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MVPs--most valuable professionals: credit professionals' skill sets, roles continue to expand to fill organizational gaps.

The role credit departments play in the world's economy came to the forefront following the credit crunch. "It highlighted the importance of credit," said Ed Bell, Ph.D., CBA, ICCE, of W.W. Grainger, Inc. "A lot of companies realized were an important part of the business." As such, the tasks that some credit departments perform have expanded.

Today, many departments are seeking ways to add more value to their companies outside the scope of credit approval and collection duties. By implementing the same due diligence and tools credit departments use to verify customers' creditworthiness in other tasks and aspects of their businesses, they can help support and grow their firms.

Credit departments and professionals can add even more value by using their skill sets to become increasingly proactive, collaborative and connected to other organizational units.

Vetting Vendors

Businesses need to evaluate suppliers' viability regularly. Vendors can mean the difference between reliable or not so reliable supplies of goods or services. A company's supply chain directly impacts its ability to service its customers, said Pamela Krank, president of The Credit Department. Vendors who don't deliver can hurt your business as much as customers who fail to pay. A failing vendor that is critical to your operations can cripple a firm's ability to do business, she added.

Many purchasing departments don't have a formal review process for evaluating suppliers, Krank said. "And they don't have analysts who understand the risk." The companies Krank services have suppliers fill out a form similar to a credit application, which her firm uses to assess them. It's a business practice she has advocated since the recession, when a lot of companies got burned by their suppliers who went under. "It took a crisis for many to realize the importance of doing that."

"We do that occasionally," Bell said. "It's not the standard," however. Basically, the credit department vets vendors at the request of the finance department. For example, finance might ask for a supplier's current aging of accounts.

When the credit department partners with supply chain or vendor management, it can serve as the financial gatekeepers to assess the financial wherewithal of the company's top suppliers, said Leonel Torrejon, ICCE, credit and accounts receivable manager of Credit Risk Management, LLC. "The company can establish a policy and procedure between credit and vendor management to review new and existing, say top 20 suppliers, that are looking to do business with the company starting at a $-- and higher amount. Credit will conduct a financial assessment of the vendor with recommendations as to whether the financial exposure warrants doing business with that supplier and at what dollar amount of exposure."

Cash forecasting for your finance or treasury department also supports your company, Krank said. Every day CFOs rely on useful information from accounts receivables, she noted. "Although finance or other departments might have general information regarding cash forecasts, credit departments can provide more accurate and detailed forecasts based on information derived from collection software. Accounts receivables is just a snapshot." Krank suggests taking a database management class and learning how to track trends. "CFOs crave data. If you don't provide it, they're going to go out and find it."

Changing Structure and Teaming Up

"Depending upon the size of the operation, credit departments are becoming more specialized," said Andy Steele, CCP, accounts receivable consultant at A.E. Steele Consulting. Some businesses today "have a credit department for analyzing data and setting credit limits for new and existing companies ... [and] a collection department for handling the maintenance of all transactions going through a customer account. Not only would a collector be responsible for collecting monies, but also for dispute resolution. Each department would have its own goals and objectives. Both departments might roll up to a director of credit and collections, who then reports to a CFO."

Similarly, the accounts payable and the credit and collection departments could come under one senior manager, who then reports to the director of finance, Steele said. "As companies shrink, you might see the treasury group also being merged. Be prepared as new ideas are always being discussed on ways to reduce management head count."

About four years ago, W.W. Grainger separated credit and collection functions, making it easier for credit and sales departments to work together, Bell said. "Our credit function today is to grow sales by credit. That's the primary reason we changed how we do, what we do." The credit team is on the front-end of sales, working with sales representatives, he noted. "We're more of a consultant with the sales department. We push or say be careful." The separation of credit and collections also gives the credit team more opportunity to pursue more creative sound credit solutions, Bell said.

Credit departments can help sales departments further penetrate existing accounts by identifying current customers that qualify for larger credit limits. Krank suggests providing sales departments with periodic reports that show total accounts receivable balances and approved credit limits. This information can help sales tap into incremental sales with low risk, Torrejon said. "This can be part of a credit initiative for customer retention. By applying advanced analytical methods to help identify existing customers in the company's A/R portfolio that are low credit risk, but that are not purchasing enough or do not have sufficient credit limits, the credit department can proactively provide sales with a list of good existing customers that can be contacted and enticed to purchase more." Credit departments can also identify economic and financial opportunities in customers' industry sectors or demographics by applying analytics and scorecard predictive metrics to large groups of potential customers or prospects, Torrejon added. "Working with the e-commerce and marketing teams can provide tangible benefits in these areas."

Another best practice is to prequalify prospective accounts and provide preliminary, nonbinding estimates regarding potential limits and terms before making a sales call. This keeps the sales department from wasting its time on unqualified prospects, Bell said. "The marketing department provides the credit department with leads that it investigates further for creditworthiness. It prevents our sales team from wasting time on a customer were not going to approve." Likewise, some credit departments periodically evaluate competitors--especially those targeted for buyouts or mergers. As credit professionals network and attend trade conferences, they can become an extra set of eyes and ears for their firms and identify those businesses for further evaluation.

Strengthening ties between the credit and sales departments also includes attending or presenting at each others conferences and meetings, Bell said. "It builds relationships. We see each other as allies." Two years ago, Bell also started holding "drumbeat" calls with the firm's vice presidents of sales to provide them with up-to-date information.

Sharing information "is one of the best value-added practices nowadays, which allows for creating stronger relationships between sales and credit," Torrejon said. "In addition to this, it allows for both business units to better understand each others goals and objectives." Traveling with your salespeople on routine sales visits to customers is another way to work together, he said.

Staying Connected

Businesses today are more willing to outsource complex and critical tasks such as credit decision making and risk management. Michael Dennis, CBF, risk manager at Flextronics International USA, suggests becoming an active participant in the process of evaluating the outsourcing option. "The new reality in American business is that there are no 'sacred cows,'" Dennis said. "Any department or any task may be considered for outsourcing if it can be demonstrated that it can be outsourced safely and handled competently." Suggesting that outside service cannot easily duplicate the work is no longer a strong argument, he said. "The outsourcing companies have become quite adept at deflecting this type of criticism." Instead, he suggests becoming part of the process. "By being on the inside, credit managers can often influence the company to outsource some segments of the credit and collection function while retaining others," Dennis said. "For example, it is not uncommon for the credit manager to convince senior management that while it may be acceptable to outsource routine collection calls and dunning notices, it would be best if the following functions were kept in-house: establishing credit limits and releasing orders. This participative approach gives credit professionals the inside track on credit outsourcing."

Learning other job functions such as order entry or customer support also adds value. Cross-training isn't just for the gym. It benefits companies and employees by giving managers flexibility when managing the workforce and workloads as well as providing staff members with new skills, which makes them more valuable in their current or future positions. Duplicating skills makes it possible for staff to support each other--especially should an unexpected absence or vacancy occur. Bell's firm job shadows so that employees in related departments understand what the other one does. "We provide that information when we first hire someone," he said.

In addition to cross-training, getting involved in and attending planning meetings of other departments or business units, such as IT, customer support or service, and any department impacted by what credit does or needs, "allows for the opportunity to see how the other half lives," Torrejon said. "Nowadays there is always a challenge getting IT to deliver solutions to credit and an A/R team, primarily due to the lack of IT resources or conversion of older technology to newer tech, etc ... Attending IT meetings provides a better understanding of the challenges IT faces. By better understanding IT's world, credit can better align its needs and schedules or timelines with those from IT."

Cybersecurity and fraud prevention are other areas credit departments can become more involved in, Torrejon said. "Credit can truly play a key role and add value to protecting the company's assets. Credit can partner with their internal loss prevention to accomplish this. When I was at OfficeMax and at BP, we began meetings with one or two points of contact at loss prevention to establish a process that was consistent and dynamic to exchange data and report on activities on customers' accounts that could be viewed as potential fraud. We established certain parameters such as order size and type of product being purchased."

Keeping informed about "global matters is also crucial today as we live in an interconnected global economy, and anything that happens outside the U.S. will impact domestic customers somehow," Torrejon said.

In the end, however, "it comes down to the simple action of just partnering with other business units within your company, getting involved and thinking outside the box; that is going to bring value added to what credit does," Torrejon said.

Diana Mota, NACM associate editor, can be reached at dianam@nacm.org.
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Author:Mota, Diana
Publication:Business Credit
Date:Jun 1, 2015
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