How Does Your Organization Measure Up?

Nine Critical Success Factors

By David Schmidt

Not only are the following nine factors critical to the effective execution of a company’s credit and collection operation, but they also provide an outline of the major functional areas for which the credit staff is responsible.  Failure to perform well in any one area, will also diminish performance in other functional areas.  By evaluating your own performance in each of these areas, you should be able to realize opportunities for improvement that will provide across the board benefits.

1.         CONVENIENT ACCESS TO RELIABLE INFORMATION - This includes credit sources, information technology reports, credit department files (paper and computer), economic and market information, etc.

2.         VALID RISK ASSESSMENT PARAMETERS - It is not enough to just assign credit limits, which are a measure of capacity, but accounts must also be classified by their probability of going bad.  The key is to maximize profits across the portfolio.  This requires constant monitoring.

3.         EFFICIENT CREDIT APPROVAL PROCEDURES - This includes not only a reliable decision making process, but also the ability to evaluate new customers and process all orders in a timely manner.

4.         SYSTEMATIC COLLECTION PROCEDURES - Statements, letters, and phone calls must be integrated to provide comprehensive follow-up on all past dues.

5.         TIMELY AND ACCURATE CASH POSTING - Though primarily an accounts receivable accounting function, credit & collection activities depend on this being done properly the first time, on time.

6.         CLEARLY STATED STAFF RESPONSIBILITIES - Due to the volume of information that passes through the credit function, all staff members must know their part in the process.  An up-to-date credit manual is essential to this, as are individual and departmental goals and objectives, staff training and empowerment.

7.         REGULAR COMMUNICATIONS WITH SALES - The sales department is the credit function's customer, so it is essential that sales and customer service know what credit is doing and vice versa.

8.         ELIMINATION OF BARRIERS TO PAYMENT - Most deductions and disputes are caused by upstream activities occurring during sales and order fulfillment, production, distribution, or billing.  By identifying and correcting the internal causes of slow, partial and non-payment both cash flow and credit department performance is enhanced.

9.         SUPPORT OF TOP MANAGEMENT - Without the support of the company’s executives, the implementation of best practices within the credit and collection function is not possible.  With cash flow critical to a corporation’s financial success, credit and collection performance must be a corporate priority.