1 / 23

“Beyond the Fundamentals: Anatomy of The Perfect Credit Department”

“Beyond the Fundamentals: Anatomy of The Perfect Credit Department”. ICTF April 7, 2014. Pamela Krank President The Credit Department Inc. (TCD) Pkrank@tcd.com. Agenda. Characteristics of “Perfect” Credit Departments Efficiencies vs Effectiveness

johnibrown
Download Presentation

“Beyond the Fundamentals: Anatomy of The Perfect Credit Department”

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. “Beyond the Fundamentals: Anatomy of The Perfect Credit Department” ICTF April 7, 2014 Pamela Krank President The Credit Department Inc. (TCD) Pkrank@tcd.com

  2. Agenda • Characteristics of “Perfect” Credit Departments • Efficiencies vs Effectiveness • Process/Technology/Resource Maximization • Strategies for Moving toward Perfection: • AR Valuation • Bad debt Analysis

  3. The Credit Department, Inc (TCD) Background • Manage global trade credit for 52 mid-market companies all over the world • 70,000+ bill-to customers • 150,000+ open invoices daily • Consulted in nearly 500 global companies’ Credit Departments

  4. “A Perfect Credit Department”

  5. A Generalization: Smaller vs Larger Credit Departments • Smaller Credit Departments (less than 10 members) tend to be more efficient and less effective • Larger Credit Departments (10+ members) are usually more effective but less efficient

  6. Top Consulting Observations on Credit Departments • Insufficient focus on managing top risks • High cost per credit analysis, collection account, deduction management • Work arbitrarily assigned • No retrospection on missed opportunities • Write-offs common practice • Poor/incomplete use of internal data • Lack of sophisticated tools/technologies • Inconsistent decision-making • Policies/procedures not followed/enforced

  7. How do we get our Credit Departments more effective while meeting our CFO’s lower cost goals?

  8. Profile of Perfect/Ideal Credit Departments • One Standard Process flow • Credit Scorecards Utilized • Credit Committee Formed • Maximize Automation/Paperless • Department of Specialists • Best-in-Class results • Efficient cost structure • No surprises

  9. Process Flow • Credit Policy directs each process • Only those who add value are a part of the process. • Credit resources are defined by impact of risk on the receivables portfolio • Collection activity is driven by default risk and cash flow priorities • Value in diagramming processes

  10. Credit Scorecards Basic score/SMALL LINES • Yes/no Standard score/MEDIUM LINES • <$250k Comprehensive score • >$250k WITH FINANCIALS

  11. Credit Committees • Representatives from Credit, Finance, Sales, Marketing, Executive • Build consensus on credit policy and updates • Meet regularly to deal with sales forecasts vs existing credit limitations • Deal with inter-company process issues • Create a path for approving lines beyond credit recommendations aka, business decisions.

  12. Technology Expectations • Automate routine processes (letters, scheduling, statements, small lines) • Allow the system to determine daily work queues, not individuals • Expect analysts to spend time working risks alerted by the system • Code every past due item with status, review dates • Focus is on reporting risks and customer information to top management

  13. Staff Resource Utilization

  14. Lack of upper management support Existing team members unable to identify process change needs/implement scorecards Insufficient budget for technology Change reluctance by employees Limited resources Obstacles to a “Perfect” Credit Department

  15. “No Surprise” Reporting Example

  16. No Surprise Tool: Valuation of the Receivable Asset • Assign risk probability to every credit customer • Compare probability of default to exposure • Assign statuses to every past due item with historical probability • Calculate the risk

  17. Existing Exposure ExampleBased on Risk Probability Total Aging: $16,610,000: Customer A/R Totals in these categories from scorecards: • Very high VH (20%+): $500,000 • High H (10%+): $760,000 • Medium high MH (5-10%): $1,250,000

  18. A/R Asset ValuationRisk of Credit Default • Very high VH (20%+): $500,000 * .20 = $100,000 • High H (10%+): $760,000 * .10 = $76,000 • Medium high MH (5-10%): $1,250,000 *.05 = $62,500 Total reserve (part 1) based on Customer Risk of default in Credit process: $238,500 Value so far: $16,610,000-$238,500 =$16,371,500

  19. Delinquent Account Status Reserve Example Total Probable Status Bad debt =$469,700

  20. A/R Total Valuation Report Example • $16,610,000 gross value • ($238,500) Default Risk Probability • ($469,700) Account Status Default probability Total Net Value of the Asset: $15,901,800

  21. Bad debt Analysis Example

  22. Conclusion • Perfect Credit Departments are both effective and efficient • We need to ensure our process, technology, and people resources match the needs of the asset • There are changes and enhancements we can all make to strive toward perfection in Credit. • Surprises ruin perfection….our job is to prevent them from happening

  23. Thank you! Pam Krank The Credit Department Inc (TCD) pkrank@tcd.com 800-451-0164 X 203 www.tcd.com

More Related