A Hidden Profit Centre
An
insight especially for Chief Executives & Finance Directors
By
Declan Flood FIICM, Chief Executive Irish Institute of Credit
Management
What if
someone could reveal for you
a hidden profit centre within your own business?
Would you be interested?
What if I
told you that you have
such a profit centre under your nose all along? A profit centre so
potent it
has
the power to improve your customer acquisition and retention
exponentially.
A profit
centre that will ensure
your customers remain loyal and buying.
A profit
centre that has the power
of not only reducing your own cost of doing business but reducing your
customer's cost of doing business as well.
There is one
function within your
business that can ensure all the other functions are aligned, customer
focused
and profit focused as well.
All you need
to unleash this power
is some new thinking, a little training for your managers and staff and
a new
scorecard to measure the success of your business.
It will
probably shock you at the
start but it will make sense as you read on to learn that the function
is –
your
credit management function.
Do you know:
Your
Credit people spend more time in contact with your customers than your
salespeople.
Your
Credit people know every single problem that exists in every part of
your
business – and how to fix it.
Your
credit people can be your spearhead for customer excellence
Before
you stop reading and walk away please answer the following questions:
How
do you measure the success of your Credit Department?
Do
you take a personal interest in what is happening day to day?
Who
does your Credit Manager/ Credit Controller report to?
How
many customer queries are dealt with every week?
How
long does it take to open a new account?
Do
we apply credit limits to our customers?
How
many orders are held for credit every week?
If
you don’t know the answers to these questions find out before you read
any
further.
Measuring
Success
If you are
using DSO (days sales
outstanding) or % overdue or % bad debts – or some other variation of
this
method – you are at risk missing the point completely. If I am your
Credit
Manager and you measure my
success by DSO alone – anyone looking for extended terms will be
refused and
you run the risk of loosing a
very profitable sale.
If you
measure my success on what
bad debts we write off I will take a very conservative view when
granting
credit and very liberal when placing customers on credit stop which will
affect the overall business.
Personal
Interest
Ask your
credit people "have
you ever phoned a customer about their overdue account?" and wait for
the
response. If they say they have you will know they really need training
– I’ll
tell you why –
If they
phone a customer about their
overdue account
they are
creating a conflict –
they are
telling a customer –
"you have done something wrong",
they are
focusing on an event that
is in the past that neither your credit controller or the customer can
do anything about.
they are
focusing on the negative
they are
focusing on the wrong thing
they should
not be phoning the
customer about their overdue account
they should
be phoning to catch up
with their friends in your customers' payables department and to
determine
when payment will be made..
This change
alone will improve
results measurably.
Reporting
Line
The
traditional view is to have
Credit reporting into Finance – where at best it is an uneasy fit.
Credit is
about
accounts and numbers – but more that that it is about customers.
The purpose
of your credit function
should be to complete the sale and to keep customers current and
buying.
The only reason you should give credit is to enable you sell more.
It
would be better to your
business to have your Credit function as part of sales.
Customer
Queries
There are
probably more things going
wrong somewhere than you think, and probably more than your staff
will first admit.
Each
query represents a
dissatisfied customer and if you don’t take urgent action to resolve
these
issues the
minute they become known …. Well you know the saying – if you don’t
look after
your customer – someone
else will.
New Accounts
Opening new
accounts must be the top
priority of your credit department. Your account application form must
ask the right questions – otherwise you won’t get the right answers.
The time it
takes to open an account
from the time the customer fills in the form should be measured in
minutes
– not days.
The goal
should be find a method for
approving profitable sales and for increasing the amount for
which the
customer applied .
Limits
You do. How
good is that – the very
first thing you do when a new customer comes along is you limit what
they can buy from you! Remove this, and all other negative words from
your
business – offer them a line of
credit which can be expanded.
Held Orders
Watch out –
if this is a feature of
your business you run the risk of really annoying your customers. It
also
represents a failure and a breakdown in the relationship between your
Credit
department and your customer
– a relationship that is essential if your business is to survive and
prosper.
In conclusion
Your credit
people should be as
important to your overall business as your sales people.
In the
same way your sales
people are competing for orders your credit people are competing for
your
customer’s attention and money – they need to be trained and their
communications skills sharpened.
Author:
Declan Flood
FIICM, Chief Executive
of Irish Institute of Credit Management and Irish Credit Management
Training - is recognised as a visionary in the Credit Management field
and a
renowned advocate of the power
of a positive outlook on everything. A renowned trainer, Declan Flood
is
certified on the copyrighted Profit
System of B2B Credit Management http://www.armg-usa.com
He can
be contacted in the
office in 121 Lr Baggot
Street.
Tel + 353 (0) 1 6599 466. Fax: + 353 (1) 659 9401.
Email Declan@iicm.ie
Copyright
2007, Irish Institute of
Credit Management, All Rights Reserved. Feel free to use this article in your
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