Stepping Away from the Credit Decision
Most petroleum company owners work very hard in the nuts and bolts of their businesses. Many are mult-generational folks who have literally grown up in the warehouse, driving a truck or helping with the sales effort. Being that involved in the working detail of a business is a real asset when it comes to the point of actually running the business, but there’s one place owners should distance themselves from the day-to-day decision making: extending credit to customers.
Credit managers often report that their biggest frustration is making a credit decision based on facts, company policy and proven processes, only to be overruled by a boss’s decision which is oftentimes based on emotion and even friendships with customers. It’s additionally complicated when these same customers don’t pay on time and it’s up to the credit manager to try to collect the debt.
It’s certainly an owner’s prerogative to make or overrule credit decisions; however, repeated overrides frequently result in:
#1. Training employees that the rules set down for credit risk don’t really matter
#2. Training sales that gallons out the door are more important than profits & managing risk
#3. Training customers to go around personnel and rules to get what they want
Each of these results hurt cash flow, and more importantly, employee morale.
Owners are much better served to proactively work with their credit managers to do a thorough review of the company’s credit policy, systems and processes for making credit decisions, just to make sure everything fits the company’s current risk appetite.
It’s a good idea for owners and managers to look at the stats of applications approved or denied. Establish reasonable quarterly key performance indicators that give a good overview of trends in the credit department. Does the department have a budget and good resources for education, problem solving and new ideas, or is it suffering from stale processes and decision making that don’t match up with the company’s risk vs. reward goals?
Try scheduling specific meetings not just to discuss the accounts receivable aging but to really uncover the processes and decisions that led to those aging results. Work together to set down reasonable processes and procedures for everyone to follow, then step back and let well-trained employees do their jobs!
For more information,
contact Ann Pitts