From Policy to Profit: The Value of Having an International Credit Policy and Procedures, by Eddy Sumar


Many believe that having a credit policy is very restrictive, while others say it is not needed because the world is constantly changing and it is difficult to keep up the pace. Yet a third group touts its value in a changing world. From these samplings of answers and beliefs, we can say that credit policies need to be put in the proper perspective and place.

What Policies and Procedures Are and Are Not

Policies and procedures are not a straightjacket. And if they are to be restrictive, it should be with a compelling reason and cause. In fact, they should act as a seat belt that can be expanded or contracted depending on the situation and circumstances. They should not be used as a platform to penalize and punish. They are not meant to be rigid, capricious and inflexible. Though they convey permanency, they are not permanent. Policies and procedures are set to facilitate, not debilitate, the business process. They are set to empower, not to enslave. Policies and procedures are dynamic and they should serve the company as well as the customer. They should be reviewed periodically to ensure that they reflect up-to-date requirements and the real business climate and environment.

When we look at credit policies and procedures from a wider perspective, we can clearly see that they serve an important purpose and a vital role in the health of the organization. They act as strategic guides that point to the direction and path that need to be followed. They spell the tactics that need to be employed, on a daily basis, to ensure control and compliance.

Policies and procedures should be used as guidelines and a platform to facilitate the company’s operations. They create a map that every member of the business enterprise can use to ensure the smooth handling of the tactical and day-to-day operations, as well as to gain insight into the strategic intent of Company. Policies and procedures, if conveyed properly to the sales team and the customer, could help all understand the why, why things happen in a certain fashion. Educating all stakeholders on the Company’s policies and procedures will ensure not only excellence in performance but will result in a more satisfied customer.

In short, policies and procedures are a NEED. Companies need them to safeguard their financial stability and prosperity.

The Five Cs

When a company constructs its policies and procedures, they need to build them on the Five C’s:

1. Compliance
2. Communication
3. Coaching
4. Consistency
5. Cashflow

Compliance: We live in a highly-regulated environment. And companies, both domestic and international, act and interact in this environment. Thus, they need to be aware and compliant with the demands and requirements that the environment presents. No company can afford to be found lacking and non-compliant. International Credit Managers perform strict due diligence on country and client. They ask their prospects and clients to fill out a credit application. They verify, inquire, investigate, obtain credit reports, perform non-financial and financial analysis, employ the AW Matrix, and they cross-check every C of credit before they make a credit-decision. In fact, credit decision makers must be well informed and up-to-date on every development in the environment.

Communication: Credit policies and procedures are a communication tool. Thus, they need to be clear, concise, relevant, and timely. They communicate the vision and mission of the organization and its departments. They are used to communicate with internal and external customers. They communicate goals, expectations, and KPIs. They explain processes and procedures step-by-step. In fact, credit decision makers should use their policies as a vehicle to communicate and build understanding, collaboration, and buy-ins.

Coaching: Because of the detailed nature of policies and procedures, credit professionals should use them as a coaching and training vehicle. They should use them as a tool for coaching and developing employees and clients. When used for coaching, they become easy to adopt and implement. Policies and procedures should be used as a vital component of training manuals and new hire orientation training. In fact, a credit policy and procedure manual should be a book that codifies the existing body of functional, technical, and experiential knowledge to preserve it and later transmit it when needed.

Consistency: A Credit policy, when shared with all stakeholders, pursued zealously, and followed closely should result in consistency and stability. A credit policy spells the path and the steps to be taken as well as provide the guides for well-informed decisions and common sense, intuitive decisions. When all follow the policy with common sense empowerment, then consistency will reign and goodwill will expand.

Cashflow: As the title of this article conveys, policies should lead to profit and expansion of profit. When a company follows its policy, and ensures compliance, it will protect itself from lawsuits and penalties. When a company follows its policy, and ensures that its communication is clear, concise, relevant and timely, then it can save time, efforts, and money in dealing with complaints and internal and external customer issues. When a company follows its policy, and uses it as a coaching tool, then it can save time and money in looking for new personnel and even new clients. Coaching helps training and retaining of employees and clients. When a company follows its policy, and ensures consistency, then it can save enormous amount of resources on reworks, defects, low morale, employee turn-over and loss of customers. And when a company follows its policy, and ensures it cashflow, it has indeed not only protected its profit, but actually realized it when cash was collected and deposited.

I know of a company that has a policy of reviewing its key accounts daily. Every member of the credit department as well as their sales team is daily involved in a debriefing on these key accounts. The consistent application of this policy helped the company reduce its bad debt account and expedite its collection results. Consistent application of policies and procedures PAYS!

In short, a credit policy is not a want or a desire, it is a need that can protect cashflow, realize profit, and create expansion.

Eddy A. Sumar is the President & Founder of ERS Consulting Services. He is a frequent contributor for CMA, and a longtime speaker and educator on international credit related issues. He will be speaking at the upcoming International Best Practices Forum meeting March 21. He can be reached at 909-481-9869 or ealberto@aol.com.

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