During the recent PGA tournament at the famed Pebble Beach course in California, the commentator interviewed the course owner. Despite its already lofty standing in world golf, the owner was quick to respond to the interviewer’s observation that the course still seemed to be getting better each time a tournament was hosted there. His response was that “unless it continues to change and improve, it will lose its relevance.”
I believe the same analogy can be applied to business, and not least credit management. Research and technology have provided new options for the Credit Manager looking to do things better and more efficiently. While there is still room for some of the tried and true procedures traditionally employed by the Credit Manager of old, it is important that new techniques and skills are acquired to deal with the ever changing credit landscape.
For example, there was an article in last month’s issue which focused on the continuing development of the Asian building market, and the need for merchants to adapt their selling techniques in this important sector to cater for the different cultural requirements.
The same could be said for the credit controller, who not only needs to understand more about dealing with different nationalities and possible cultural sensitivities when it comes to asking for money, but also needs to know where to gather the information needed to make an informed assessment on what is possibly a relatively new, or trade unknown, company.
It is no longer enough to rely on references which often can’t be authenticated, or word-of-mouth revelations exchanged between parties who may not even be certain of who the actual client is. This doesn’t just apply to the Asian or immigrant business community, but to any entity that has recently been formed, or has been in business for only a short time.
ASSESSING TRACK RECORDS
The bottom line is you want to know about the people behind the company, and in particular what companies they have been involved in before. Then you want to know the track record of those companies.
Similarly, a credit check which only divulges negative data on a company (i.e. judgments and defaults) is not much help anymore. Simply put, if a company is in financial difficulty, it is more likely that the aggrieved creditor, or creditors, rather than incur legal costs straight off the bat in proving the debt in Court, will go down the path of liquidation proceedings by initially issuing a Statutory Demand. It’s a much cheaper option (you can serve the Demand yourself for free!) and a very effective process to get the debtor company’s attention. However all of this is done “out of the public eye”, so to speak.
So, unfortunately for the Credit Manager who is considering providing this Company with a credit account, all this means they probably won’t be aware of any pending problems, nor the background issues that may relate to previous director associations, until it is potentially too late. And, if they have already advanced credit, how do they know when their existing exposure is potentially under threat of non-payment? They may be “robbing Peter to pay Paul” after all.
TECHNOLOGY OFFERS INSIGHTS
Which brings me back to my initial concern – a lack of in-depth knowledge on the subject of your attention.
Fortunately, in recent times, with the introduction of positive credit databases, nearly all of the aforementioned issues can be overcome. By accessing a database that cross-references directors’ existing and previous affiliations and associations, and one that also contains financial payment profiles and aging data on the Companies under scrutiny, you will have an insight into the integrity of the company and director before exposing yourself financially.
By having your existing customers monitored for changes in payment behaviour and being alerted to various events occurring in the marketplace, or at the Companies Office, as they happen, will give you a head start when it comes to recovering – or at least limiting – your debt levels, and potential losses.
With the level of transparency available, even the “good” customer who is just seeking “temporary” relief from a “minor” cash flow issue will be exposed if their issues in the wider marketplace are greater than they’re making out.
So, for the Credit Controller who doesn’t wish to “lose their relevance” maybe it’s time to consider utilising these technological advances? And, who knows, with the hard work being done for you, perhaps there will be more time to spend on your own Pebble Beach?
Alan Johnston is General Manager – Sales & Operations of CreditWorks Data Solutions and has been involved in credit management for over 35 years. In 2011 he was presented with the NZCFI Credit Professional of the Year Award, for his achievements within the credit industry. Email him at AlanJohnston@creditworks.co.nz or call him on 09 520 8133 to find out more.