Credit Management in larger organisations runs the risk of becoming overcomplicated and failing to add value.
De-cluttering is a big thing and is widely accepted that living with fewer possessions makes for a simpler and happier life, less things to worry about, like the loft of your house collapsing into the bedrooms upstairs. 'Things' become more important and we believe that the more things we have the happier we will be...
Complexity has become a disease and this is very true of large organisations, the larger they get the more complex they become and the less they are understood by management and the teams managing the processes. One of the contributory factors in Carillion’s collapse was the complexity of the organisation. Growing by acquisition, the company failed to rationalise and integrate newly bought businesses into the group so they continued to be managed separately, this lack of integration and single company strategy drove complexity into the supply chain which, in the end, nobody truly understood.
Add this to the increasingly complex suite of products, huge capital projects with long clause ridden contracts, multiple unconnected services and you had a complicated business delivering into a complex market. A recipe for increased costs, inefficiencies and poor working capital management. Whilst the complex market is the same for all of the players, a complicated business is to a large degree self-inflicted.
This is true of many large international organisations which, as they grow, get more complicated and making things more complicated is seen by some as ‘adding value’. A great example of this was when a client asked me, after I had been working in their organisation for 3 months, what I thought. So I took him into the corridor and pointed out a poster about energy saving. The poster said ‘Turning off the lights in the building saves enough to electricity to make 1000 cups of coffee’. But then under the photograph of the 1000 cups of coffee, the poster then went on to prove this fact by setting out a 4 line formula which included all of the variables including lighting wattage, volume of water, heat, time, voltage etc. which ended with ‘…=1000 cups’. The client understood immediately, a simple message ‘Please switch off the lights’ above the switch had become very complicated and the person who calculated the formula obviously thought that they were adding value.
Process improvement is always about stopping doing stuff, taking out the steps that are not necessary, streamlining, like a car, the more it is streamlined the less drag it creates and so has a lower running cost…simple or so you would think. Process improvement starts with a ‘process improvement process’ and these too have become complicated with stages and diagrams, gates, qualification levels, etc. People have to learn the new process improvement process to then start improving their own processes. I have lost count of the number of new methodologies that have come out since I started working for big companies…in fact the first big company I joined was in 1990 and they sent me on a 3 day ‘Quality Action Team’ training programme during my first week of starting! Even the methods of simplification are now complicated, in many cases only adding value to the bottom line of the consultants who devise them.
Credit management is caught up in this cycle in large companies, as organisations outsource and offshore with many losing the local knowledge, skill sets and experience for more generic process driven activities with more hand-offs and reporting lines and service level agreements, the results of many of these programmes are not always what is expected or desired. I have had a couple of experiences with large SSC-driven credit teams recently, when asked what collections strategies they had to chase customers for payment they struggled, not with the answer but with the question, there seemed to be an expectation that ‘…the system does that’.
Larger organisations are in danger of losing sight of what is important, the experience of a professional credit team, the relationships built within organisations for the benefit of the customers, I am all for service level agreements between functions but these should not replace the cross-department conversations and simple uncomplicated processes to manage customers accounts and the fewer SLAs the better.
Some of the large CICMQ organisations have mastered the art of simplicity and as part of the CICMQ Workshop Approach we assist the teams in converting ‘finance and credit speak’ into things that the rest of the organisation can understand. From the 50 or so organisations here are a 3 great examples of the ‘Art of Simplicity’.
Credit Policy – lets be honest this is not exactly a riveting read and whilst, an important document, this is certainly NOT something that your average sales person is going to read. The worst (for worst read longest) was 125 pages. Granted it was a large heavily regulated utility company, but nobody was going to read this. So to make this more engaging the organisation developed ‘The Policy Wheel’ a portal in their intranet with the hub being their policy document and at the end of the spokes key links to payment terms, risk categories, collections processes. There were about 8 spokes so people could access for the first time the bit they wanted without trawling through the whole document.
A simpler way still is to create a ‘PoaP’ a policy on a page, key elements that everyone in the organisation should know on one page. Copies of this should then be given out at every sales, customer services meeting or finance meeting there are some great ‘infographic’ examples out there… and no need to digest the 125 pages!
Dashboards – When Sales and Credit are doing well their graphs go in opposite directions. This may seem ridiculous but when presenting to the business this needs to be explained. I recommended to one organisation to put arrows on the graphs to show that when the DSO came down this was a good thing… the feedback from the meeting was that it was the first finance presentation that the non-finance people understood… as I said it may sound crazy but don’t take it for granted that non-credit professionals understand what you are presenting. Also who really needs more than 5 key performance indicators? Remember it is a dashboard not the cockpit of the space shuttle!
The Credit Directory – Do the people in your company truly understand what you do and the scale of your activities? Probably not! One CICMQ organisation a few years ago created a ‘Credit Directory’. In the foreword it explained the amount of cash the credit team collected, number of calls made and received, number of payments allocated, collection letters sent, credit decisions made value of debt etc. It then went on to describe the role and key objective of each team member, with a photograph and their contact details. This directory was sent to all parts of the organisation and held on their intranet. This is now a ‘CICMQ Best Practice’ example document which had been shared with many other large credit teams.
Part of our role as credit managers is to assist the organisation in understanding the importance of good cash management and what part each role in the organisation can play and the impact that their decisions have in managing working capital. Making this simple to understand is critical, as one divisional sales manager said to me recently ‘If it has to be explained then forget it I am just too busy,’ he went on to say ‘DSO and working capital management to my people is seen as voodoo.’
So what can we do?
We have to de-mystify credit management take out the complexity and the jargon, as credit professionals we may love and understand the credit policy but outside credit, and a few select finance, regulatory and compliance people, we have to assume nobody cares. If you use this as your starting point, and start communicating with this in mind, then you may find people will begin to be interested and understand what value you and your team bring to the organisation. Simplicity is the key and the old ‘back to basics’ approach is always the best place to start, by simplifying and demystifying what we do as credit professionals, like the streamlined car, it creates less resistance. We are competing against a huge array of demands on people’s time and energy, by making what we do as simple as possible, we can assist our organisations in becoming more ‘credit aware’.
My thanks to the CICMQ Best Practice Accredited organisations whose examples I used, you will know who you are, and to the other members of the Chartered Institute of Credit Management’s Best Practice Network who drive for continuous improvement and share their knowledge and experience with the network.
Sources & Acknowledgements:
The Chartered Institute of Credit Management’s Best Practice Network, Clients of CICM and Kinetic Consulting.