I Like Playing Texas Hold-Em. I Must Be A Credit Manager, by Guy Nishida

I Like Playing Texas Hold-Em.  I Must Be A Credit Manager
I Like Playing Texas Hold-Em. I Must Be A Credit Manager

I find many similarities between playing winning poker and being a successful Credit Manager.   I believe there are definitely transferable skills. Deciding whether or not to play a hand of cards is part gambling and part investing – – identical ingredients in deciding whether or not to extend credit.  Both require one to make decisions based on incomplete information.  You have not seen all the cards yet and you do not know the cards the other player holds.  In both cases you must make an educated guess and calculate the potential profit both in the short-term and the long-term against the risk.

You sometimes have hard information and sometimes you can glean facts and make suppositions based on your customer’s responses, attitude, posture – – his “tells.” “Tells” is poker jargon for spoken words as well as signs and mannerisms a player exhibits, intentionally to mislead or unconsciously because he is unaware his actions are reflexive of the stress level.  Criminal investigators seek “tells” to judge whether a suspect is lying or not.

During a poker hand, I look at my opponent’s eyes when he speaks.  Is he turning away, looking down, are his eyelids fluttering? Are veins in his neck pumping more visibly?  Is he relaxed or is his breathing shallow?  Is he feigning being relaxed?  Is he initiating what some players call self-soothing motions?  Often when a player is lying or nervous, he will rub his hands or face, wet his lips or make other movements to calm himself.  Is his delivery, inflection and tone identical when he is relating how his last golf outing went and later when affirming his ability to pay timely?  Are his actions consistent with the facts at hand?  Is he too defensive; too arrogant?  You may need to quickly shift gears and surprise a customer with a hardball question after some initial innocuous chit chat.  Does he suddenly become nervous and more deliberate in his response?

A credit manager should develop his own set of “tells” to measure the truth level of the conversations he holds with accounts.  In this regard, when experts encourage credit managers to visit customers on their home turf, it can be argued that you are not only looking for signs of distress or profitability by viewing the brick and mortar facility; you are seeking “tells” from the management, purchasing & accounting personnel thru their verbiage and mannerisms.  In poker you are not always simply playing your hand.  You are also playing the player.  In Credit you are not only viewing reports and references.  You are also measuring those responsible to pay you.

We often worry about whether our hand has “showdown value” and can beat a bluff or whether our opponent holds a stronger or weaker hand.  We wonder if the potential profit outweighs the possible value range of our opponent’s hand.  Instead of considering the real odds that our opponent has a hand that has us beat; we worry more that he does have this hand.  Because of this natural tendency, we often give up on our own strong cards.  In like manner, as Credit Managers we should focus as much on the strength of what we offer the customer and less on any perceived threat that the customer will go elsewhere or will cancel an order.  Assuming your company is offering a superior product at a competitive price, a fair credit limit and reasonable terms cannot be a deal-breaker.  When your customer has a history of tardy payments you should not consider your situation unique.  Most probably, he is paying your competitors in the same manner.  Any posturing to the contrary is not based on fact and is nothing more than a poker bluff.

As mentioned, you are playing against the opponent as much as you are calculating odds and ROI.  Because credit decisions are often equal parts art to science, we also judge the credit-worthiness of an account on the integrity and honesty of our contacts and not solely on the record of the company.  But you must judge them thru clear glasses.  Their credit rating cannot be increased simply because the salesman has gone golfing with the customer or because he attended their child’s birthday party.  Poker players often bet for a reason – – they want your money in the pot or they want you to release your hand because they are fearful you have them beat.  Likewise, sometimes a customer’s display of affluence and their liberal entertaining budget are innocent but other times they are investing time and money as a bluff to get the credit and cooperation they need but don’t deserve.

Like the betting pattern of an opponent in a poker game, you must ask yourself if the history and actions of the customer seeking credit are consistent with the story they created.  In the case of poker players, even when their betting pattern suggests they have a strong hand let it be known that they constantly lie.  Braggadocio is part of the game of poker.  Business customers often mimic this gaming tactic.  You must decide how often you can be wrong by “calling the bet” or “calling their bluff” and still keep your employer more profitable than he would have been had you not made the call.  And you must decide how often you will not extend credit thereby mucking” your hand – – possibly losing the sale because the risk is too great.  In poker we say that you must learn to “read” your opponent.

Poker players often make what is called a “feeler” bet.  They are attempting to gain insight into their opponent’s strength or weakness by their reaction to this bet.  It might be less than what they wish to bet but it is designed to be just enough to extract useful information.  In like manner Credit managers may not extend the full credit requested at the onset.  Credit managers often extend a token credit limit or make other compromises to accounts as a means of controlling the exposure while allowing the creditor to create a payment record with them.  The “feeler” credit limit is designed to measure the customer’s ability to manage their cash flow needs on an on-going basis.  It can reveal whether they have hot and cold cash months or a stable operation.  I won’t comment on the benefits of these tactics since they have been known to result in false “reads”.  In credit that might mean that the customer pays the initial small invoices in a timely manner but once they begin to place the large orders, you find the payments drag or cease.  From that standpoint, time is your ally in deciding whether more or less credit is justified as the relationship evolves.  You can control the size of the pot, the amount of your company’s exposure by the betting size or the amount of credit approved.  In poker this is called “pot control”.

Poker has a dictionary of unique terminology.  There are a number of concepts which are labeled “implied odds”, “pot odds”, value betting, “equity” among others and they all relate to measuring the intangible future benefits of remaining in the hand.  Poker players use the phrase “pick your spots”.  Loosely defined, it means that you play a hand when you are strong or your opponent is weak.  You continue when the sum total of conditions are favorable.  In today’s economy, Credit must pick and choose not only when to approve credit but for how much.  When we calculate whether or not to extend credit, we often use similar game theories/concepts in our decision-making process.  I think I speak for all Credit professionals when I state that salespersons are notorious for over-valuing a customer’s prospects for growing business/profits, the profit margin, the number of turns or potential for entrée into other aspects of their business.  Pragmatic poker players would be hard-pressed to over-value their hand and bet on completing the inside straight.  Likewise, Credit must not over-value the rosy outlook salespersons would use to calculate credit-worthiness.  The future benefits must bear some resemblance to fact.

In today’s problematic economic recovery, there is heightened pressure on salespersons to grow sales. At the same time, we are in a climate of new businesses that are undercapitalized and recovering businesses that have eaten thru cash reserves during the recession. Contrarian conditions yet credit is needed.  While the temptation is great, Credit must adhere to the poker concepts of measuring the benefits and the logic of carefully picking the spots where you will invest your company’s money.  For the younger generation of poker players who are perhaps less intuitive but more learned in poker theory, it is all about the numbers – – what we would call metrics.  We measure the risk-level utilizing tools and formulas internally-derived or generated in conjunction with outside credit services.  In this respect Credit is quickly becoming more science and less art.  But unlike poker players and credit card companies who are only working the percentages, Credit may lose sight of the importance of personal relationship-building.  We’ll leave the value of that objective for another day.

By the way, allow me to soothe the credit professional’s fears that he will extend too much credit or will lose a customer or sale because he gave too little credit. Know that poker players have a name for this.  It is called “variance”.  In poker lingo, this word explains the natural phenomenon of sometimes losing over the short or long-term even though you are playing your best.  You cannot completely control the outcome of any poker session nor any credit decision. A credit professional can only make the best decisions possible given the information gathered and intuition they have cultivated over years of experience.  Sometimes the results of your decision will not be gratifying to you or your company.   And the fallout will occur when you least expect it.  Although you cannot control variance, over time, your smart decisions will result in company profits and any uneven variance will balance.

There is a solid reason why businesses create a reserve for bad debt and why our world is replete with bankruptcy attorneys.  Bad things happen to bad customers as well as good-intentioned customers.  There is an old saw that says if you don’t have bad debt; you have likely been too strict on credit.  While you may negate bad debt, would your losses have been greater or less than the profitable business you left on the table?  You cannot always wait to be dealt a pair of aces to play a hand, the proverbial “pocket rockets”.  Rarely will you sign on the customer with perfect credit who has never paid anyone beyond terms.  What a successful poker player does and what you must do is to re-visit the decisions that haunt you and analyze them.  Did you misplay the hand; did you misread any signs or metrics?  Consult with your peers and learn from your mistakes.

In poker as in Credit, you can conduct yourself using many different styles and will necessarily mollify or heighten your basic personality traits.  Some poker players are passive, some aggressive, with many variations and combinations of all behavior patterns.  You’ll have to decide what style is most comfortable for you in the credit realm and what style works best given the myriad circumstances all credit professionals encounter.  Bear in mind that you must be capable of mixing your style to suit the circumstance.  There will be occasions where it is incumbent upon you to leave your comfort zone in your mental battles with the customer or prospect.  However, like poker players it is abundantly clear that being a passive credit professional will reap the least efficiency and least benefits. Be strong, and as they say in the poker world, “Get those cards in the air!”

Guy Nishida is the senior credit manager for E.T. Horn Company, a specialty ingredient and chemical distributor based in La Mirada, CA. He can be reached at 714.562.7679, or gnishida@ethorn.com


UCLA Extension Launches Credit Analysis and Management Course

UCLA Extension

by Mike Mitchell, CAE – CMA President

I have long wondered why institutions of higher learning have not offered courses in business credit. When I was pursuing my graduate degree in business administration, I don’t recall that credit ever came up as part of the course curriculum. I began working for CMA shortly after I completed my degree, and this is where I learned that business credit is really what makes the US economy as unique, competitive, and robust as it is. NACM does a great job of supporting professional development and recognizing credit professionals through its Professional Certification Program, but that only touches practicing credit professionals. What about the many more college graduates and job seekers who don’t know that credit jobs exist? How do we reach out to those people who are pre-career or looking to change direction and let them know about credit as a career? What about small business owners who don’t have the staff to delegate credit decisions?

A year ago, CMA was invited to participate in the development of a credit analysis and management certificate program at the University of California Los Angeles (UCLA) Extension to expose an entirely new audience to credit as a career. The program is intended for the credit community in banking and finance, trade credit management and small business owners. Roger L. Torneden, Ph.D., CFP®, the Director of Business, Management and Legal Programs at UCLA Extension, actually worked as a credit manager at JC Penny. He saw the same opportunity as we did to reach people working outside of credit.

In anticipation of this course offering, the CMA Board of Directors created a new student membership category to encourage students to join the Association while enrolled in credit courses. CMA can help student members network and learn from experienced credit professionals, and bring qualified job candidates to member companies that are looking to fill internships or entry-level positions that require specific skill sets in credit management.

Mike Mitchell, CAE
Mike Mitchell, CAE

14 students successfully completed the pilot course in January 2013, and now CMA is helping UCLA Extension promote summer enrollment. With training from UCLA and professional networking and services from CMA, our collaboration could seed the next generation of credit managers and expand the NACM brand.

For more information:
visit www.uclaextension.edu/credit

Or download program brochure

CMA Members receive a 10% discount on these classes. Use promo code H5278 when registering. Summer Sessions start June 27!

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New Business Credit Report Combines Data from Major Providers

anscersX Combined Business Credit Reports offer easy access at a reasonable cost for data from Dun & Bradstreet, Equifax, Ansonia Credit Data and Credit Management Association on one report.

April 18, 2012 – Burbank, CA – In response to requests for easier access to information and a growing preference for transactional reports over credit reporting contracts, Credit Management Association™ (CMA), in partnership with the Trade Information Exchange TM (TIE), has launched the anscersX Combined Business Credit Report.

“CMA’s membership represents many small to medium sized companies,” says Michael Mitchell, President of CMA. “They are requesting comprehensive information on potential and existing customers at prices that fit their budget. anscersX Reports combine data from major providers giving them a more complete picture of their customers on one report.” CMA Members appreciate the ease of access to data from multiple providers without contracts. Diego Jimenez, Credit Analyst, Accuride International, Inc. agrees, “I really like that there is more than one provider on one report.”

Combining data from D&B, Equifax, CMA and Ansonia Credit Data is a unique approach developed by the Trade Information Exchange. “We put a lot of effort into combining the data from multiple data sources in an easily understandable way,“ offers Robert Shultz, Vice President of Marketing and Strategic Partnerships at TIE. “Additionally, on the anscersX Report we have introduced a combined credit score incorporating data from Equifax, Ansonia and CMA.”

The anscersX Report is helping credit departments with limited time and resources gather credit information quickly. “It is worth it to get an answer in minutes as opposed to calling all the trade references on a credit application,” says Mary Donaldson, Office Manager, Worthen Equipment Inc.

The anscersX Combined Business Credit Report is available on a transactional basis online by registering on CMA’s services site anscers.com. Pricing is $51.95 or less depending on the data sources you choose. There are no contracts, no minimums, no hassles and instant access. Judy Bennett, Credit Manager, Brown-Strauss Steel likes the ease of use, “I have pulled several anscersX Reports so far and have been pretty happy with the results. We will continue to order anscersX Reports.”

“CMA Members tell us that maintaining multiple contracts with providers can be time consuming and expensive. We needed to make access to information easier and less expensive by offering a one-click combined report,” shares Michael Mitchell. “anscersX Combined Business Credit Report attempts to solve that issue.”

Terrence A. McCraw, CCE, Greenheart Farms, Inc. reports, “Glad I found the new anscersX Credit Report!  It’s a quick way to pull together independent credit data from multiple data sources. All in a single search. It’s priced right too!”


About Credit Management AssociationTM : Credit Management Association (CMA) is a non-profit association that has served business to-business companies since 1883. CMA helps credit, collection, and financial decision-makers get the information and support they need to make fast, accurate credit decisions. In addition, CMA assists insolvent companies with workouts or liquidation through cost effective alternatives to bankruptcy.
Contact: Michael Mitchell – mmitchell@emailcma.org – 818-972-5340 CreditManagementAssociation.org

About Trade Information ExchangeTM:Trade Information Exchange (TIE) provides trade credit report products and services for the manufacturing, distributing, and construction industries. With TIE, the promise is faster, less expensive, more accurate, industry-specific credit information on companies. We have years of industry-specific experience and a small-company attitude toward customer service. 
Contact: Robert Shultz  – bob@tradeinformationexchange.com – 805-520-7880

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A Balancing Act – Michael Dennis, CBF

Balancing Act

A few years ago, a good friend of mine who worked in the automotive aftermarket industry lost his job as a credit manager as a direct result of his management of bad debt losses and DSO.  More specifically, he was fired because, under his guidance, the credit department had not written off any bad debts for three years.  Sales had complained that the credit decisions being made were far too conservative and way too risk averse.  The company’s senior management eventually looked at the information about losses and concluded that sales management was correct.

Credit decision-making is a balancing act with unexpected and unbudgeted losses on one side and lost sales and lost profits from overly conservative credit risk management decisions on the other side.

Is it common that a credit manager loses their job because they are too risk averse?  I think it is more likely that the opposite is true meaning that credit professionals lose their jobs because they accept too much risk resulting in higher DSO or higher bad debt write offs.

Michael Dennis, MBA, CBF, LCM

However, the fact that my friend was fired is a good reminder that credit professionals are expected to manage credit risk according to their employer’s expectations.  They are not expected or required to eliminate the risk of slow payment or nonpayment.  What do you think?

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.

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CMA Poll Results – How Many Years In Business Credit?

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With 424 responses this months CMA Poll has the highest response rate and comment rate of any poll we have published. 53% of the respondents have been in business credit over 20 years.

How many years have you been in business credit?

  • Almost 2 years 2% 10 votes
  • 2 plus to 5 years 6% 25 votes
  • 5 plus to 12 years 15% 64 votes
  • 12 plus to 20 years 23% 98 votes
  • 20 plus to 30 years 33% 140 votes
  • 30 plus years 20% 83 votes
  • Other 1% 4 votes

Poll Comments

  • Thomas – 4 weeks ago

     lmao, Not too many old Credit Managers.

  • F. Scott Wilson – 4 weeks agoThis is interesting. Nearly two-thirds of the respondents so far have more than twenty years’ experience in credit, and a scant 5% have five or fewer years under their belts. It sounds like our profession could use some active recruitment of beginners, who will eventually get the experience to follow in our footsteps. Twenty years of experience, assuming you didn’t get into credit right after high school, is right around the mid-point of a career, just about halfway to retirement, and it looks like there isn’t a lot of bench behind us….

  • Deb – 4 weeks ago

    Thomas, Thomas, Thomas…that’s because only the good die young! I agree with F. Scott Wilson though. It’s an unusual bred who can be successful long term here at least with construction credit as the burnout rate with the last couple of years is pretty high! I’m always encouraging my folks to attend the seminars and/or webinars (or any other ‘inars ) 🙂 as well as take some business law classes if they don’t have that as part of their education. You can not be too well informed and today’s successful credit manager has to be a coach for their customer base as well. The better informed and educated we can make our customers, the smoother our job becomes.

  • Will – 4 weeks ago

    Very interesting indeed .. wondering what the results will be for years of service with the current employer.

  • Lee Clutter, CBA – 2 weeks ago

    I have been in the Credit Biz for 34 years. Very few of us dreamed of becoming a Credit Professional when we started working. Our unique characteristics (both +and -), our business ethics and our ability to work with all sorts of people resulted in a “win-win” for Sales and “on time cash” for the Company (collection efforts/DSO/Percentage Current).

    Will, I have been at SMART for 7 years.

  • Jackie – 2 weeks ago

    Never thought I would be in credit and here I am 8 years later. I am still happy with this field and starting my further education so I can continue in this field

  • Paul – 2 weeks ago

    I think the poll didn’t reach enough people doing actual collections, AR and credit analysis. My guess is that mostly managers received the poll, which skews the results. I have 30+ years experience and 13 with my current company.

  • jules – 2 weeks ago

    I have been in credit for 30 years and I love it. I have been with the same employer as well. Times have changed, technology has gotten better every year, and it makes our jobs so much easier these days. It sure beats the old days, we used to add up a green bar report to get a total past due list then type it on a typewriter.
    Never a dull moment, and I have the best staff anyone could ask for. I am a lucky dog.

  • Dina Amadril – 2 weeks ago

    Hi Paul – We sent this poll to all users on anscers.com which generally includes more than the manager at the company.

    Not all CMA members have multiple users on anscers so we are going to have a skew in the results anyway – but the way we see them coming in there are not too many new (under 5 years) to credit.

  • Ralph – 2 weeks ago

    I find that there aren’t as many opportunities in Credit & Collections as in the past. Technology most likely plays a roll as it allows each of us to do more than in the past. My own experience is that our profession is not as valued or respected as it was in the past. Protecting assets and reducing losses isn’t as important as posting revenue at any cost and rationalizing the losses. This is the same mindset that caused the housing debacle and has led to the current state of the economy… And it doesn’t appear that any lessons have been learned!

  • Roy K. Carpenter – 2 weeks ago

    Looks like it’s time to start hiring again.

  • Steve S – 2 weeks ago

    I’m not jumping to the conclusion that not many new people are in credit based on this survey. It may suggest not many new managers as these emails typically go to a select/narrow view which are primarily managers and manager in most fields typically require experience.

  • Brenda H. – 2 weeks ago

    I agree with Ralph, I have a GM who won’t write off debt that is even 5 years old. I guess he wants the company to keep paying taxes on revenue that we will never collect. I have been in collections for 19 years and I have never worked for a company who won’t write off debt that you have exausted all sorces to locate people and companies that have gone out of business and / or you can not locate. It is fustrating and rediculas, but I can’t get him to change his mind…


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