The Credit Manager: An Under Appreciated Asset
by Joe Ketzner

The Credit Manager: An Under-Appreciated Asset

Ever wonder why the corporate credit manager always looks as though he/she needs a day off?

Stress…

Contemplate how many professionals hold the primary responsibility of driving a company’s top line while at the same time ensuring that each of these “sales” end successfully having payment received within terms? A case could be made that the Credit Manager is the most important professional within the organization apart from one…

Consideration could be made of the super sales guy, or the CFO, or the Ops manager, or the IT director, or the HR director….

However, I would suggest that no one else in the organization except the CEO rarely is measured on the multiple responsibilities entrusted with the Credit Manager. 

Credit management is equal parts science and art. The professional credit manager knows that not all companies are credit worthy, but simply denying credit takes little skill and will constrain top line performance. Conversely, accepting all orders takes even less skill and will certainly lead to unacceptable bad debt losses and margin erosion.  The Credit Manager is one of the most important assets of any organization.

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The tale of the Credit Manager position within an organization

Back in 1998, I had the opportunity to illustrate this point to a long-term client. I have recanted this tale of the credit manager frequently over the years.  At that time, I was the chief underwriter and commercial director of the world’s largest provider of trade credit insurance in North America. One of my visits took me to Florida. The CEO of this relatively large and growing jewelry manufacturing company asked me a simple question. He knew that I had visited scores of companies over the years and held a broad perspective on the subject. It was during the wrap up session he asked; where should the Credit Manager be positioned in his organization?

I responded, “Your Credit Manager should sit on your Board.”

The broader management team in the room seemed a bit surprised by my response. This changed when I began to ask a couple of questions.

-If your #1 sales producer brings in the deal of the decade and the Credit Manager says “no” because his/her assessment indicates that risk of non-payment is too high and unacceptable; who takes the heat for the lost sale?

-If your #1 sales producer brings you the deal of the decade and the Credit Manager says “yes” and the debtor ultimately defaults, who takes the heat for the bad debt charge-off?

-If your sales organization proliferate the credit department with challenging deals and the company’s DSO is extended adversely affecting cash flow, borrowing capabilities, collection & legal costs, etc., who takes the heat for the impaired cash flow and additional cost to fund operations?

Additional elaboration was provided, and the management team came to understand my point regarding the importance of having a highly skilled professional in that role. 

I had known the CEO of this company for several years and reminded him that when he started the business, he wore multiple hats; CEO, CFO, Sales Director, Ops Director, Credit & Collection Manager, HR Director, etc. Effectively, each hat represented a Board-level position. As his enterprise grew, he brought on professionals within each discipline. I asked him who he thought today most closely emulated his efforts and responsibilities during those formative years? He responded, “Dave, my Credit Manager.”

When I asked the CEO what his main reasons for investing in trade credit insurance more than 10 years earlier, he provided a straightforward response. To paraphrase- I used the policy to help with my bank line as they advanced at a higher rate if my receivables were insured. However, the real driver was higher sales associated with the credit lines I offered our customers in which I could be more aggressive. Also, at that time I didn’t have the resources to staff a deep credit department, and it was more cost effective to rent one.

From a lack of confidence to conviction, the story continues.

The Credit Manager approached me after the meeting and thanked me for my assessment and personal insight. He confided in me that he always believed that the CEO utilized trade credit insurance as a hedge against his capabilities and always viewed it as a personal threat. Each year he would recommend against continuing to invest in the credit insurance program.  Subconsciously, he viewed trade credit insurance as a lack of confidence the CEO held regarding his personal credit management skills. The Credit Manager’s perception of credit insurance had always been the product was best suited for companies with weak trade credit management capabilities. Following our discussion, a new perception emerged as well as a new perspective of his value to the organization.  

This was the first time this Credit Manager had ever heard anyone speak about the trade credit insurance sector being so supportive of a strong Credit Manager role and the fundamental need of sound credit & collection management. He never thought about how the services associated with the trade credit insurance provider would be effective beyond the obvious indemnification of a loss which he never expected would occur under his watch. He never considered how an external company would operate as a partner in trade credit management, risk management, and asset utilization. He saw a partner emerge fully committed to helping alleviate his stress and to optimize each important decision he and his team took every day.

More than a partner, his trade credit insurance company was a fully integrated resource which brought additional manpower to his team; globally positioned in the management of credit risk, sales growth, debt recovery, and operational effectiveness. A partner with a local presence, expertise in the legal systems, cultural & language differences, economic insight, customer information, broad analytics, etc. 

He now looked at his challenges of running his under-funded, under-staffed, under-appreciated, and over stressed credit & collection department from the perspective of his CEO. The trade credit insurer was an ally of the Credit Manager and his team, not a threat. The CEO was making the decision to invest in trade credit insurance on the basis that it represented the most cost effective and cost advantaged solution for the organization. This Credit Manager became a believer that day, transformed from having a lack of confidence with trade credit insurance to a conviction of understanding its importance, capabilities and benefits.

Credit Managers and the trade credit insurance myth 

This Credit Manager became a believer that day, the myth that trade credit insurance being a threat to his existence lifted. No longer feeling threatened, he was now emboldened to more comprehensively utilize the services and resources of his trade credit insurance partner to drive top line growth, improve DSO, maximize working capital utilization and protect the company’s cash flow, earnings and capital. 

Dave called me a few months after that meeting on a cold day in January 1999 to tell me he had been promoted, received a nice raise, given more responsibility, and found his stress level a bit lower. The perils of being a competent Credit Manager can never be eliminated because all risks can never be eliminated… only mitigated and managed. He confided that trade credit insurance took on a new meaning and importance from that day forward.

This Credit Manager became a creative user of the services provided by the trade credit insurer while addressing more complex issues as the company continued to grow and his sector became more challenged. Together, solutions such as pseudo-PUTS, transactional supported L/Cs, pre-payments, leveraged risk sharing, and consignment transactions were developed.  

Fast forward 20+ years, Dave would ultimately rise to President of the company, and he remains a strong advocate of trade credit insurance.  His company is publicly traded with a very strong balance sheet and P&L. The founder and Dave’s reasons for utilizing trade credit insurance evolved over the years, its value and the cost benefits supported the growth and prosperity of their company… A mutual objective.

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