Credit Managers are expected to be hardnosed, stick with company policy to the letter, and focus on the numbers in dealings with customers, right? Not entirely. Working with customers having difficulty in an economic downturn, understanding their needs, and employing some empathy is simply good business.
As a credit manager, you certainly have a fiduciary responsibility. You are pressured internally to keep collections up and to manage risks. You are also expected to make good business decisions that are in the best interest of your company. Unlike accountants, our results don't tick, tack, and toe. We often work in a gray area of business. We are also ambassadors of our company, charged with making business judgments and decisions, that are sometimes based on factors other than the numbers. When reviewing a delinquent customer, we should have an eye on the longer-term relationship potential and the advantages it can bring to both parties.
This is a time when customers who have had good payment records and relations with our company in the past, may have the legitimate cash flow or borrowing issues. Liquidity issues may force them to turn to their suppliers for help. Without some flexibility from suppliers, a customer in this position is likely to fail and everyone loses.
Credit Managers have two primary concerns when a customer with financial problems asks for some form of payment accommodation. Will they end up paying my company on some basis over time? Alternatively, is it likely the customer will not survive, and my company will never be paid? Our reaction should be based on an evaluation of which of these scenarios is most likely.
When a customer comes to you for help, do your best to understand what is driving their issues. Ask for complete transparency. If the issues are seemingly temporary, look for ways to work with the customer. We, credit managers, are in a unique position to advise and help. For example, if your customer is experiencing collection issues of their own, maybe you can help them improve their own collection efforts. You can advise them on how to mitigate their own risks through guarantees or collateral.
Consider ways to work with customers having temporary cash flow issues. Set up a payment plan for past due balances that commits them to a payment stream, with terms enabling them to stay afloat until the business gets back to a more normal state. You can do this and protect your company by requiring a Promissory Note with set dates for repayment over time. This can be secured with a UCC filing, a Purchase Money Security Interest (PMSI) for example. You can ask for a Personal, or some other form of Guarantee. You can continue to ship products or provide services, requiring new invoices to be paid according to the agreed terms.
This is a time for some empathy in our business decisions. Help otherwise good customers having temporary cash flow issues. Become the go-to advisor, working with them through this difficult time. Consider the customer's potential for a long-term relationship, continued payments, and revenue opportunities for your company, as opposed to focusing on their short-term problems as an unsurmountable risk.
When things get back to normal, your customer will remember those who helped them through this. The suppliers who focused on the long-term business relationship opportunity will stand out leaving a lasting perception of your company as a valued supplier. Your Salespeople and senior management will appreciate your contribution as well. That is simply good business.
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