encouraged to buy more?

A secondary goal of Completion of the Sale (past due A/R management) is the
early identification and control of the small % of past due that represent a potential
for loss...type two financial serious and type three avoiders.

The largest percentage of past due A/R are tied to something going wrong. On
"average" 70% or more of past dues are type two system related...something went
wrong somewhere. In the process of identifying, fixing and communicating those
things/processes that have gone wrong; the credit area can help drive down
everyone's costs. Constant improvement in how things are done provides a
payback far greater than more new sales, repeat sales, and improved cashflow
combined.

Numbers and results

Payment on account and expectation fulfillment are linked. If a customer orders
a green "whatever" and is shipped a blue "whatever" the seller shouldn't expect
to be paid. Employees are kind of like that; they tend to go with the flow , with the
expectation. If credit managers are low paid, if they are thought of as the "ugly
step-child of accounting" and if their performance is measured by DSO and bad
debt loss...not much is being asked nor is likely to be delivered. On the other hand
if a company measures for profit...for new sales, repeat sales and improved
efficiencies...cash flow and bad debt will take care of themselves.

Total Cost of Business

On "average" 25% or more of the total cost of doing business is tied to inefficiencies,
to things not being done as right as possible the first time. And not to be repetitious,
but the credit manager in a company is like the man following a parade with a shovel
...when something goes wrong the customer doesn't pay and in the process of fixing
things the credit manager interfaces with just about every aspect of business; and if
asked the credit manager can point out improvements that drive down everyone's cost
of doing business.

Summary

Whatever you believe is true and it's the same for companies...whatever they measure
for defines their thinking, their attitude.

The full profit potential of a business is influenced by its attitude toward the credit
function and to Credit's placement on the corporate totem pole.

And if your company still measures for DSO and % bad debt...your attitude is showing.

Abe WalkingBear Sanchez is an International Speaker / Trainer / Consultant on the subject of cash flow / sales enhancement and business knowledge organization and use. Founder and President of www.armg-usa.com, WalkingBear has authored hundreds of business articles, has worked with numerous companies in a wide range of industries since 1982 and has spoken at many venues including the Shakespeare Globe Theater in London.

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