The role of a credit manager includes tasks such as credit assessments, processing, collecting monies and supporting their business overall.
After many years of working closely with outstanding credit managers, Food South Australia Supporting Sponsor NCI have a few tips to share with business owners and credit managers on the top characteristics of smart credit management.
- Work closely with your sales team
The credit team functions much better when the sales team are on board with strong credit management practices. Simple steps such as identifying the correct legal entity of who they are selling to, raising the subject of credit as part of the negotiations, and the importance of acknowledging that a sale isn’t really a sale until it’s paid for, go a long way to improving the credit process and building a strong relationship between sales and credit.
- Meet with your clients
Business is a ‘people game’, and this does not exclude the relationship that clients should have with their suppliers’ credit teams. Building a good rapport (face to face) allows credit managers to have an awkward discussion (if needed) regarding late payments and understand their business better to help them through seasonal trading conditions. Clients are likely to tell you more if they have a personal relationship with you.
- Conduct annual credit reviews
It’s a common refrain heard when an insolvency occurs: “But we’ve been trading with them for years and they’ve never skipped a beat!” Regular review of a customer’s capability to pay is essential. This should be done annually at the very least. Owners, shareholders, funding levels, losses, profits, products and markets change constantly, and a small change in one of these may have a significant effect on your client’s ability to pay.
- Monitor customers for adverse information or changes
As an extension of annual reviews, having a ‘third eye’ on your debtors by using a monitoring tool can help with early alerts to problems, enabling you to respond and deal with the potential of a non-payment event occurring. There are many monitoring tools in the market place such as bureaus, mercantile agents and unique databases which can support third party alerts.
- Seek security
In many industries, seeking security from your customer may be considered to potentially reduce your competitive edge. However, seeking personal guarantees or registering your security interests on goods supplied may allow your business to provide more ‘free credit’ to your customers. It may also assist your business in getting paid before others and gain recoveries in the event of an insolvency.
Credit management of a business is a critical part to any business. There is no point working so hard on developing your products, marketing those products, and selling those products to then end up not getting paid. The question a business should always ask is: “How many new sales or profits would be lost if a bad debt eventuated?”
And the way to avoid those losses is through smart credit management.
This post has been prepared by NCI, a Supporting Sponsor of Food South Australia. NCI has been developing and delivering bespoke credit risk management services for over 33 years and has now developed a credit risk management reporting package exclusively for Food South Australia members. Click here to find out more.