Are credit and collection positions immune to the difficulties that a bad economy can often bring with it? 

In strong economies, when business is booming and customers have more than the usual amount of cash to pay their debt obligations on a timely basis, the credit and collection function might not be viewed as so essential. Conversely, in troubled and uncertain economic times, having the right person or people perform the credit and collection function can often save a company from a couple of large payment defaults or bankruptcies that could impact its own financial viability. 

My personal view is that credit and collection positions could range from being imperative to dispensable regardless of the economic times. Instead, I am thinking more in terms of how much value does the credit and collection function bring to its employer. For example: 

1) Are DSO, past due accounts, and losses on the decrease? There’s nothing like seeing an A/R report that shows very few accounts in the past due column. For some companies, past due could be over 30 days, over 45 days or even at the 60 day and beyond range point. Regardless of where that past due point is set, if the number of delinquent accounts, DSO, and losses are all on the decrease, whether in good or bad times, one might conclude that the credit and collection function is certainly worth its weight in salt. 

2) Are sales being too constricted? At first blush, we might feel good that DSO, past due accounts, and losses are on the decrease, but what about how this may be affecting sales? Are credit standards too rigid or too restrictive in which a potential customer that is not so bad, not being given a chance?

I remember one credit manager who classified a D&B Paydex score between 70-75 on a potential customer as being too low for credit terms. Since even the best of the best paying companies has a Payday score of 80, having one between 70-75 is still considered to be fairly good. In other words, rather than denying credit altogether, one idea would have been to start out small, request payment of half up front, and then the remaining within 30 days from the invoice date. Rather than making an across-the-board credit limit rule, providing a much more personalized and customized credit granting approach is how a credit manager can help to expand sales safely. 

3) How efficient and cost effective are the credit and collection functions being executed? In this day and age, employing all kinds of technology is key in reducing many credit and collection functions. For example, having potential customers fill out a paper credit application is a barrier to even getting business off the ground. It not only is frustrating to the customer, but with all the data that is handwritten, the credit manager and/or his staff must laboriously transfer that data into their system and try to reconcile with on-line credit information resources.

From the get-go, an online new customer credit application should be available and required in the credit evaluation process. Once the data and information have all been filled in, the ease at which that data can be confirmed against various credit information resources is almost instantaneous. So rather than a credit approval turnaround in days, it might just be in minutes. For certain sales contracts, speed is everything and here again, this kind of efficiency in the credit department is what determines the real value it can bring to the company. 

So, I ask the question again, are credit and collection positions recession proof? Whether we’re in good or bad economic times, I believe the answer depends on the overall value that the job brings to the company. 

Your questions and comments are most welcome (

Nancy Seiverd, President, CMI Credit Mediators, Inc.

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