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A Missed Business Opportunity: Credit and A/R Management

By Abe WalkingBear Sanchez
Abe WalkingBear Sanchez is an International Speaker / Trainer on the subject of cash flow / sales enhancement and business knowledge organization and use. Founder and President of , Abe also sits on the board of Inc.


Credit managers are kind of like the Rodney Dangerfields of business, they get no respect.

What is B2B Credit all about? Who makes the best credit managers? How should the credit function's performance be measured?

Largest Asset - Least Understood

A/R is often one of if not the largest asset a business has. Next to cash on hand the A/R is the closest thing to money in the bank, it's a very liquid asset. And yet, the area of business responsible for creating and managing A/R may be the most misunderstood and underutilized business function.

The only reason why any business should incur the additional administrative expenses, the cost of carrying A/R (time value of money), and the potential for bad debt losses that go with extending credit is in order to get profitable sales that would otherwise be lost. Credit is a lubricant of commerce and allows for the expanded movement of product/services. Credit is a function of sales; it's about new sales and repeat sales.

Major Components and Goals

There are 3 major components involved with the credit and A/R management function. First is credit approval, next is past due A/R management and lastly is feedback on areas of opportunity for improvement. A lot of work and expense is involved in getting to the point where a customer wants to buy.

If when the sales guys ask that all important question, "How would you like to pay?", and the customer answers "at a later date", we are into credit approval.

The goal of credit approval is to find ways of saying yes to profitable sales that would otherwise be lost.

Most past due customers are not trying to avoid payment, they are not deadbeats, flakes or pond scum. Past due A/R management is not collections, i.e. the enforcement of payment."

Collections is what collection agents do. Don't tell your people the job is collections; they're liable to go out and get a body part pierced and a tattoo and come back with a bad attitude.

Past due A/R management is about keeping customers current and buying. It's really "the completion of the sale."

Being a credit manager is like being the guy with the shovel following the parade. Every problem regardless of the source has to be fixed before a customer pays. In the process of fixing problems the credit function interfaces with just about every aspect of a business. The credit function is an excellent source of information about where there exists "areas of opportunity for improvement."

The Best Credit Managers

We humans do best those things we like best. If we do something we don't like chances are we won't do it well.

Communications is at the heart of Credit. A good credit manager must communicate with customers, sales guys, operations, accounting, maybe transportation, with attorneys, A/P people and trade references.

Rather than hiring a credit manager based on a resume, a 10 to 15 minute phone interview should be conducted. If a candidate can't communicate with you what are the chances they'll do a better job when dealing with customers or others? Past employment history, criminal background, education, and general attitude are factors to weigh, but first and foremost a credit manager needs good communications skills.

Measuring Credit Performance

Talk about being caught between a rock and a hard spot; credit managers are directly involved with getting new sales and keeping existing customers current and buying (repeat sales), but often their performance is measured by DSO (average A/R turn-time) and percent bad debt. These "old" credit measurements have nothing to do with sales and everything to do with risk management.

By over-qualifying new customers and by placing all past due customers on credit hold, great DSO and percent bad debt numbers can be achieved, but the sales guys won't like it, customers will take their business elsewhere and the bottom line will suffer.

Credit approval should be measured by timeliness of approval and percent of approval. Remember the job is about finding a way to say yes. Should a customer fail to pay, both the sales and credit guy should take a hit: i.e. charge back on commissions and bonuses.

Past due A/R management should be measured by percent of A/R current to 30 days past due. Any drop in percent current should not be seen as being bad on its own, more important is the reason behind the drop.


If you're one of those business executives who still thinks of credit as being an accounting function, or a job for a big guy with a low forehead, long arms and jail house tattoos, you're most probably tracking DSO and percent bad debt. If you think of credit as a matter of risk management you're missing out on an opportunity to increase sales, improve cash flow, control losses and to improve on how things are done.

Created on 28-Mar, 2011 by HKCCMA.

Last Edited on 09-Apr, 2011 by HKCCMA.