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10 More Myths about Credit Management
By Michael C. Dennis, MBA, CBF

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 routine.

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 department.

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.

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