In today's rough business environment, the need for working capital and liquidity is the key driver of success. Gone are the days of ready access to financing and smooth collection of accounts receivables. Suppliers are finding it increasingly difficult to manage cash receipts as a company's customers slow payments to conserve cash.
As we all know Accounts Receivable is a primary resource of cash for your company. The Credit Manager's challenge is to maintain the liquidity needed by driving swift AR turnover and reducing the risk of past dues and bad debts. This takes efficient and effective credit risk controls, and collections techniques and tools. Disputes by Customer and type, as well as the root cause of repetitive issues, need to be quickly identified and corrected. Companies that do these things well can shorten their overall cash conversion cycle, reduce the need for borrowing and bring a company the liquidity it needs to survive and thrive.
By assessing your Credit and Collections department's processes, staff, and tools you can take action to shorten the cash cycle. 
The following are 10 questions aimed at providing you with a relevant “checklist” to help manage through these challenges. Your responses will provide a road map to improvement areas, enabling you to take the steps necessary to implement needed changes.
How would you answer the following questions?
| A Credit Department Evaluation Checklist | ||
| How would you answer the following questions? | ||
| PASS | FAIL | COMPONENT BEING CHECKED |
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Are consistent credit, collection, deduction, and cash remittance administration practices and tools in place to maximize liquidity? |
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Does your credit policy align with your company's sales objectives and strategies? Many factors are at play when making credit decisions. No one size fits all. Consider things such as the profit margin, competition, sales and cash forecasts, marketing initiatives, or end-of-life products. |
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| What are the specific categories that make a credit unclaimed property? | ||
| Do you benchmark your company's performance with similar companies in your industry? | ||
| Do you monitor the ongoing creditworthiness of customers and align collection practices with risk? | ||
| Are controls in place to maintain an accurate Customer Master to ensure total account exposure can be tracked and controlled? | ||
| Are there systematic controls in place to ensure customers remain within expected payment terms and credit limits? | ||
| Do you identify order to cash process issues negatively impacting credit and collections and initiate improvement efforts? | ||
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Are there ready solutions to mitigate credit risk through various forms of guarantee, collateral security, or Promissory Notes for structured payment plans on past due balances? |
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| Do you identify order to cash process issues negatively impacting credit and collections and initiate improvement efforts? | ||
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Do you effectively partner with third party collection agencies, enabling limited staff to focus on more easily collectible high dollar balances? |
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Conclusion:
This is far from a comprehensive list for evaluating a Credit Department's effectiveness. That said, by considering these ten questions, you can quickly identify key areas needing improvement. By assessing your Credit and Collections department's processes, staff, and tools you can take action to shorten the cash cycle. This will increase internally generated liquidity, reducing the need for external financing and cost. When there is a need to borrow, lenders will consider a well-managed AR as a positive.
By having on-the-shelf alternative credit options you can increase revenue opportunities in line with company strategies and objectives. This can bring your company a competitive advantage in the market-place that is as valuable as a product on the shelf or a service offering. Who says the Credit Department is not a revenue center?
Here's a 15-minute video on strategies to improve your Time-to-Cash performance
