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The 10 Principles of Sound Credit Management

Kim Radok14 December 2017

The 10 Principles of Sound Credit Management.

These ten principles are designed to help business owners and managers understand what is required to set up best practice credit management operational practices. 

1             Management which understands the principles of extending B2B credit in their marketplace

Management needs to believe and advertise its belief, that adhering to the principles of globally recognised credit management practices, is essential for the welfare of the business. If this visible support is missing, those with vested interests can devalue the work required to successfully manage the B2B credit function.

Furthermore, the value of employing quality employees, systems and trading documentation is minimised and devalued if recognised B2B credit management principles are not properly advocated or supported by management

2             A strong level of organisational self-esteem and operating culture within the business

A business must have a strong self-belief system and operating culture to survive. Suppliers have rights just like customers. However, if customer interests are always given priority over the supplier’s interests and rights, customers can become bullies.

Like any other bully, customers can force suppliers into operating unprofitably. If that happens, the supplier risks its own ability to make money and will probably not survive in the long term.

3             Information Security Management System and Cybercrime Awareness policies

Information security and cybercrime awareness are essential factors for the modern business. With the increased complexity of government regulations and the increase in cybercrime and fraudulent behaviour.

A business without suitable polices and the discipline to operate within these polices is destined for negative consequences if caught out.

4             Adequate financial resources

An accountant once said, "A business without cash is not a business." Unfortunately, too many businesses start without sufficient cash, backup finance, or committed investors. 

Cash can be spent inappropriately, may not be adequately protected, or wasted on cheap business solutions.

History shows, when credit professionals seek additional funding to improve their operational performance, it can be denied because "... of a lack of funds". If this denial of funding persists, the effectiveness of the credit management function will be compromised.

Note; at this stage, any form of cryptocurrency is not considered as an equivalent to cash because it is not universally accepted by every stakeholder.

5             Up to date and valid credit management related documentation and systems

Operating a business and extending B2B credit these days, is increasing in complexity. Extending B2B credit is further compounded by government regulations and legislation which are gradually stripping creditors of their rights.

The best up to date operating procedures, trading documentation and operational disciplines are therefore required. Second rate, or out of date documentation, will only contribute to unnecessary losses and bad debts.

6             Professional sales, credit and accounts employees who can work together

Every business needs a team of employees with different work skills and professional backgrounds which want to, and can work together, to be successful.

The enemy are the criminals which want your business's assets, employees who are not committed or with vested interests, and your business’s competitors.

If you have a champion employee award, every employee must be eligible to win it. An award which is only available to the select few, risks the break-up of the business team ethos. If an operating silo mentality becomes entrenched in a business, the team concept is bound to fail.

7             A customer service ethos and problem solving centric focus to all problems

A focus on customer service is essential when extending B2B credit. When customer enquiries are answered promptly, most customers inform your business when something is not right.

When a problem is found within your own business, your problem solving focus assists to identify what is causing problems and then fix the cause.

To increase customer cashflows whilst removing operating costs, you need to remove the mistakes which gives your customers a cause for slow payment

8             Professional and trusted associates experienced in debt collection, legal contracts, PPSA etc.

Professional and trusted associates experienced in the legal and legislative requirements which bind all businesses today, are another success factor. The increased complexity of the modern business environment is well beyond the competencies of the DIY business owner or manager.

The best associates may not appear to be affordable upfront. In the long-term, they offer the cheapest and best solutions, plus peace of mind that you are operating reasonably within the law.

9             Up to date policies and understanding of Government Legislation such as the Privacy Act, Unfair Contracts, Bribery, Whistleblowing, Unconscionable Behaviour, Product and Service Merchandisable etc.

Government legislation and regulations are becoming increasingly onerous. A business owner or manager, does not need to need every aspect of government legislation. They do however, need to be aware and know broadly about how these factors affect their business.

Professional and trusted Associates understand these factors and help business owners and managers to operate within government and legislative requirements.

10           A social media policy

Is essential these days due to the dominating power of social media. Few businesspeople understand the implications of social media in regards to their B2B credit and accounts receivable operations. They would be wise however to study the consumer finance world where the power of social media is causing finance providers all sorts of problems.

Having a proactive social media policy and dealing positively with any negative exposures, is simply another common sense requirement required these days.

 

In conclusion, like any other area of business, there is a right way and a wrong way to operate. These 10 principles are designed to help business owners and managers create a more efficient credit management process for their business.

If you want to know more, contact Adam Wood at GCS Credit via adam.wood@gcs-credit.com or Kim Radok at Credit Matters via kim@creditmatters.com.au

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