How much ‘Control’ do you really have?

 

It’s quite pleasant in a way to sit on the periphery of cash collection and look inward at those tasked with the job in recent years.

Automation and digitalisation is not new and one could be forgiven for reading article after article expanding on the benefits to be had in cash collection, eradicating the manual processes that took up one’s time and thinking this was nirvana, a sure fire guarantee of success in managing cash.

It isn’t of course.

It helps, and I know this from first-hand experience automating processes as far back as the mid 1990’s but ultimately, it matters not a jot if you have all this automation to handle new accounts, credit line, payment terms, terms and conditions, order processing/release, risk monitoring, dunning letters, call reminders and dispute resolution unless you as a Credit Manager or your team have the sole approval to control all this.

If you don’t and have to accommodate infringements, ergo other people being allowed to dictate in each aspect of the order to cash process then you are unlikely to ever achieve optimised collection and will forever be chasing somebody else’s tail with inconsistent collection performance from one month to the next.

Credit Managers or senior people engaged in Credit need to ensure they work on the foundations of effective Credit Management and that means getting your Board Directors to recognise what you need to deliver the absolute best in terms of O2C performance. One can achieve this by working initially on a sound Credit Policy with clearly defined approval levels that prevents anyone else other than you directing this O2C orchestra.

It’s not always easy arriving at such a point but determination and ongoing results are frequently enough to pull you over the line. Recognition comes at a price, it’s not a free ride; It has to be worked at and fought for.

Businesses need consistency in cash turnover and they need to have confidence that as they grow this consistency will remain constant and in line with growth.

Nothing distresses me more than sitting in meetings hearing what I consider to be senior credit people talk of ‘others’ agreeing credit, order release  or extended terms, then saying their own KPI’s are DSO and Bad Debt based calculations. Set aside for a moment that these two measures are not adequate performance indicators, how can one possibly achieve the result when others control the ball and field of play?

The only two people who could conceivably over-ride Credit decisions in any approval matrix and Credit Policy should be the CEO or CFO and even then, with discussion and the agreement of the Head of Credit. This way, at least even those awful measures of DSO and bad debt could have some meaning.