ASK THE EXPERTS CARRY ON REGARDLESS Considerations in creating a strategic credit management department. Part three. AUTHOR – Matthew Godby MCICM(Grad) Advancing the credit profession / www.cicm.com / <strong>July</strong> & <strong>August</strong> <strong>2020</strong> / PAGE 14
ASK THE EXPERTS IN this series, we’ve looked at the range of factors that go into developing a strategic credit management function. One that isn’t just there to ‘collect the money’, but instead operates at the heart of the business to help it develop <strong>and</strong> grow. In the first part of this series, we reflected on how many credit control departments still pursue a reactive policy of jumping into action when a debt becomes overdue or dealing with matters based on who shouts the loudest. An approach that doesn’t allow the credit department or the business to improve <strong>and</strong> move forward. We went on to look at what a strategic credit management department should look like. In part two, we looked at the factors to consider in developing such a department. That a strategic credit management department is the hub of the business; it drives change <strong>and</strong> efficiencies across the whole Order to Cash pathway; it leads <strong>and</strong> collaborates across the wider business. As I write the final part of this series, a great deal has changed in a very short space of time. COVID-19 is having a devastating effect on businesses across the country. With most of the UK economy in a state of hibernation, most businesses are having to cope with the twin effects of dramatically reduced sales <strong>and</strong> customers inability to pay for them. So what are the benefits of having an adaptable, strategic credit management function? EXCELLENT STAFF A Gallup survey from 2018 found that 51 percent of employees said they were looking for new jobs or opportunities. Emotional support, professional development, IT systems that work, effective communication, clear messaging, consistency of approach, clear objectives <strong>and</strong> fair pay all play a part in staff satisfaction. The result? A happy, highly-skilled workforce who are proud to work for you. It gives staff a sense of achievement that they are contributing to the success of your business. Excellence breeds excellence <strong>and</strong> as others hear how your business is a great place to work, you attract the best people. Which improves your profit. EFFECTIVE CREDIT MANAGEMENT Good credit control is always about customer relationships <strong>and</strong> not about threats. Skilled credit controllers use a range of influencing techniques to obtain payment, but also listen <strong>and</strong> underst<strong>and</strong> the genuine problems customers might be experiencing. They are supported AUTHOR – Matthew Godby MCICM(Grad) by the credit manager to make the right commercial decisions, from a position of knowledge. They underst<strong>and</strong> that on-stop/ legal action threats are only a last resort, when other options have been exhausted. With COVID-19 placing many businesses at risk due to a lack of cash, I’ve spoken to far too many people who have been reluctant to speak with their customers, because they know that they are probably experiencing cashflow problems too. This goes to the heart of what good credit management is about: clear, honest conversations with customers – providing support when needed – that allow payments to be made that are acceptable to all parties. The result? Skilled staff, communicating with customers professionally, is likely to result in more prompt payments. STRENGTHENED CASHFLOW An efficient Order to Cash process means robust risk <strong>and</strong> onboarding of new customers, ‘right first time’ invoicing practices, effective credit management <strong>and</strong> strong leadership to make it work. An efficient O2C pathway that is constantly reviewed <strong>and</strong> adapted means a portfolio of good paying customers, invoices that are correct <strong>and</strong> pro-active credit controlling that works <strong>and</strong> is supported. The result? Increased cashflow <strong>and</strong> profit that can be reinvested in staffing, infrastructure <strong>and</strong> business growth. INCREASED SALES The sales force don’t want to be wasting their time on selling, only to find they are declined at credit check stage. A well-run credit management department can help to increase sales. Providing the sales department with meaningful data on existing customer payment patterns, communications <strong>and</strong> debt exposure allows them to explore further sales opportunities with existing customers, which is always easier than trying to obtain new sales. A customer onboarding policy that allows credit checking new prospects based on expected sales projections, rather than actual sales, means that payment terms can be determined in advance <strong>and</strong> risks of bad debt can be minimised. This allows sales to avoid wasting time on risky customers <strong>and</strong> means they can adapt their sales based on the information to h<strong>and</strong>. SATISFIED CUSTOMERS What goes into having satisfied customers? Well having a product that works, of course! However, reports show that customers look to the wider service that a business provides – such as professionalism, communication, fairness <strong>and</strong> being made to feel valued. This is one of the key outcomes a successful credit management department can expect. Satisfied customers are likely to pay quicker, recommend you to others, buy more <strong>and</strong> enhance your reputation. COVID-19 Coronavirus is causing untold devastation to families across the country. This is compounded by the unprecedented damage being done to businesses <strong>and</strong> livelihoods. Retailers were the first to be hit, <strong>and</strong> reports suggest that half of highstreet retailers could be in trouble by the end of the Summer, so those businesses who supply the sector could be under increasing strain. The construction industry was already deeply affected by uncertainties surrounding Brexit, <strong>and</strong> it now too faces further challenges with COVID-19. Indeed, no business, whatever their size or industry sector, is immune to the cashflow crisis we are now in. Cashflow is the heartbeat of every business <strong>and</strong> there simply isn’t enough of it to go around right now. I’ve spoken to many businesses who don’t know how to adapt their credit departments to the new environment in which we find ourselves. Many are therefore at risk of failure. But it is those businesses I’ve spoken to, who have well developed credit management departments that work, who will be able to adapt to the changing circumstances <strong>and</strong> are better equipped to survive the crisis <strong>and</strong> beyond. Perhaps a hard lesson for many businesses on the importance of effective, strategic credit management that is fit for purpose. Matt Godby MCICM(Grad), Director – Godby <strong>Credit</strong> <strong>Management</strong> Ltd Cashflow is the heartbeat of every business <strong>and</strong> there simply isn’t enough of it to go around right now. Advancing the credit profession / www.cicm.com / <strong>July</strong> & <strong>August</strong> <strong>2020</strong> / PAGE 15
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