The Charming Credit Manager
This article first appeared in MG Business in 1995
[A]n abrasive, petty, obsessive person can find fulfilment as a credit manager. Since the job requires persistence and a readiness to be nasty if need be, it acceptably channels otherwise troublesome id tensions, and produces peer-respect as a valuable team member able to handle tasks that others prefer to dodge.
John Wareham, "Secrets of a Corporate Head hunter",( from a chapter entitled "How to Salvage an Incompetent Executive")
Let me state at the outset that Wareham is wrong. Credit management isn't the place to hide your incompetent, offensive staff. Thinking like that contributed to the losses following the October 1987 crash. Most of the best credit managers I've known are people who could charm the birds out of the trees. As one credit manager I know says, "credit management is all about relationships - with sales, with debt collectors, and with customers."
He goes to the extent of giving Christmas presents to the accounts payable staff of his larger customers. He believes this encourages them to put his invoices at the top of the pile. I would suspect that he's the only creditor showing his appreciation in this way, and his results suggest he does get paid earlier.
Another typical example of the importance of relationships comes from a small business, with just one credit officer, which supplies to fabric shops. Their typical customer is the "mum and dad business". The credit officer has (according to her boss) a knack for making friends with the "mum" of these businesses. When payment problems arise, the lines of communication are already in place. She talks to the wife, and the dispute is resolved or the payment schedule worked out. There's no unpleasantness and the customer is retained.
Take advantage of problems and catastrophe
A good time to put pressure on a customer to give extra security is when they were in trouble. Your argument is, "if you want us to keep supplying we need a personal guarantee/debenture/mortgage." Of course, it's also when customers are in trouble that you have an opportunity to create customer loyalty. One experienced credit manager who spent some time in Fiji says that tourism died and the hotel industry was badly affected after the military coups in the 1980s. The company he worked for created fantastic customer loyalty through the support it gave to its hotel customers at that time.
Nike credit managers claim the same result through the support they gave Florida customers after Hurricane Andrew, and Los Angeles customers after the LA riots. Perhaps the key question is whether the disaster was truly beyond their control or was it in fact a problem of their own making.
Face to face meetings
The other important way to build relationships is to go and meet people - to visit colleagues, suppliers and customers and talk to them face to face. One Auckland credit manager talks of working in a branch, serving customers and loading trucks, every Saturday morning for six months, to build the respect of the people in the branch and to get to understand their business.
Another, in Melbourne, told me that she makes a point of going out with her sales reps to meet the people in the purchasing departments of her oil company customers. The oil companies are very good credit risks so her problems generally relate to disputes and queries. When she's trying to solve a problem, it helps to have met the people she needs to deal with. The same theory applies to government departments. "Deliver copies of invoices (when the first invoices have got lost in the system) personally so that your [government department] contact feels a sense of obligation to see that the payment is put through," is the advice of one supplier.
What if your customers aren't in the same town? Wellington exporter, Interlock Industries can report on which senior managers have visited which major customers in each country over the last 12 months. Many businesses could learn from this approach. Too few credit professionals visit customers outside of a five mile radius of their office.
To be fair, some of the credit managers who tell me they intend to visit their customers and their branches but haven't been out of the office in the last 9 months, don't have the authority to spend the money to travel. Some do get out of the office however. Some even travel overseas to meet them. In many cultures, notably Japanese and South American, personal relationships are an even more crucial part of doing business, and therefore even more important to credit management.
And even when the debt goes sour, a good relationship can help the process. Banks, for example, much prefer to have a cooperative debtor sell a mortgaged property than to have the bank go through the time and hassle (and perhaps the lesser return) of a mortgagee's sale.
Credit -v- sales
Another point to mention in passing is that despite the legendary enmity between credit and sales, most credit managers aren't constantly fighting with sales. Like everything in credit, conflict with sales teams varies from industry to industry and business to business. A credit manager in a US company told me that his boss was the marketing manager for the company and was also in charge of sales. Every Monday morning at 8am he would tell his sales people to get out there and sell, sell, sell, "and don't worry about credit - leave that to credit management." Then at 9am, he would exhort his credit team not to lose a penny in bad debts. Not surprisingly, the credit and sales departments were at each other's throats.
Investment
The message is that the effort credit staff make to build relationships - with customers, with sales, and with debt collectors - are an investment, like training. Credit staff who only spend time with their customers or their sales people or their branches when there is a critical situation may find that they haven't formed the relationships that get problems solved because they haven't made that investment. And in any case, why should you ignore the good-paying customers? Make some time to tell them how much you appreciate the fact that you don't have to chase them.