There are many myths about credit management. Some of
these myths are the creation of customers, order entry personnel, and
salespeople. Here are ten of the more common myths:
1. Myth: Sales and credit are in opposition in a "zero
sum game" meaning that if one wins, the other loses. Reality:
Sales and credit can work together to increase sales and profits while
moderating credit risk.
2. Myth: The larger the balance due, the more experienced
the collector should be. Reality: Routine collections can be handled
by a junior collector, meaning that more experienced credit personnel
can be assigned when situations require experience, maturity, common
sense and expertise.
3. Myth: An all-out collection effort will collect almost every delinquent
accounts. Reality: The time to manage risk is before orders are released -
after the order is released the cat is out of the bag.
4. Myth: Creditors should allow a grace period before
calling on a past due balance. Reality: Allowing a grace period simply
means that until a call is made the creditor will not know if or when
payment is forthcoming.
5. Myth: Asking for a financial statement always upsets
customers. Reality: Requesting an updated financial statement rarely
upsets customers. Privately held companies may decide not to share
the requested information, but requesting financial statements on accounts
identified as high risk should be part of the normal risk management
6. Myth: It is never a good idea to involve salespeople
in the collection process. Reality: Salespeople should not be allowed
to negotiate payment plans, but salespeople can be used effectively
to bring additional pressure to bear on the customer through the purchasing
7. Myth: All collection agencies are created equal. Reality:
Collection fees and services and overall effectively varies widely.
Some collection agencies only write letters. Others only contact customers
by phone. Some agencies arrange for a collector to visit the debtor
in person. The method of collection and the professionalism of the
agency impacts on the collection results.
8. Myth: Credit managers should not force debtors into
involuntary bankruptcy. Reality: Experience credit managers don't limit
their options. If the likely recovery would be higher in a bankruptcy,
then bankruptcy is a viable option.
9. Myth: Export credit sales are more trouble [and more
risk] than they are worth. Reality: For many companies, international
or export sales is an area of great potential. There are tools and
techniques that credit professionals can use to moderate and mitigate
some of the unique risks associated with doing business with a foreign
customer on anything other than cash in advance terms.
10. Myth: Credit management is an art, not a science.
Reality: It is both art and science, and it is neither. Most of the
basic skills can be mastered by anyone. However, more sophisticated
risk management and negotiation skills are more of an art than a science.