Innovation in the managing of credit
The year 2008 was characterised by the record rise in oil price and the credit crunch. These had a negative effect on demand and consequentially on employment worldwide. To smooth down this economic turmoil, governments and central banks intervened by...
The year 2008 was characterised by the record rise in oil price and the credit crunch. These had a negative effect on demand and consequentially on employment worldwide. To smooth down this economic turmoil, governments and central banks intervened by taking fiscal and economic measures in order to increase demand and instigate back the much needed "feel good" factor in the world economy.
But the economy does not consist of the government alone. The private sector has its stake, which is critical in such an economic scenario. As the central banks reduced their interest rates to encourage more spending, so can the private companies use their marketing tools to increase sales in a profitable manner.
Credit is one of the most effective marketing tools to boost sales. Credit oils the wheel to keep it turning. It can be used to differentiate the product or the service in the market. However, credit does not come for free. It costs money and carries an element of risk. Therefore, to exploit credit in a profitable manner, companies have to strike a balance between the use of credit as a marketing tool and the credit cost and risks. This balance can only be struck by means of creative and innovative strategic planning.
For profitability purposes, credit should be considered as a long-term investment in the client. If it is wisely used, credit can build enduring customer relationship and sustain loyalty which is much needed in today's competitive commerce, where demand is shrinking fast. Proper strategic planning is however required. When planning to use credit as a marketing tool, a number of strategic issues should be taken into account:
The expectations and the needs of customers should be the fulcrum throughout the planning process, and this may well be the first innovation - to introduce the concept of customer-focusing within the credit department. A buyer is not only the customer of the sales department but the customer of the whole organisation, including the credit department.
Team work is another important factor. Synergy between the sales and the credit departments is essential in these days more than ever before. Pertinent credit information, pertaining to the existing and potential customers, should flow without barriers between the two business functions. The reason for this is twofold - to base credit decisions on factual information coming from the horse's mouth; and to make sure that these credit decisions are understood and supported by all the stakeholders in order to minimise internal conflicts. This may require changes in the organisation structure, modus operandi and company's culture. Introducing the concept of "internal customers" within the organisation may help to improve the internal communication system, as this aims to satisfy the requirements and expectations of the employees from both departments. Thus, improve the operational efficiency and the service quality provided to customers.
Companies, irrespective of their size and industry, cannot do without an effective credit management information system. Segmenting and targeting the prospective clients is an important marketing task and this exercise should take into account the profitability aspect of the prospective client base. Customers differ in many ways and what applies to one client may not be valid to another. A sale on credit may be profitable just after the first transaction, whereas another may only be profitable in the longer term. Therefore, flexible credit limits and terms are necessary. The credit management system should also help the creditor to monitor its debtors on an ongoing process. It should be a tool with which credit decision can be taken promptly. Thus helping the company to gain competitive advantage.
Onsite visiting is not a waste of time but investment in the long-term customer relationship. Telephone calls and e-mails may be ineffective if the customers do not know the person on the other end of the line. It should pay dividends to spend time visiting customers together with the sales representatives, especially when the industry is characterised by repeat sales or the industry norm pays late.
To be successful, creativity and innovation should be professionally managed. Successful innovation requires the right mix of skills and competencies. Training may be required to change the internal culture of the organisation in order to appreciate the need to focus on the customers' expectations, to build efficient teams, to develop and employ an effective and efficient credit management information system, and to take proactive and competitive credit decisions.
Pertinent information sharing is critical and fundamental for the purpose of profitable credit sales, as it helps to improve internal communication, build efficient and effective team members, and encourage participation and involvement.
Innovating the credit procedure and systems require full comprehensibility of the market; the customers' needs; the credit terms and limits trends offered by the competitors; and the technological developments which are required for information sharing between the sales and the credit departments. Research is key.
Senior management should support innovation relating to the credit management systems, as it motivates employees to adopt new processes and procedures with less resistance to change; as well as adequate resources need to be allocated.
Innovating the management of credit should be supported by efficient systems, which include internal communication, supportive organisation structure, and effective processes.
Recognition by means of rewarding employees helps to generate ideas and to motivate employees to contribute with their feedback and to support the required processes and management decisions.
The credit crunch started off due to irresponsible lending or credit granting but today's complex economic situation can recover with some good credit practice initiatives that would trigger demand in the world economy - of course in a profitable manner!
Mr Busuttil is Director General of the Malta Association of Credit Management.
jbusuttil@macm.org.mt, http://www.macm.org.mt
But the economy does not consist of the government alone. The private sector has its stake, which is critical in such an economic scenario. As the central banks reduced their interest rates to encourage more spending, so can the private companies use their marketing tools to increase sales in a profitable manner.
Credit is one of the most effective marketing tools to boost sales. Credit oils the wheel to keep it turning. It can be used to differentiate the product or the service in the market. However, credit does not come for free. It costs money and carries an element of risk. Therefore, to exploit credit in a profitable manner, companies have to strike a balance between the use of credit as a marketing tool and the credit cost and risks. This balance can only be struck by means of creative and innovative strategic planning.
For profitability purposes, credit should be considered as a long-term investment in the client. If it is wisely used, credit can build enduring customer relationship and sustain loyalty which is much needed in today's competitive commerce, where demand is shrinking fast. Proper strategic planning is however required. When planning to use credit as a marketing tool, a number of strategic issues should be taken into account:
The expectations and the needs of customers should be the fulcrum throughout the planning process, and this may well be the first innovation - to introduce the concept of customer-focusing within the credit department. A buyer is not only the customer of the sales department but the customer of the whole organisation, including the credit department.
Team work is another important factor. Synergy between the sales and the credit departments is essential in these days more than ever before. Pertinent credit information, pertaining to the existing and potential customers, should flow without barriers between the two business functions. The reason for this is twofold - to base credit decisions on factual information coming from the horse's mouth; and to make sure that these credit decisions are understood and supported by all the stakeholders in order to minimise internal conflicts. This may require changes in the organisation structure, modus operandi and company's culture. Introducing the concept of "internal customers" within the organisation may help to improve the internal communication system, as this aims to satisfy the requirements and expectations of the employees from both departments. Thus, improve the operational efficiency and the service quality provided to customers.
Companies, irrespective of their size and industry, cannot do without an effective credit management information system. Segmenting and targeting the prospective clients is an important marketing task and this exercise should take into account the profitability aspect of the prospective client base. Customers differ in many ways and what applies to one client may not be valid to another. A sale on credit may be profitable just after the first transaction, whereas another may only be profitable in the longer term. Therefore, flexible credit limits and terms are necessary. The credit management system should also help the creditor to monitor its debtors on an ongoing process. It should be a tool with which credit decision can be taken promptly. Thus helping the company to gain competitive advantage.
Onsite visiting is not a waste of time but investment in the long-term customer relationship. Telephone calls and e-mails may be ineffective if the customers do not know the person on the other end of the line. It should pay dividends to spend time visiting customers together with the sales representatives, especially when the industry is characterised by repeat sales or the industry norm pays late.
To be successful, creativity and innovation should be professionally managed. Successful innovation requires the right mix of skills and competencies. Training may be required to change the internal culture of the organisation in order to appreciate the need to focus on the customers' expectations, to build efficient teams, to develop and employ an effective and efficient credit management information system, and to take proactive and competitive credit decisions.
Pertinent information sharing is critical and fundamental for the purpose of profitable credit sales, as it helps to improve internal communication, build efficient and effective team members, and encourage participation and involvement.
Innovating the credit procedure and systems require full comprehensibility of the market; the customers' needs; the credit terms and limits trends offered by the competitors; and the technological developments which are required for information sharing between the sales and the credit departments. Research is key.
Senior management should support innovation relating to the credit management systems, as it motivates employees to adopt new processes and procedures with less resistance to change; as well as adequate resources need to be allocated.
Innovating the management of credit should be supported by efficient systems, which include internal communication, supportive organisation structure, and effective processes.
Recognition by means of rewarding employees helps to generate ideas and to motivate employees to contribute with their feedback and to support the required processes and management decisions.
The credit crunch started off due to irresponsible lending or credit granting but today's complex economic situation can recover with some good credit practice initiatives that would trigger demand in the world economy - of course in a profitable manner!
Mr Busuttil is Director General of the Malta Association of Credit Management.
jbusuttil@macm.org.mt, http://www.macm.org.mt