Credit Management

Want to be the best at your job? We are going to start off this course by looking at what separates good credit professionals from the great.

I’ve learned a lot about credit management in as a construction attorney and as the CEO of Levelset. I have consulted with thousands of companies about the one thing they care about the most: getting paid. I’ve worked with credit managers, CFOs, and controllers to prepare and implement credit policies and procedures. Below, I discuss the three traits of a great credit professional.

1. Great Credit Managers Understand All Of The Hard Work Comes Before Credit Is Actually Extended

As with everything in life, there seem to be proactive people and reactive people. A reactive credit professional simply puts out fires after problems occur.  They jump from one problem account to the next and try to squeeze what they can from a non-paying account.

Great credit professionals, however, are proactive people. They prevent problems before they occur. They understand that running a tight credit ship means putting together an intelligent credit policy and sticking to that policy. When considering extending credit to customers, a company must take a big-picture look at the risk involved and the degree of risk that can be accommodated.

Then, the company must take proactive steps to be sure that it is not taking on more risk than it is prepared to accept. A well-prepared company will have:

  • A tested system for running credit checks
  • A policy dictating when personal guarantees are required
  • A requirement for joint check agreements when appropriate
  • Readiness to say no responsibly
  • A lien policy that dictates when to send notice and protect lien rights

Notice that policies must be put in place before credit is extended. These are all proactive measures, and they are most effective if they are implemented by the credit manager and his or her staff according to a well-defined policy.

2. Great Credit Managers Want to Take On More Business

Some credit professionals consider it their job to mitigate the company’s risk in the marketplace so that when terms are extended, the company doesn’t get stiffed.  These are the so-so credit professionals.

Great credit professionals, on the other hand, consider it their job to create a credit program that allows the company to do more business. Instead of focusing on the small picture (not getting stiffed), the great credit professionals focus on the actual purpose of their job (to allow the company to get more business).

Of course, the two mindsets are connected.

The company can’t take on more business if it does so at too high of a risk.  Nevertheless, so-so credit professionals don’t seem to mentally put this picture together. Great credit professionals know that getting more business is job one, and they are constantly examining their policies and systems to see if there is a way to open the door to folks more often, and not less often.

In working with these great credit professionals, I can tell you that the number one way to open the door to more business without increasing credit risk, is with preliminary notices. By implementing a lien policy, businesses are able to offer credit to otherwise unqualified parties. If they default, they can always go up the chain for payment and attach the property or a bond to secure their claim. This is why a system for sending preliminary notices is so valuable.

3. Great Credit Managers Make Tempered Decisions About Settling Accounts

It’s easy get angry and frustrated when a payment problem arises, but it isn’t productive. Litigation is neither fun nor cheap, and great credit professionals understand this.

Sticking to a principal is rarely a good enough reason to file a lawsuit, even if you really believe you are right. Great credit managers look at accounts responsibly and with tempered feelings, so that they can accept settlements that are fair and reasonable rather than dig into their position and file an expensive and unproductive lawsuit. Great credit professionals know when to draw the line in the sand, and they know where in the sand to draw it.