Fox Guarding The Hen House – Michael Dennis, CBF

Fox And The Hen House

I reported to the VP of Sales at one company for three months during a search for a new CFO.   I scheduled daily meetings with the VP Sales to discuss decisions pending.  During the first week, he listened patiently as I described the pros and cons of extending credit. We discussed options and alternatives.  About 90% of orders were approved for immediate release.

During the second week, the discussions became more abbreviated.  We stopped discussing options and alternatives.  The only information the VP Sales wanted was:
  • Who is the customer or applicant?
  • How much is pending?
  • How much does the account owe now?
  • How far past due is the A/R balance at this time.

During the second week, more than 95% of orders pending were approved.

By the end of the third week, I would appear at the door of office of the VP of Sales and hold up the credit files for review.  He would smile, make the sign of the cross in the air, and then wave me away with the back of his hand.  All orders were released without review, debate or discussion.

I have no idea if my experience is typical or atypical for a situation in which the credit department reported to Sales.  My suspicion is that my experience was close to the norm.  I think the same would apply if the Sales VP had override authority on credit decisions.

If I had the chance to do it over again, I would document my concerns in an email to the VP Sales and ask for his written approval to release the orders pending, but I admit it was fun reporting to Sales.  Why?  Because I had no stress about credit decisions that were so close it was almost a coin toss.

At the time, I also believed that since executive management knew the fox was in charge of the hen house that they were prepared for any problems this created. My philosophy became: “If you can’t fight ‘em, join ‘em.”

Michael Dennis, CBF

What would you have done differently?  I welcome your comments!

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

6 Replies to “Fox Guarding The Hen House – Michael Dennis, CBF”

  1. You are too funny Michael! Yes, I would have documented them in an email too. It’s a no brainer to say yes 100% of the time, that’s not the same as making profitable decisions. The only way some people learn anything different is to let them make mistakes, unfortunately some of them don’t learn until the mistakes become sizeable. Then your job is just to help them out of the pothole. In the meantime, keep the rest as clean as possible so the mistakes don’t wipe you out.

  2. I’ve been in numerous similar situations. My best defense against this is document, document, document.

    With your Sales VP, I would have first sent e-mails, copying my boss and his, asking when he could meet to go over the credit files, including an approximate number, and offer to set up a meeting in Outlook when we would both be available.

    Second, whenever a shipment went out on a new account, I would send another e-mail, advising that the shipment went, and asking if he would like them to continue going out, and by the way who is the sales contact there in case I have no luck with A/P, and what terms are they being sold under?

    Third, daily monitoring of the accounts would follow, to make sure that our new “best friends” were actually paying according to the terms of sale reported to me by Sales.

    My motto for this is, “Credit is a Sales tool, but a Finance function.” I’ve actually worked in Sales, and there is a strong element of “Make the sale, and worry about payment later.” By documenting everything that’s going on, you make sure that Credit doesn’t get thrown under the bus when and if things go bad.

  3. Did you really release every order no matter how high the risk? That doesn’t sound like something you would normally do!

    Why not push back and insist that (a) these decisions need to be discussed and (b) you need documentation that your temporary manager was approving the orders for release?

  4. Sales NEVER makes CREDIT decisions!! That should be the motto of every company whether big or small it’s the fastest road to ruin!!! They can ask but it does not mean they will receive. The sales side of a company should have confidence in the decision making process of the credit/finance department.

    Let alone the confideniality of the customers information which should remain available only for finance and the CEO of a company……

    You were placed in a bad situation and I’m sure you had to sit back and watch some bad decisions being made, which thank-goodness if you were only there 3 months you would not be the one responsible to collect.

  5. I agree that you were placed in a no-win situation. That said, and in response to your question: “What would you have done differently?” my answer is that I would have insisted that the VP of Sales sign off on the decisions he was authorizing. But as they say Hindsight is 20/20.

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