The size of your company will determine whether this post is applicable. Figuring out whether a centralized credit department is a good choice only applies to companies with more than one location.

Advantages to a Centralized Credit Department

Many companies have credit departments. If a company has multiple locations, it has to decide if each location will will manage credit separately. If each location does not manage their own separate credit issues, one office will have to undertake the credit management for the entire company. This is called a centralized credit department.

There are multiple advantages to having a centralized credit department. Having a central hub in charge of these decision allows a certain group of people (or just one person) to have all eyes on credit issues. The credit department makes sure that the credit applications are proper, that the intake information is sufficient, and makes the final determination authorizing an extension of credit to the potential client.

Further, after credit is extended, a centralized credit department is in the best position to uniformly implement the lien policy, including notices and liens, to gain security. Then, after the debt becomes due, it will send out letters saying that the debt is due and can contact an attorney to file suit on the old debt. Imagine how difficult it would be to keep all of this systematic and applied in a uniform manner if many locations were undertaking the process at once.

Having one section of the company (at one location) that deals with credit issues, is often times better because the knowledge is specialized and deadlines can be tight. Further, when working with vendors such as Levelset or the credit attorney, there will be only one point of contact. Decentralization can cause delay.

Disadvantages to a Centralized Credit Department

There can also be disadvantages to a centralized credit department, however. Often times the relationship with clients is sensitive due to the ongoing business relations. If a credit department, which does not deal with the clients on a regular basis, contacts a client who has an overdue debt, it could strain the working relationship. At times this is fine, but other times good clients can be contacted by mistake. We all know its easier to keep clients that it is to find new ones.

Having a credit department in each location may avoid this potential peril. This is usually a small advantage compared to the disadvantage of all of the education and training you would have to give each location if you want to have a credit department locally.

Which is Better for Your Company?

The short answer is, it all depends. Generally a centralized credit department is better. This is for both small and large companies. Its always best to have a specific department who focuses on one aspect of the business. This department is accountable for making decisions to give out credit and when to collect on bad debt. They know the vendors and attorneys who can make collection possible.

Another helpful article on this very topic is by Michael C. Dennis.

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