Too many companies still view Credit Management as the place where sales go to die, the ugly step-child of accounting, a cost center, a negative, and a necessary evil whose main function in life is the avoidance of risk ....at the expense of enhanced profitability, say Abe WalkingBear Sanchez and Simon Groves in their article, "Achieve Great DSO and Bad Debt Numbers...But You May Well Be Sorry."
To understand why DSO and bad debt % are the wrong KPIs or performance measurements for the credit function, you must define the "Purpose" of credit. To do this you must consider the investment made, additional administrative costs, the time value cost of carrying customers, and the cost of bad debt and then ask 'Why the investment is made, the costs incurred.’
Sanchez and Groves maintain that at its best potential profit use, Credit Management is a Sales Support function. If DSO and % bad debt define your credit reality you are in effect cutting off your profit nose to spite your business face, and in so doing you are creating a lot of unnecessary pain to yourself, to your suppliers and to your customers.
They assert that the goal of credit approval should be to maximize profitable sales while remaining confident of payment. Click to read the full article on how a savvy business manager should be managing the largest and most liquid of assets, the A/R.
An International speaker and trainer, Abe WalkingBear Sanchez is A founding member of PCCG, an international group based on the Profit System, and has authored hundreds of business articles, is the author of Profit Centered Credit and Collections 1999, and co-author of the new international book, The Best Kept Profit Secret: The Executive's Guide to Transforming a Cost Center 2009. WalkingBear is also a columnist for Progressive Distribution magazine.
Simon Groves is the Experiential Marketing Manager for Atradius, the leading global credit management company. He’s spoken on business issues at several international conferences, including the 2009 World Credit Congress in Dublin, at the European Parliament in Brussels, and on CNN Global Business News.