Credit departments measure up against upper management.

Publication: Business Credit

Publication Date: 01-NOV-06

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COPYRIGHT 2006 National Association of Credit Management

What impact do performance metrics in the credit department have on the overall operation and decisions of the company? The answer to that depends upon how well the credit department is integrated with the upper financial decision makers in the company and, to a lesser extent, the business style of the credit manager. NACM examined the role of several credit managers to get a picture of how different credit managers interact with upper management, what business credit metrics they analyze and what impacts those metrics have on the operation of the company. Generally speaking, those companies that respond to the performance metrics and analyses of the credit department, and include credit professionals in key financial decision-making, are most successful in maximizing sales while keeping credit risk at acceptable levels.

Credit managers have the difficult task of managing credit risk, while also trying to analyze how credit policies affect and are affected by company finances and outside economic factors. The demands of the day-to-day functions of a credit professional often leave little time for such analysis. As Lyle Wallis, Vice President of Research for Credit Research Foundation (CRY) said about many credit professionals, "They're spending more time running around beating out fires than engaging in fire prevention." However, despite the day-to-day challenges, many credit professionals do manage to analyze performance metrics of their department and communicate the results to their company's upper financial management. Scott Chase, CCE, Director of Credit & Collections for Covalence Plastics, headquartered in Minneapolis, MN, said, "I'm a statistics freak and I want to dig down deeper into the numbers that I submit to upper management." From his analysis of the numbers, Chase is able to determine trends, what effects changes in credit policies are having and indications as to what credit term changes may be needed for individual accounts or portfolios.

The organizational structure of a company may give the credit manager a direct line of communication and authority to the president of...

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