The Incredible Shrinking Credit Departments!

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Are there incredible stresses on today's credit departments? Most definitely. Read on to find out what's happening and why....

Probably the biggest overall finding from our just-completed 2010 Credit, Collection, and A/R Staff Benchmarking Survey is a quantification of just how much credit staffs have been shrinking over the past five years.

Approximately 400 credit execs from every size and type of company participated in the study, in which we made detailed comparisons of credit, collection, and A/R staffing levels. Our primary goal was to enable credit execs to benchmark their staffing levels against those of their peers, using the most important metrics (sales volume, business type, # of invoices processed, A/R size, among others). But the survey also generated some important "big picture" data, particularly in comparison to a similar study we conducted in 2005. As a result of that study, we were able to compare overall staff sizes now with those in place back then. And the numbers are staggering. Here are just a few to chew on:

The Incredible Shrinking Credit Departments!
	Staff Size in 2005 (in FTEs)	Staff Size in 2010 (in FTEs)
Industrial Manufacturing	12.1	5.9
Wholesale/Distribution	13.1	9.5
Consumer Products Manufacturing	13.4	11.9
Collection Staffs (all industries)	5.9	3.7

These are numbers for some broad industries and categories and they certainly tell a story that many in our profession already know "in their bones."

However, it's important to look at a couple of factors in the "big picture."

First, we're in an extraordinary time, an exciting time, really. We are in a cycle of continuous productivity growth that started roughly 25 years ago with PCs and microchips, and their ever increasing power. That is now being further enhanced by the Internet. We see that productivity trend continuing as far as the eye can see.

We are also in an era of unprecedented global competitive pressures to cut the fat and be as ruthlessly efficient as possible. This mentality is necessary to compete in today's world economy. No company will survive if they are operating in an envirnoment that allows a credit department to function with old technology and a staff of 40 when a staff of 12 is sufficient!

But does that "cut-cut-cut" mentality ever go too far?

Is management ever wrong in its efforts to make these cuts?

They certainly are.

And here again, our research in this survey offers some important insights.

More than one out of four (26.6%) of today's credit departments are understaffed. Within that group, the estimated number of staffers needed to get up to speed is 1.7.

"So what," you might say. Management has to do what it has to do to make the bottom line. And credit should be forced to "feel the pain" just like every other part of the company, right? Or at least that's what management must be thinking.

But that rationale only makes sense if you consider credit an expense, rather than an extremely important investment.

We, of course, consider it an investment that must be nurtured intelligently, not arbitrarily cut.

The Consequences of Understaffing
Right. You're a trade publication focusing on credit. Just a little bias, perhaps? Well, we'll admit to some. But it's a bias based on hard data.

The DSO for the universe of companies who believe they are fully staffed is 41.7, while the DSO for those who are understaffed is 50.7. It's important to keep in mind that understaffing may not be the cause of the underperformance. But let's put it this way: if I were a betting man, I'd certainly bet that it was a significant part of the cause.

After all, if you're not fully staffed, you can't:

follow-up on collections properly
keep up with the continuous evaluation of the creditworthiness of your customer base
keep up with the monitoring and follow-up on customer deductions.

Being "less than stellar" in any of these areas will of course have a significant negative impact on DSO. So, any staff cuts beyond what's needed to do the job are likely to cost companies far more than the savings generated from the staffing cuts. A good credit staffer is worth his weight in gold!

We don't normally make a blatant self promotion in our weekly letter, but if you really want to know where you stand relative to your peers, this is a great report, and it's available now for immediate download. If you're a member of Credit Today Online, you're entitled to a special discount of less than half the "sticker price" of $275. Please click here to order!

And if you're not a member, that's all the more reason to join our other satisfied members!