For those of you in this situation, there are many traps and pitfalls that you need to be aware of. In fact, even those that have been in the credit management arena for many years can fall into these traps and find themselves struggling with efficiency and effectiveness. So, here are some things you need to watch out for:
- Over-analysing credit applications
- Getting yourself swamped
- Hanging on to poor performers
- Failing to train staff
- Overlooking the customer review process
Over-analysing credit applications. As a general rule the credit decision process should follow four key steps:
- gather information about the credit applicant
- analyse the information
- decide whether to extend credit and if so, on what basis
- implement your decision.
This seems like a relatively straightforward process however, there is a trap that many people fall into - they get stuck on step one. More and more customers are demanding that firms make a credit decision with limited information and in a limited amount of time. Therefore, you need the self-confidence to make a decision and then move forward - don't get caught in analysis paralysis! You won't make the right decision every time but the important thing is you act decisively rather than delaying the process indefinitely.
Getting yourself swamped. Most small business owners are action oriented decision-makers - they are responsible for the actions and decisions of the entire operation, including their staff. As a result, it's common for SME owners to find themselves being everything to everyone or doing too much and delegating too little.
Perhaps you aren't the best person to be making decisions about who you do and don't extend trade credit to - perhaps this is a task you can delegate to someone in your team. All you need to do is ensure you have appropriate policies and processes in place for them to follow.
Find out more about setting appropriate credit policies >>
Hanging on to poor performers. If you've made the move and stepped back from doing everything yourself it's important to ensure that the people you've delegated certain tasks to are doing their job well. Don't fall into the trap of retaining employees that aren't performing their duties appropriately or if you believe you should hang onto them, move them to another area of the business where they may have more appropriate skills. The last place your business needs a mediocre performer is in the credit department.
Failing to train staff. As a small business owner chances are you don't have a background in credit management and nor do your employees. Many people that work in the credit arena have never attended a class, seminar or conference on credit management techniques yet such activities have significant value, particularly for small business operators. The information you or your employees obtain from attending a course could easily be recouped simply by helping your firm avoid bad debt loss. Take the time and spend the money on training your staff and you will reap the rewards.
Overlooking the customer review process. An organisation (customer) that was considered to be a good credit risk 12 months ago may no longer be a viable operation. The fact is economic conditions and businesses change constantly and this means you need to stay on top of your customer base. Unless you check the financial viability of your customers regularly, problem accounts will slip by unnoticed until they reach a point where it could be too late to recoup your funds. The only solution is to create a policy in which all active customer files are reviewed on a regular basis.
The credit control team in any organisation plays a key role its growth, cash flow management and profitability. Therefore its critical that those responsible for this area are well trained and that the organisation has a sound policy in place to guide its actions and behaviours.
To find out more about creating a credit policy read the do's and don'ts of extending credit >>
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