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.
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