The Art of Credit Management


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The Art of Credit Management

  1. 1. ER$ Consulting Services In Collaboration with CMA Presents The Art of Credit Management October 19, 2007 Las Vegas
  2. 2. By Eddy A. Sumar, MBA, CCE, CICE A Fundamental Checklist for the Success of Every Credit Professional Construct Your Checklist! Gather The Ingredients!
  3. 3. <ul><li>&quot;It is not the mountain we conquer, but ourselves.&quot; </li></ul>- Sir Edmund Hillary
  4. 4. Define Credit
  5. 5. Credit comes from the Latin word “credere,” which means trust. It is a mutual trust between the grantor and recipient of the credit. It involves a great deal of trust and confidence in the ability , willingness and character of a “debtor” to deliver on its promises to the “creditor,” according to agreed upon terms. Credit also implies a reciprocal trust that the creditor will deliver what was contracted or agreed upon. Thus, credit is “a cooperative function between seller and buyer or between creditor and debtor.
  6. 6. <ul><li>Credit Redefined </li></ul><ul><ul><ul><ul><ul><li>A Sales Tool </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>A Marketing Tool </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Financial Vehicle </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Strategic Alliance </li></ul></ul></ul></ul></ul>
  7. 7. <ul><li>“ Before you can score, you must first have a goal” </li></ul>“ A Fundamental Checklist” -- Anonymous
  8. 8. Know Your Vision Your Goals
  9. 9. Company Vision--Goals Your Dept Vision--Goals Credit and Sales—One Team Credit is a Sales & Marketing Tool Credit Department becomes a Center for Client Services Vision
  10. 10. Understand Your Mission
  11. 11. <ul><li>Purpose </li></ul><ul><li>Reason for company existence </li></ul><ul><li>Strategy </li></ul><ul><li>Way of doing things [behavior & standards] </li></ul><ul><li>Values </li></ul>Mission
  12. 12. Understand Your Company Culture
  13. 13. <ul><li>Conservative </li></ul><ul><li>Liberal </li></ul><ul><li>Profit-oriented </li></ul><ul><li>Customer-centric </li></ul><ul><li>Sales & Marketing-oriented </li></ul>Culture
  14. 14. Construct Your Policies & Procedures
  15. 15. <ul><li>Reflect the mission & vision </li></ul><ul><li>Reflect the culture </li></ul><ul><li>Encode your standards & behaviors </li></ul><ul><li>Reflect your values </li></ul><ul><li>All encompassing of your functions </li></ul><ul><ul><li>New customer policy </li></ul></ul><ul><ul><li>Credit investigation policy </li></ul></ul><ul><ul><li>Credit analysis policy </li></ul></ul><ul><ul><li>Authority level policy </li></ul></ul><ul><ul><li>Credit limit policy </li></ul></ul>Policies & Procedures Credit & Collection
  16. 16. <ul><li>All encompassing of your functions (Continued) </li></ul><ul><ul><li>Credit terms policy </li></ul></ul><ul><ul><li>Credit hold Policy </li></ul></ul><ul><ul><li>Periodic credit review policy </li></ul></ul><ul><ul><li>Collection policy </li></ul></ul><ul><ul><li>Cash application policy </li></ul></ul><ul><ul><li>Dispute resolution policy </li></ul></ul><ul><ul><li>Third party referral policy </li></ul></ul><ul><ul><li>Bad debt and write-off policy </li></ul></ul><ul><ul><li>Record keeping & disclosure policy </li></ul></ul>Policies & Procedures Credit & Collection
  17. 17. Chart the Process
  18. 18. <ul><li>Set-up sheet </li></ul><ul><li>Credit application </li></ul><ul><li>Credit reports </li></ul><ul><li>Trade References </li></ul><ul><li>Bank references </li></ul><ul><li>Financial statements </li></ul><ul><ul><li>Credit scoring </li></ul></ul><ul><ul><li>Financial ratios analysis </li></ul></ul><ul><ul><li>Z score </li></ul></ul><ul><li>Salesman’s Comments </li></ul>Chart the process For new accounts
  19. 19. <ul><li>Security instruments </li></ul><ul><ul><li>L/C </li></ul></ul><ul><ul><li>Standby L/C </li></ul></ul><ul><ul><li>Guarantees </li></ul></ul><ul><ul><li>Promissory notes </li></ul></ul><ul><ul><li>Security agreements & UCC filing </li></ul></ul><ul><ul><li>Liens </li></ul></ul><ul><li>Credit insurance </li></ul><ul><li>Trade financing alternatives </li></ul>Chart the process For new accounts (Continued)
  20. 20. <ul><li>Call, e-mail, send letters & back up </li></ul><ul><li>Involve your sales force </li></ul><ul><li>Initiate payment plans </li></ul><ul><li>Involve your in-house legal department </li></ul><ul><li>Refer to collection </li></ul><ul><li>Refer to outside legal </li></ul><ul><li>Put an account on bad debt list </li></ul><ul><li>Write-off </li></ul>Chart the process For collection & write-off
  21. 21. Know the legal & Regulatory Environment
  22. 22. <ul><li>Fair Credit Reporting Act </li></ul><ul><li>Fair Debt Collection Practices Act </li></ul><ul><li>Truth-in-Lending Act </li></ul><ul><li>Equal Credit Opportunity Act (ECOA) </li></ul><ul><li>Anti-trust Regulations </li></ul><ul><ul><li>Sherman Act 1890 </li></ul></ul><ul><ul><li>Clayton Act 1914 </li></ul></ul><ul><ul><li>Robinson-Patman Act 1936 </li></ul></ul><ul><ul><li>FTC Act 1914 </li></ul></ul>Know the legal Environment
  23. 23. <ul><li>Bankruptcy Act (BAPCPA) </li></ul><ul><li>Money Laundering Act </li></ul><ul><li>The Patriot Act </li></ul><ul><li>Sarbanes-Oxley </li></ul><ul><li>Export Administration Regulations (EAR) </li></ul><ul><li>Customs regulations </li></ul><ul><li>SEC regulations </li></ul><ul><li>GAAP & IAS </li></ul>Know the legal Environment
  24. 24. Master the Cs
  25. 25. Master the Matrix Know Your Customer---Character Choose The Path Willing Unable Able Unwilling
  26. 26. Master the Matrix Know Thy Customer---Character Choose The Path Willing Unable Able Unwilling
  27. 27. Master the Matrix [Sales focus] Classify your Customer---Character Willing Unable Able Pursue!!! Unwilling Find Deal Enhancers & Enablers Work on Desire and Willingness Abandon The Prospect!!!
  28. 28. Master the Matrix [Credit focus] Classify your Customer---Character Willing Unable Able Approve!!! Unwilling Think Outside The Box Seek Alternatives Work the Deal Protect Your Transaction Reject This Applicant!!!
  29. 29. Master the Matrix [Collection Focus] Classify your Customer---Character Willing Unable Able Great!!! Unwilling Work With Your Customer Pursue Vigorously Third Party Involvement Write-Off Cancel Don’t Waste your time
  30. 30. Master the 18 basic Cs Of Domestic Credit
  31. 31. <ul><li>1. Character </li></ul>2. Capacity 3. Capital
  32. 32. 4. Collateral -- guarantees 5. Conditions -- business economic, political industry
  33. 33. 6. Computers -- technological state 7. Common Sense 8. Credit Insurance
  34. 34. 9. Communication <ul><ul><li>The interpersonal Cs </li></ul></ul>10. Cooperation 12. Courtesy 11. Collaboration
  35. 35. 13. Carelessness <ul><ul><li>The Negative Cs </li></ul></ul>14. Complacency 15. Competition
  36. 36. 16. Concern <ul><ul><li>The Positive Cs </li></ul></ul>17. Compassion 18. Care
  37. 37. 2. Currency Control -FX Risk 1. Country Risk 3. Cultural Differences <ul><ul><li>The International Cs </li></ul></ul>
  38. 38. <ul><li>C -- CREATIVITY </li></ul><ul><li>I -- INNOVATION </li></ul><ul><li>S -- SPEED </li></ul><ul><li>A -- AGILITY </li></ul><ul><li>A --ACCURACY </li></ul><ul><li>C --COURTESY </li></ul>
  39. 39. <ul><li>Flexibility and willingness to change </li></ul><ul><li>Open-mindedness </li></ul><ul><li>Negotiating skills </li></ul><ul><li>Honesty and integrity </li></ul><ul><li>Leadership </li></ul><ul><li>Dedication, dependability and reliability </li></ul><ul><li>Love of learning ( continuous education) </li></ul>The Mark of True Credit Professionals
  40. 40. “ We make a living by what we get, we make a life by what we give .” Sir Winston Churchill
  41. 41. ERS Consulting Services Eddy Sumar, MBA, CCE, CICE, CEW 7841 Leucite Avenue Rancho Cucamonga, CA. 91730 909-481-9869 [email_address] Thank You!