The 'F' Word in the Credit Department:
by Kym Price

Flexibility

Can a credit department be flexible and still run effectively? I believe the answer is you must be flexible to be effective. However, I find that some credit personnel are uncomfortable with the use [or misuse] of the 'F' word. For example, the sales department may insist credit needs to be more flexible - usually when we are evaluating an applicant that is dangerously unqualified for open account terms. We have customers stating that we are rigid, uncaring, and inflexible. Some of us face ill-defined challenges from our own managers to be more flexible - as long as that additional flexibility does not result in any unfortunate problems such as uncollectable balances or serious payment delinquencies.

How can we be flexible when the very nature of our work is to monitor and manage risk - and to be firm when situations / opportunities present themselves which we consider unacceptable risks. The bottom line seems to be this: We are not properly managing the accounts receivable we are responsible for if we are also required to be flexible in the credit decisions making process.

We need to learn how to separate "feelings" from "business decisions". Credit professionals at every level need to understand the "ebb and flow" of the company and economy. There will be times when sales are vital and the credit department must be more flexible to allow sales growth. That is largely a business decision. If senior management overrides a credit decision, accept it and release the order immediately because that is the company's business decision. It is fair to say that the credit department must pick its battles if it wants to 'win the war.' Of course, business is often cyclical and after the famine often come the feast. Therefore, credit professionals must be ready to tighten the reigns again quickly as business conditions change. There is a time for both.

Flexibility involves a willingness to give and take. We do not want the credit function to be viewed as rigid, dogmatic and unapproachable. We want our co-workers to feel that we will listen to their points of view. We may not always agree, but we need to provide the environment for free and open communication - where dialogue and disagreement are encouraged rather than eliminated.

So it's OK to use the "F" word. Flexibility is one key to the success of the credit function. It is not the only key, and it may not be the most important - but credit department and credit managers that are rigid and inflexible are walking around with a bull's-eye on their backs. It is probably only a matter of time before someone takes aim at a credit department that demonstrates that is it out of touch with business reality and business necessity by failing to exercise the flexibility that most companies demand.