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By: Abe WalkingBear Sanchez

Old Set Of Givens (Paradigm) Incompatible with Modern Business

No Sexy Spread Sheets, B2B Credit Is About More Sales,
                   Better Cash Flow and Efficiency



Phoenix, AZ:


It happened again.

Following my delivery of an after lunch  presentation titled "What Top Business Managers
Don't Know About Credit  and How It Hurts Their Company" several people approached me
and said that they had planned to eat and then skip out on  my presentation, but they were
sure glad they hadn't.

This group of distribution and manufacturing executives were no different than many
other top business managers who still equate Credit with accounting and with risk management.
They learned a different way...and went away with their thinking changed.


In his book, The Structure of Scientific Revolutions, first published in 1962..Thomas Kuhn
defines a paradigm as an accepted set of givens which provide a model problem and a
successful solution that works for that time. And as things change the old paradigm
becomes incompatible with the new reality. New knowledge in time brings about a shift,
a Paradigm Shift.


The Old Credit Paradigm


The folks in Phoenix., like many other business executives, were  caught up in thinking about
credit in much the same way as their fathers and grandfathers did in the 1950s...but today's
world is very different and the old risk management/accounting thinking must give way to a
new understanding if modern companies are to utilize their credit area to its fullest profit


The 1950's were very much defined by  W.W.II which preceded the 50s. It was a time of
pent up demand and growing demand for goods and services, it was a time of Americans
having money in the bank or in war bonds, it was a time of great social change worldwide
and a time  of limited competition .  


In a seller's market, with people standing in line to buy things, credit was seen as a privilege,
as a favor to some and not others. In such a business environment the focus was rightly
placed on avoiding the risk of customers failing to pay, of incurring bad debt losses.  DSO,
average turntime on the A/R, and % bad debt were appropriate performance measurements
when the goal was risk management . 


Credit In Today's World

The shortages of the 50s are long gone.

In today's world of rapid change, of mergers, of huge international companies and of 
increasing local small businesses, of big box stores and of cyber competition the old
risk management paradigm is a handicap.

Last year my colleague Declan Flood , Executive Director of the IICM ,
visited America for the first time. Prior to coming to America I said to him that like Ireland, it
is a land filled with mini-storage warehouses, of basements, attics, garages and storage 
sheds crammed  full of stuff...only more so. The shortages of the 50s are long gone,
along with people having savings. Monkeys? We didn't evolve from monkeys...but from
pack rats.

In 2007 things are very different from the way they were in the 50s.


In order to compete modern companies must have quality in their products and services and
quality in the way they carry out business functions.  A lack of quality in a business will lead
to increased cost of doing business for everyone involved in a transaction and in time to the
failure of a company to survive, much less turn a profit.


The Profit System of B2B Credit


While the following explanation of the  Profit System of B2B Credit  addresses the purpose,
the policies
and lightly touches on people requirements and performance measurements of
commercial or B2B credit; the same concepts apply to B2C or consumer credit.


However, a major difference between extending credit to consumers and to businesses is
that there are many more consumers than there are businesses. And while, almost across
the board, consumer customer service levels  continue to hit all time lows; companies can
and will stop buying from a supplier/vendor who abuses them, who drives up their cost of
doing will the next generation of managers. Long after the memory of failure
fades the bitter taste
  lingers on. 



The only reason for a business to incur the additional costs that go with extending credit
to their customers is to get a profitable sale that would otherwise be lost.

If business customers have the ability and wiliness to pay up front extending credit should
not be considered. If they can cut a check with the order... grab it.

Credit is a lubricant of commerce and allows for the expanded movement of products and



Every business function can be broken down to its major components...every business

Understandable and thereby achievable goals can then be established for each
of the major components. Policies are goal driven guidelines.


The major components for the credit function are credit approval, past due A/R
management (
Not Collections) and internal communications.


If credit is extended  to get profitable sales that would otherwise be lost then it follows
that the goal of credit approval should be to find a way to say yes to profitable sales while
remaining confident of payment.


The vast majority of past due customers are not out to avoid payment. Past due A/R
Management is not collections, the enforcement of payment, it is the process of
completing the sale.

The goal of past due A/R Management is to keep customers current ...and buying.
The most profitable sales are often repeat sales to the same customers. 


In the course of approving new credit customers and in resolving the many things that
can and do go wrong in B2B commerce, the credit function interfaces with customers,
vendors, and with many different internal departments.

This places the credit function in an ideal position to identify and communicate areas
of opportunity for improvement
which in turn leads to the constant improvement of how
things are done.  And that leads to controlling the cost of doing business for everyone


People Requirements and Performance Measurements:

First and foremost the people carrying out the credit function must be able to
communicate. Before you ask for a resume ask for a ten minute  telephone interview.


Measure the performance of credit approval based on the % of applied for dollars
successfully approved...or even exceeded.

Measure the performance of past due  A/R Management based on % current to 30 days
past due..and remember this is a general guideline and there are always possibilities for
profitable exceptions.

Measure the performance of Internal Communications based on the number of improvements




Whatever we focus on and we give energy to,  grows.

Business executives who  continue to think of their credit function as a negative, as a cost center,
as a necessary evil and as the ugly step-child of  accounting so at their own risk. 


And they may hurry through lunch and miss out on the desert.

The Author

Abe WalkingBear Sanchez is an International Speaker / Trainer / Consultant on the subject of
cash flow / sales enhancement and business knowledge organization and use.  WalkingBear has
authored hundreds of business articles, has worked with numerous companies in a wide range
of industries since 1982 and has spoken at many venues including the Shakespeare Globe
Theater in London. A hard hitting and fast paced speaker, he brings life and energy to a critical
business function whose true potential has yet to be realized by most businesses.

Atradius, Irish Institute of Credit Management, ICM Mexico City, Export Development Canada, Vistage,
CU, CSU, Texas A&M, National Association of Credit Management - Midwest, HTDA, BCFM,
Poli Hi Solidur, Skinner Nurseries, Deardens, Rain Bird, STAFDA, IBM, University of Industrial
Distribution, are but a few of the groups, schools, companies and associations for whom
WalkingBear has conducted programs.

WalkingBear can be reached at
P.O. Box 457
Canon City, CO 81215
(719) 276-0595

Certified on the copyrighted B2B Profit System:

Luis Eduardo Perez Mata
Cimex Training

Declan Flood
Irish Institute of Credit Management