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Credit managers play a significant role in determining whether a business takes on a good or bad customer. A credit manager is an individual responsible for managing the credit extension function of a business or organisation and monitoring credit accounts on an ongoing basis.

The goal of a credit manager is primarily to ensure that the business is taking on a "good" credit risk (e.g. customers who pay their bills on time) and to minimise the risk of taking on a "bad" credit risk (e.g. customers who pay late or not at all).

In other words, they oversee the entire credit lifecycle of a customer, from beginning to end. But what does that really entail?

Determining the potential customer's risk

The first instance involving a credit manager is when a potential customer indicates their intention to purchase your products and services on credit.

Prior to actually extending the customer credit, the credit manager is required to gauge the risk of a customer through conducting a credit check. Obtained through a credit reporting agency, a credit report reveals significant information about a business, from confirming its existence to risk scoring measures that predict the likelihood a business will pay its bills late or become insolvent in the coming year. You can obtain a credit report here »

Getting a more complete picture of a potential customer's financial history and situation allows the credit manager to make appropriate decisions on whether to extend them credit.

Also read: my credit extension checklist and the 4 C's of credit management.

Determining your own risk

On the flipside, it's also important for the credit manager to establish the business' own credit risk appetite - basically, finding out how much credit your business can afford to provide and how much you can afford to lose. Read more on determining your level of risk here.

Providing a credit contract

Once you have the appropriate information before you, it's time to make a decision on whether to provide products and services to the customer on credit. If the credit manager decides the customer is a good risk, ensure he/she puts together a credit contract for your customer to sign. It should state your credit limit, terms, type of credit extended, payment plans and consequences of late/non-payment (all of which should already be agreed internally). Ensure you have a signed copy for your own records and that your customer understands their credit obligations.

If the credit manager decides they are a bad credit risk and it's not worth the sale to take them on as a customer, you also need to communicate this clearly and professionally.

Part 2 of this article will discuss the remaining steps involved in the credit management process - monitoring customer accounts and what to do if customers don't pay.

 

This article has been republished with the permission of Dun and Bradstreet