Ensuring the health of an organization’s cash flow involves maintaining a thoughtful and robust credit management philosophy. Many organizations believe that simply extending credit terms to deserving customers is enough and the credit department simply determines who is worthy and who is not. While some of this may be true, the process of establishing and extending credit terms goes beyond one person and one department. We’ll look at five roles that should have a vested interest and contribute to an organization’s credit management philosophy.
- Credit Manager
This one is fairly obvious. Perhaps the person with the most hands-on responsibility for credit management is the Credit Manager. The Credit Manager is responsible for spearheading the organization’s objectives around credit policy, credit terms and customer risk, and the overall management of the credit department. The Credit Manager will supervise a team of credit analysts and other staff responsible for ensuring the organization finds and uses as much information as possible in order to determine credit terms for customers. The Credit Manager should also set the tone and help execute the organizational philosophy in relation to terms offered to each prospect and existing customer.
The Credit Manager will ensure objectives established by senior management coincide with the credit department’s approach, ensuring cash flow and working capital are maximized while at the same time protecting receivables. No other role has more responsibility for executing and maintaining an organization’s philosophy and approach around credit management.
- Chief Financial Officer
One could say the CEO is ultimately responsible for what goes on the in organization, but unless an organization is very small, the CEO will likely not be involved in the details of credit management. The CFO, on the other hand, is ultimately responsible for overall financial decisions, managing organizational risk, establishing an overall budget, financial forecasting and ensuring processes and procedures are in place to maximize revenue and cash flow. The CFO will work closely with the Credit Manager to establish objectives and a philosophy in relation to extending credit terms to prospects and customers. Although not involved in the day-to-day management of an organization’s credit management, the CFO has a vested interest regarding, and is a key stakeholder in, the organization’s credit management approach.
- Collections Manager
Overseeing the collections efforts of the organization and supervising staff responsible for collecting outstanding receivables is the responsibility of the Collections Manager. This role will manage the approach of reaching out to customers with outstanding receivables and determine when and how to contact accounts based on an aging analysis report. The Collections Manager will likely also secure and work with collections agencies for the purpose of resolving all or a portion of those accounts with outstanding receivables. Although this role may not work very closely with the Credit Manager, establishing lines of communication with the credit department is important. In addition, the Collections Manager will usually coordinate with those in the Invoicing and Billing department to ensure proper procedures and controls are in place for effective and accurate billing. The person in this role also manages how collections staff will engage customers and ensure they have exceptional communication, customer service and account management skills. Sometimes considered the last line in terms of protecting receivables, the Collections Manager has a critically important role to play in relation to how an organization manages its credit.
- Sales Director/Head of Sales
When establishing a credit policy and ensuring those policies properly fit within the organization’s sales environment, the Sales Director should be a key stakeholder. The sales process will be influenced by the organization’s philosophical credit approach and will help determine the types of customers the organization pursues.
The Sales Director will supervise sales personnel responsible for day-to-day interaction with customers and prospects. The Director will also be responsible for planning, sales forecasting and executing an organization’s sales strategy. That strategy will take into account sales price, competition, supply and demand, and regional differences while also ensuring the sales process works in harmony with the organization’s credit management philosophy.
- Invoicing/Billing Manager
Sometimes known as the Accounts Receivable Manager, the Invoicing Manager is responsible for ensuring accurate and timely billing in accordance with the terms established by the credit department. The Invoicing Manager may sometimes work closely with the Credit Manager, Sales Director and the Collections Manager, maintaining open lines of communication and helping to protect the organization’s cash flow. The Invoicing Manager will also manage the day-to-day aspects of customer invoicing in terms of traditional, automatic or electronic invoicing. Many organizations engage in a variety of invoicing methods. It’s the Invoicing Manager’s responsibility to ensure billing staff is well versed in submitting each invoice in accordance with the method required for each customer. If done properly, the accuracy and timeliness of invoice submission should coincide with the organization’s credit policies.
Each position identified plays a key role in maintaining an organization’s standards around credit management and ultimately impacts cash flow and working capital. Although not an in-depth analysis of all things related to the Order to-Cash process, these 5 key positions have the greatest influence on how an organization manages its credit.
Ernie Martin is Founder and Managing Director of Receivable Savvy. He brings over 25 years of experience in financial supply chain management, marketing and communications and draws upon his extensive experience to share knowledge and best practices with AR professionals. His resume also boasts time at several well-known brands and companies such as Tungsten Network, Delta Airlines, CIGNA Healthcare and Georgia Pacific as well as a number of years as an independent consultant.