What makes a great Credit & Collection manager?

Many companies struggle to get their working capital in shape. In doing so, they try to optimize their Order-to-Cash processes, issue credit policies and jump on the automation & digitization train to improve their Days Sales Outstanding. This, however, is only half the job. A Credit manager’s success lies in the way they will use these instruments.

Article by Benjamin Celis, project consultant at TriFinance CFO Services

Virtuosity in context

In his work Il Principe, (The Prince), Niccolo Machiavelli introduces the idea of ‘Success’ into his thinking. In order to be successful in achieving one's objectives, one should manage ‘Fortuna’ (the odds) with ‘Virtu’, Machiavelli says, using all possible means within specific boundaries. The degree of success depends on how ‘virtuosic’ a specific situation was handled. With ‘Virtu’, Machiavelli means the capacity of analyzing, thinking out of the box, being agile, act proactively and take (often preemptive) action bravely, given certain circumstances and goals.

This broad range of meanings is also why in the English version of Il Principe, the concept of Virtu is translated by many different equivalents like virtue, power, effort, shrewdness, capability, vigor, bravery, skill and many more, the choice of which is mainly determined by the context.

Translated for Credit management, this means one should manage the outstanding, bad debt and litigations with ‘Virtu’. Specifically, Credit managers must know their prospects and customers, but apart from that, they should be knowledgeable about the legal environment (e.g. new embargo/trade restrictions on Iran) and the economic environment (e.g. Greek financial crisis, upcoming Brexit) in order to make effective analyses and take adequate actions. The better the instruments (cash allocation, master data, OTC, credit policy, automation, etc.), the more granular Credit managers' knowledge  the better the analyses they can make and the more effective their actions.

Bad bedside manners

But being successful in recuperating and avoiding unpaid invoices is not good enough anymore. Especially in times of social media, where companies with bad bedside manners can be called out publicly, there is a rising awareness that the way unpaid invoices were recuperated is also important. The ‘degree’ of success is then defined by the alignment of the goals & interests of as well the customer as the company. Did we recover the unpaid invoice in a win-win relationship or in a loss-win relationship? In a win-win relationship, both parties are winners and added value is created for both internal and external customers. In a loss-win relationship, you might lose the customer, there is a risk of high recuperation cost and a certain degree of stress is put upon the sales department.

Deepening the commercial relation

As competition is fierce, there is a continuous struggle for customers and turnover. Recuperation of unpaid invoices should not be the Credit manager’s only goal. If possible, they should, while recuperating, also try to safeguard the customer relationship and even try to deepen the commercial relation. In doing so, they will gain more insight in the customers payment behavior, financials & forecasts. That will also stabilize the tension with the sales team on a lower level, resulting in a lower DSO, better follow-up of limits and less provisions and bad debt write-offs. Credit Control and Sales will truly understand each other, respect each other and work together as partners.

To safeguard and deepen the customers relationship, facetime with customers is becoming crucial. Just sending out reminders, mails and an occasional phone call will not do the job anymore. In their interaction with customers, Credit managers have to combine commercial and financial skills. They must show true interest in the customers’ situation by listening, asking questions, go beyond ‘fake facts’ and even be a coach helping the customer resolve issues.

From goodwill to turnover

Credit managers must align the interests and boundaries of the customers with those of the company for best results. In doing so, they will act with Virtu and create added value for both the customer and the company. Besides cashing the unpaid invoice, Credit managers will create goodwill and thus a commercial & strategic advantage upon the competition. This goodwill will be translated, later on, in better payment behavior and more turnover.

As time can be saved for more facetime with customers, the concepts of Virtu and Facetime go hand in hand with the continuous automation of processes. The role of the Credit controller/manager has definitely changed. It has moved from mere transactional tasks to the strategic managing of business processes, writing, defining & implementing business rules in ERP systems and having true ownership of the OTC process.

So, what makes a great Credit and Collection Manager?

Credit and collection managers should be able to manage outstanding payments with ‘Virtu’, meaning they should be agile and proactively take decisive action, all the while safeguarding the commercial relationship. To achieve that, they should be able to think out of the box. They should have analytic skills, be process-minded and have digital skills. They should combine commercial and financial skills and be true relation managers for internal and external customers alike.

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