The Seven Deadly Sins of Credit Management
The road to success in credit is riddled with dead ends and wrong turns. Make sure you eliminate these common "sins." Regardless of how long you have been in the credit management field, it's easy to fall into bad habits and become inefficient and ineffective. Here are the seven deadly sins you must avoid if you want to move ahead in the credit world: 1. Analysis Paralysis. There are only four steps in making a credit decision. They are to:
- gather facts
- analyze the data
- make a decision or decide on a course of action
- act on that decision.
No credit manager can be right every time and credit decisions must often be made with limited information and limited time. So, you need the self-confidence to make a decision under these circumstances and then move forward. One unattractive alternative involves stalling at step one, gathering facts, and hoping to find that one piece of information that will make the credit decision easy and obvious. This is analysis paralysis. 2. Over-Commitment. Most credit managers are action oriented decision-makers. They are department heads. They are responsible for the actions and decisions of their staff. Because of that, many become over-committed, doing too much and managing too little. The expression, "Not being able to see the forest for the trees" is sometimes appropriate. Unless you can make time to step back and look at the big picture, you are doomed to be over-committed to tasks that can, or must, be delegated to someone else. 3. Retaining Poor Performers. The first 90 days of employment for any new employee is called the probationary period. It is the period in which the employer and the employee evaluate each other to see if there is a long-term match. All too often, the credit department retains employees that demonstrate only lackluster performance during their probationary period. They often become the weak link in credit - dragging other employees with them down a sinkhole toward mediocrity. You need to be honest with yourself and probationary employees by terminating, rather that retaining, poor performers. 4. Neglecting to Update and Review Customer Credit Files. A customer that was viable and thriving a year ago might have fallen on hard times, especially in today's brutal economy. Unless you update your credit files periodically, a certain number of problem accounts will slip by unnoticed until they run into cash flow problems or go out of business. The only solution is to create a policy in which all active customer files are updated and reviewed on a regular schedule. 5. Going It Alone. There are thousands of credit and collection professionals who have never attended a class, seminar, or conference on credit management techniques. Similarly, there are thousands of companies with full-time credit and collection personnel who do not belong to one industry credit group. People who don't believe these activities add value are mistaken. For example, the information that you can gather by attending one industry credit group can easily pay for the costs associated with membership ten times over, simply by helping your firm avoid a single bad debt loss. The problem with going it alone is that you are deliberately ignoring other sources of information. (If you need help on this issue with management, see our groundbreaking research: "Credit Group Participation ROI Averages More Than 100 Percent Per Week (No, that's Not a Misprint)" - currently on open access) 6. Failing to Understand or Accept The Priorities As Assigned by Your Manager. Credit managers are busy. It is very tempting to address issues and perform tasks that are urgent rather than important. You must learn to differentiate between tasks that are urgent but relatively unimportant and tasks that are important, but not necessarily urgent. By definition, any task or goal established by your boss is important. Write down the goals as assigned by your manager and review your progress toward achieving those goals regularly. Senior managers are rarely forgiving when a direct report fails to accept or understand their instructions and fails to complete tasks identified as being priorities. 7. Failing to Support the Company's Sales and Profit Goals. The credit department is in a unique position to help the company reach its sales and profit goals.You can do so by looking for reasons to release orders, not for excuses to hold orders. You can help by working proactively with the sales department and customers to gather supporting documentation necessary to approve larger credit limits. You can pre-screen potential customers and offer salespeople your insight about the company and its prospects. You can either be seen as helping your employer achieve its goals, or as an impediment to the company's success.
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