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Reducing Credit Department Errors
By Michael C. Dennis, MBA, CBF

Human error can contribute to, or it can result in bad debt losses. Many credit managers review each bad debt loss after the fact to try to determine what errors [if any] were made by the credit department, and when. This review is not intended to be punitive. Instead, it is a learning tool. The objectives of this type of "after incident" review include:

  • To determine the root cause of the loss.

  • To establish procedures to prevent recurrence of any operational or procedural errors found during the loss examination process.

  • To determine if additional training is necessary to prevent the problem from being repeated.

  • To ensure that the lines of communication between the credit manager and his or her staff remained open during the period under review.

  • To evaluate the risk management controls in place, and to determine if they are adequate and appropriate.

The most expensive types of mistakes are the ones that are repeated. Credit professionals can break the cycle by carefully evaluating every loss to determine what - if anything - could have been done to prevent or at least reduce the problem.

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