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Just like with every other department in a company, the credit department’s structure must be defined. This includes both the structure of the department itself, in terms of who has final control (CFO, VP Finance, VP Sales(?)), as well as setting up a decision making structure.

If one person ends up with the responsibility to make every credit decision, that can lead to significant backlogs.
This may seem like overkill, and, in all honesty, the usefulness and applicability of a tiered credit department is directly tied to the size of the company as a whole. If the company is small enough that the business owner makes every credit decision, creating departmental organizational tiers is probably only theoretically useful. However, it can’t hurt to have a plan already in place for when the business expands. The ability to seamlessly expand the credit department in concert with the growing business is a luxury — and having a plan already in place ensures that the growing pains are minimal. Plus, even if the business never grows to the point that an entirely separate “credit department” is warranted, the business owner may still want to eventually delegate some duties. By following a pre-set plan, the delegation process can be made clear.

The organization of the credit department should be easily understood, and not elaborate matrices that slow down the process they are attempting to streamline.
For larger companies, the appropriate departmental structure is essential. Reviewing making credit determinations is time consuming. If one person (generally someone towards the top of the departmental food-chain) ends up with the responsibility to make every credit decision, that can lead to significant backlogs. If one of the credit department’s goals is to approve or deny extensions of credit within a certain time period, there has to be a staggered decision making chain to alleviate some of that pressure. Unfortunately, though, this can easily lead to a credit department being consumed by the minutiae of an overwrought process.

The organization of the credit department should be easily understood, and not elaborate matrices that slow down the process they are attempting to streamline.

Determining which party will exercise final control over the department is crucial, and has a profound effect on the department. Clearly a credit department that ultimately answers to sales [generally a bad idea, in my opinion] wil behave in a much different manner than a credit department that answers to the CFO.

Finally, for credit departments that perform the duties of managing and implementing lien/notice policy, and collection policy, in-house, those specific duties must be outlined. It may be helpful to create a chart defining the amount of credit that may be extended by parties in each tier of the credit department. Once that chart chart is complete, following the guidelines and streamlining who needs to make each credit decision is easy.