Waht is credit management ? This seems like an obvious question, but is it really? What would be the or certainly the multiple definitions of credit management given by credit managers?
Because indeed, we are all human, and in fact have a limited capacity to perceive things. Our five senses are rich of course, our ability to reason and feel is important. But the fact remains that everyone has their own perception, their own analysis, and probably their own definition of credit management, which depends in particular on the environment in which each person operates.
Would our job therefore be multiple?
Let's try to answer based on our experience. Indeed, at Credit Management tools and My DSO Manager, we support thousands of companies that are all different: country, corporate culture, sector of activity, size, credit management practices, commercial and financial constraints, are all variables that define each company, or even each subsidiary of a group, in an absolutely unique way.
Let’s take this opportunity to digress: let’s understand that the flexibility and agility of credit management software is not an option but is essential to respond precisely to the needs of each of them. How could a rigid solution do this?
Thus, we can see multiple approaches in credit management, often very different, sometimes radically opposed: between a European group using credit insurance, which bases its credit limits and then its collection strategies firstly on the guarantees obtained and the rules of the credit insurance policy, intervening exceptionally to grant an internal line to increase the authorized outstanding; and another, Anglo-Saxon; for whom credit insurance is, if it knows the principle, a dirty word, managing its credit limits by continuous and successful credit analyses, with a DoA (Delegation of Authority) covering all aspects of customer credit, and recovery strongly interrelated with the assessment of risk, the gap is enormous intellectually and in practice.
Visions are therefore often restrictive because it is difficult to embrace all the business approaches applied by companies around the world. The risk of having a limited vision is to confuse ends and means. For example, believing that securing sales is an end in itself, when it is only a means to increase the probability of being paid. Risk management and cash collection are two inseparable activities, and in reality completely intertwined.
Despite these difficulties, we could make an attempt at definition, starting from what is common to all credit management methods: their purpose. Ultimately, what are the ultimate objectives of the credit manager?
We can identify some of them:
The credit manager therefore often has the vocation of an alchemist. If not to transform a base metal into gold, to transform apparently antagonistic interests into virtues for his company and his clients.
A definition of credit management could thus be: "Credit management is the art of reconciling the commercial and financial interests of a company, to improve its cash flow and profitability, as well as the quality of customer relations"..
Another, much simpler and more direct in its purpose could be: "Credit management corresponds to all the practices implemented to be paid by its customers". Why not? At the end of the day, isn't the goal simply to be paid, and isn't everything else, credit risk management, dispute management, collection, tools and processes, just a means to achieve this in a (almost) certain manner?
What is missing from this definition is the whole aspect of supporting growth and improving internal processes and customer satisfaction, which are very important in the modern missions of the credit manager.
So, new proposition: "Credit management is the art of securing and accelerating collections efficiently while improving customer satisfaction.". The introduction of the keyword "efficiency" is not insignificant. This term relates the means and the results. However, the efficiency and the scope of the credit manager are multiplied exponentially by digital tools. His progress on all of its aspects is very often proportional to his efficiency.
Three definition proposals. If we continue thinking about it, there would certainly be others!
Over the years, we have had the opportunity to observe a diversity of approaches and practices in credit management, adapted to the unique needs of each company.
And you, what would be your definition of credit management? Share it in the comments below?
Because indeed, we are all human, and in fact have a limited capacity to perceive things. Our five senses are rich of course, our ability to reason and feel is important. But the fact remains that everyone has their own perception, their own analysis, and probably their own definition of credit management, which depends in particular on the environment in which each person operates.
Would our job therefore be multiple?
Let's try to answer based on our experience. Indeed, at Credit Management tools and My DSO Manager, we support thousands of companies that are all different: country, corporate culture, sector of activity, size, credit management practices, commercial and financial constraints, are all variables that define each company, or even each subsidiary of a group, in an absolutely unique way.
Let’s take this opportunity to digress: let’s understand that the flexibility and agility of credit management software is not an option but is essential to respond precisely to the needs of each of them. How could a rigid solution do this?
Thus, we can see multiple approaches in credit management, often very different, sometimes radically opposed: between a European group using credit insurance, which bases its credit limits and then its collection strategies firstly on the guarantees obtained and the rules of the credit insurance policy, intervening exceptionally to grant an internal line to increase the authorized outstanding; and another, Anglo-Saxon; for whom credit insurance is, if it knows the principle, a dirty word, managing its credit limits by continuous and successful credit analyses, with a DoA (Delegation of Authority) covering all aspects of customer credit, and recovery strongly interrelated with the assessment of risk, the gap is enormous intellectually and in practice.
Visions are therefore often restrictive because it is difficult to embrace all the business approaches applied by companies around the world. The risk of having a limited vision is to confuse ends and means. For example, believing that securing sales is an end in itself, when it is only a means to increase the probability of being paid. Risk management and cash collection are two inseparable activities, and in reality completely intertwined.
Despite these difficulties, we could make an attempt at definition, starting from what is common to all credit management methods: their purpose. Ultimately, what are the ultimate objectives of the credit manager?- Support the development of turnover while securing sales.
- Accelerate collections while improving customer satisfaction.
- Be a player in improving the sales process and digitalizing customer relations.
- Contribute to the commercial development and financial performance of your company.
The credit manager therefore often has the vocation of an alchemist. If not to transform a base metal into gold, to transform apparently antagonistic interests into virtues for his company and his clients.A definition of credit management could thus be: "Credit management is the art of reconciling the commercial and financial interests of a company, to improve its cash flow and profitability, as well as the quality of customer relations"..
Another, much simpler and more direct in its purpose could be: "Credit management corresponds to all the practices implemented to be paid by its customers". Why not? At the end of the day, isn't the goal simply to be paid, and isn't everything else, credit risk management, dispute management, collection, tools and processes, just a means to achieve this in a (almost) certain manner?
What is missing from this definition is the whole aspect of supporting growth and improving internal processes and customer satisfaction, which are very important in the modern missions of the credit manager.
So, new proposition: "Credit management is the art of securing and accelerating collections efficiently while improving customer satisfaction.".
The introduction of the keyword "efficiency" is not insignificant. This term relates the means and the results. However, the efficiency and the scope of the credit manager are multiplied exponentially by digital tools. His progress on all of its aspects is very often proportional to his efficiency.Over the years, we have had the opportunity to observe a diversity of approaches and practices in credit management, adapted to the unique needs of each company.
And you, what would be your definition of credit management? Share it in the comments below?