Today’s business environment is characterised by homogenous products and services with little scope for differentiation, supply exceeding demand, more knowledgeable customers, free market economy, e-commerce, highly competitive markets, high cost of doing business, and lower profit margins.

People in business should think positive. They should strive to satisfy, if not exceed, the ever changing customers’ needs and expectations in order to gain and sustain competitive advantage in their respective markets. And what are customers demanding and expecting?

Customers are demanding high quality products, good customer service, lower prices and advantageous credit terms. Therefore, business strategists and managers should continuously invest in their employees to focus on customers and this also applies to the people involved in credit. Senior managers tend to forget that:

  • On average, 40 % of the total assets of a business’ Balance Sheet represents Accounts Receivable or ‘Debtors’ as they are usually called
  • After cash in bank, Accounts Receivable is the most liquid asset, only one step away from money in hand
  • 80% – 90% of business-to-business transactions involve payment at a later date, hence credit

The role of the people involved in credit in today’s reality is far from crunching numbers and pestering customers for payment. The credit function should be a people’s function.
They should know their customers and should endeavour to build good customer relationship.

The job of the credit practitioners is not to reject business but to find a way to say “yes” to ‘profitable sales’. Credit should no longer be considered a privilege to customers but a way of securing ‘profitable sales’ that would otherwise be lost, and no business affords to lose ‘profitable sales’ in this day and age. Hence, synergy between the sales and the credit teams should exist – the sales people triggers the sale and the credit team completes it by agreeing competitive and profitable credit terms to ensure sound cash flow and long-term sustainable profit to the business.

But credit does not come for free. Money costs money. Businesses should invest to grant credit to their customers. Besides, credit does pose an element of risk, that of being paid late and also bad debt. Therefore, the credit function should have access to accurate and reliable information at the minimum cost possible in order to take profitable credit decisions in a proactive manner.

Once information is available and the credit worthiness analysis of the customer is done, a written agreement should be signed by both the customer and the supplier. This would ensure that the conditions of sale and the agreed credit terms are clearly understood. Existing customers should also be monitored on an ongoing process to keep them current and buying, whilst ensuring sound cash flow – the lifeblood of business. But all this requires competent and skilled credit staff.

This revolutionary vision of the credit function can only be successful if business owners invest in the proper credit management staff training and in forming part of a credit group which provides the proper credit management tools, and accurate and reliable information system at the minimum cost possible.

The Author: Josef Busuttil MBA, DipM MCIM, FICM

Josef is the Director General of the Malta Association of Credit Management and Vice President of the Federation of European Credit Management Associations. He is also a business trainer, coach and consultant. He obtained his MBA from Henley Management College, a Chartered Marketer and Member of the Chartered Institute of Marketing (UK), and Fellow of the Institute of Credit Management (UK). He has contributed with intuitive workshops and presentations addressed to various business people worldwide.
Josef is a regular contributor of business articles to business press.