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The Changing Face of Credit Management

23-04-2021 5 min read

Changing from a "No" Department to a key part of the Finance Value Chain

In the face of an ever more complex global risk landscape, the image and reputation of credit management appear to be undergoing significant changes. While long regarded as an inhibitor for sales, credit management today is transforming itself into a core component of the financial value chain. However, credit managers can only fulfill the expectations associated with the department’s growing relevance, if they are able to act quickly and flexibly. With the right processes and tools in place, credit mangers can actually facilitate sales, instead of hindering them, by detecting and estimating risk accurately and with precision.

Understanding Credit Management matters

The credit function is often viewed as focusing on risk at the expense of profit. For competitive, target-driven business units such as sales, marketing or even higher management it can be frustrating when credit management stops a promising deal due to risk concerns. However, the purpose of credit management is to extend credit responsibly and in line with the company’s risk policy. So how can credit departments shift from being viewed as a “No” department to be recognized as an essential part of the finance value chain? It all starts with educating your peers about how a credit decision is made and how underlying factors play a key role in the decisions. This way other departments can understand the significant role of credit management in ensuring lucrative sales and a steady flow of working capital while also protecting the business from credit risk, effectively placing it at the core of the financial value chain today.

Credit Management faces new Complexities

The growing complexities of today’s business environments – increased fraud and compliance risks, more challenging audit requirements, fast changing business environments, increased regulations and operational policies – make it crucial for Credit Managers to be vigilant in protecting the business. To do this, they need access to relevant and up-to-date information so they can make decisions that ensure the business is in compliance with both internal and external rules and regulations and are able to clearly explain those decisions to others. However, these high-value tasks cannot happen if Credit Managers are burdened by inefficient processes, either within their own department or in others. Credit Managers must be able to act efficiently and transparently if they are expected to provide insightful reports which can stand against scrutiny.

Collaboration is Key

Ultimately, businesses are seeking the opportunity to produce a healthy financial position and sustainable growth. To do this, Treasury and Management depend on a solvent customer base to invest properly and develop the business as a whole. Minimizing bad debt risk in today’s complex and challenging business environment, therefore, is an effort owned by Credit but achieved through collaboration across the overall finance value chain.

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