Credit Management July and August 2020

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
and 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
and 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 and efficiencies across the
whole Order to Cash pathway; it leads and
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 and 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 and 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 and 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 and not about
threats. Skilled credit controllers use a
range of influencing techniques to obtain
payment, but also listen and understand
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 understand 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 and onboarding of new
customers, ‘right first time’ invoicing
practices, effective credit management
and strong leadership to make it work. An
efficient O2C pathway that is constantly
reviewed and adapted means a portfolio of
good paying customers, invoices that are
correct and pro-active credit controlling
that works and is supported. The result?
Increased cashflow and profit that can be
reinvested in staffing, infrastructure and
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 and 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 and risks of bad
debt can be minimised. This allows sales
to avoid wasting time on risky customers
and means they can adapt their sales
based on the information to hand.
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 and 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 and 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 and
livelihoods. Retailers were the first to be
hit, and 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, and
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 and 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 and are better equipped to
survive the crisis and 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 Credit Management Ltd
Cashflow is the
heartbeat of every
business and there
simply isn’t enough
of it to go around
right now.
Advancing the credit profession / www.cicm.com / July & August 2020 / PAGE 15