Management
The Credit and Collection Risk Manager must maintain ongoing communication with the organization’s management to align the credit and collection policy with the organization’s vision, strategy, and policies. This ensures that credit management practices support the overall goals of the organization and are integrated into its strategic planning processes.
Marketing
The organization’s Credit Risk Manager must be part of the team approving promotional activities declared by the organization. As an extension of the CFO, they must ensure that the promotions comply with certain criteria:
- Compliance with tax laws: For example, in a transaction involving payments for equipment sales, it’s crucial to issue the invoice upon equipment delivery, not in split invoices for different payments.
- Proper charging: In the case of discount promotions, the credit and collection team must ensure the billing systems accurately recognize the customer according to the offer.
- Feasibility of credit control: Promotions often specify payment terms and available payment methods for customers, as well as required securities. Given the broad outreach of such offers, the proposal’s wording to the customer must be approved by those in charge of credit control, or it must be ensured that the contract includes a clause allowing for later approval or rejection of the transaction by the credit control team.
This approach ensures that all promotional activities are not only attractive to the customer but also financially viable and secure for the organization, aligning with its broader strategic and financial objectives.
Sales
The interface with the sales department must be strong in several aspects:
- Training in Credit Issues: Ideally, the Credit Risk Manager should oversee the training of sales managers and representatives on correctly and properly granting credit to customers, guiding them through potential issues they may encounter. They should also equip sales managers with basic commercial legal tools to manage their interactions with customers accordingly.
- Credit Control: A two-way interface is essential to ensure credit risk is managed without harming sales, in line with the established policy.
- Gathering Important Customer Information: As the organization’s point of contact, the sales representative knows the customers and “lives” them. The information they hold can aid in making accurate credit decisions about the organization’s customers. Additionally, collecting precise and complete information about the customer, such as personal details and the identity of the paying party, will help the collection department perform its duties more effectively and efficiently.
- Assistance in Collecting Overdue Debts: In cases where a customer accumulates overdue debts, the support that a sales representative can offer in field collection from the customer is of significant value.
This synergy between the sales and credit departments is crucial for maintaining a healthy credit environment within the organization, ensuring both sales growth and effective risk management.
Orders and provisioning
The Credit and Collection Management team must be thoroughly familiar with the organization’s order intake process and ensure its execution according to the organization’s credit policy.
It’s the responsibility of the Credit Risk and Collection Manager to conduct appropriate training for the order processing staff (the clerks responsible for recording and advancing orders/contracts) to enable them to independently identify potential issues in contracts or the sales process.
From a credit control perspective, it’s important to define a “Complete Kit” for orders and ensure proper procedures are enforced to maintain this “Complete Kit.” The “Complete Kit” refers to the collection of all items required to complete a task (information, drawings, materials, components, tools, etc.), ensuring that all necessary elements are in place for the successful completion of an order, in line with credit policies and risk management strategies.
Receivables accounting and treasury
The interface with the organization’s Accounts Receivable department and treasury involves several critical tasks to ensure accurate financial records and efficient cash flow management:
- Monthly reconciliation between the general ledger and the subsidiary ledger, as well as between the lawyers’ records and the organization’s records, to ensure all financial activities are accurately captured and reflected in the organization’s books.
- Verification of the correct and timely recording of receipts from customers to maintain accurate account balances and facilitate effective credit management.
- Regular verification of customer account statements to ensure ongoing accuracy in the recording of transactions and balances.
- Timely recording of customer payments that were not honored by banks or credit companies, which is crucial for maintaining accurate financial records and managing cash flow.
- Verification of the “closing” of open amounts related to customers, based on bank reconciliations, to ensure all receivables are correctly accounted for and managed.
These activities are essential for maintaining the financial health of the organization, ensuring accurate financial reporting, and supporting effective credit and collection strategies.
Operations
The interface with operations involves several key activities to ensure the smooth delivery of goods to customers and the accurate documentation of these transactions:
- Verification of delivery procedures to the customer, including the signing of documents and recording of goods issuance.
- Control over the proper documentation of delivery documents in the organization’s systems, such as scanning signed delivery certificates by the customer, documenting customer identification, and identifying the carrier.
- Oversight of suitable training for all logistics links and fostering constant awareness of billing and collection issues.
- Often, logistics personnel are the only ones who reach the private customer’s home or the corporate client’s offices. Their awareness and sensitivity to detecting fraud or schemes can be enhanced by firsthand observation (e.g., identifying fictitious businesses or those on the verge of bankruptcy).
These measures are crucial for ensuring that the logistics and operations aspects of credit and collections are handled effectively, minimizing risks and enhancing the organization’s ability to manage its receivables efficiently.
Customer care
The interface with Customer Service underscores a guiding principle of this book—that credit and collection processes also reflect the organization’s interest in providing positive service to the customer. Therefore, the Credit Risk and Collection Manager should:
- Define a credit policy and collection procedures that support “customer retention” as much as possible, ensuring this policy is properly implemented in the organization’s customer support services.
- Equip customer service representatives with tools to gain essential knowledge in credit and collection, enhancing their interactions with customers. This includes basics of commercial law, understanding the nature of different payment methods and securities, etc.
- Ensure the organization’s IT systems support the established work procedures (including sales and customer service support systems) and define these systems accordingly.
- Report to the organization’s management on the collection performances carried out by customer service employees (as extensions of the collection department) and oversee their compliance with the organization’s collection targets.
- Provide structured tools to center managers and teams involved in collections for the proper execution of their tasks (setting priorities, escalation mechanisms, etc.).
These actions are vital for integrating credit and collection processes into customer service, ensuring that these financial interactions contribute positively to the overall customer experience.
Legal Department
The interface with the organization’s legal department encompasses:
- Consultation regarding the terms of sales agreements with customers.
- In the context of legal collections: Collaboration in overseeing agreements with external lawyers, control over the debt write-off process, handling counterclaims by customers, and providing additional legal opinions on significant debt claims.
- Negotiating with strategic customers to achieve debt collection.
These interactions ensure that the organization’s credit and collection strategies are legally sound, protect the organization’s interests, and efficiently manage legal risks associated with debt collection and sales agreements.
IT
The interface with information systems is one of the crucial aspects for a Credit and Collection Risk Manager:
- In defining requirements for development and computerized systems to assist in implementing the collection policy. Their extensive experience in the field enables the identification of manual tasks that can be automated.
- In controlling the execution of automated processes related to credit and collection activities and examining their compliance with the organization’s policy.
- In providing expert opinions – the Credit and Collection Risk Manager must have an in-depth understanding of all automated billing and collection processes. The goal is to offer opinions on the feasibility of planned initiatives.
This interaction ensures that technological solutions align with credit and collection strategies, enhancing efficiency and compliance with organizational policies.
Internal audit
The interface with the internal auditor involves:
- Given their responsibility over a wide range of controls in the finance domain, the Credit Risk and Collection Manager has numerous interfaces with the internal auditor. The internal auditor serves as an operational arm for financial controls over revenues, tasked with overseeing proper controls and reporting on deficiencies in both operational processes and controls over these processes.
- The area of credit risk and collection management is one of the fields scrutinized by the internal auditor. Additionally, in the realm of fraud and embezzlement audits, collaborations exist where the internal auditor engages in all matters related to customer credit fraud and employee embezzlements, particularly those responsible for collecting money from customers.
This collaboration ensures that the organization maintains high standards of financial integrity, compliance, and risk management, enhancing the overall financial health and security of the organization.
Security Officer
The interface with the organization’s security officer involves the Credit Risk and Collection Manager identifying instances of fraud, scams, and forgeries by customers, employees, or sales personnel. In such cases, it is their responsibility to report their findings to the organization’s security officer for further disciplinary or legal action. This collaboration ensures that any security threats or breaches related to financial transactions are adequately addressed, maintaining the integrity and safety of the organization’s financial operations.
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