Reengineering the credit profession has become a major focus in the 1990s, as credit departments are called to modernize their practices. However, reengineering efforts must be implemented carefully to avoid losing the essential balance and risk evaluation that credit professionals provide. While tools like credit decision models, auto-cash applications, and document imaging can increase efficiency, they are not a replacement for experienced credit managers. TQM and business schools have also led some companies to misuse reengineering by eliminating credit experts, despite their importance to healthy organizations. For the credit profession to thrive, efforts must focus on research, education, and credentials to develop the next generation of professionals.

1. Credit Career
Reengineering the Credit Profession
Business Credit * September 1994 Page 43
By Anthony Kelley, CCE
Reengineering the credit department
has become the hot topic of the
1990’s. We are being called upon to
throw off our old ways of thinking and
lead our organizations into the brave
new world.
However, we must
understand what reengineering truly
means if we are to be on the cutting
edge without allowing it to destroy our
organizations. Credit professionals
have always provided the balance
needed in an organization through risk
evaluation that has allowed profitable
sales increases. This balance is still
essential in a healthy organization.
The Roots of Reengineering
Reengineering has its roots in two
movements. In the last 20 years, we
have seen an effort to move credit
decisions away from the traditional
credit evaluation shrouded in mystique
a quantitative science. This movement
comes as a result of management’s
and academia’s desire to understand
the method, the rise of personal
computers, and the pressure to do
more with less. Many new credit
decision-making models have been
developed.
We have also seen a rise in
the TQM school that focuses on
Japanese work group concepts to
attain maximum employee
productivity and customer satisfaction.
This is the answer given by leading
business schools to growing worker
dissatisfaction and the success of the
Japanese. This popular academic
answer has been drilled into M.B.A.s
that run major companies and has
been institutionalized in the Baldridge
Award. Indeed, this has created a new
consulting industry in TQM.
Credit Decision-Making Models
In my review of the major theories
published in Business Credit in Dec.
1985 and Jan. 1986, I called for
further development of credit
evaluation methods based on
statistical proof rather than ones based
on “trust me, it works for me” proof.
There has been an explosion of
companies selling computer packages
that will make your credit decisions;
however, none provides a statistical
way to prove that their model works.
Indeed, their major claim is
that they are flexible enough to allow
you to customize the decision-making
package to the needs of your business.
They do provide the advantage of
allowing a computer program to make
routine credit decisions based on rules
that you establish. This allows you to
concentrate on the marginal
customers. They also allow you to
establish consistent risk categories for
customers that can be used to evaluate
your investment in receivables.
However, these models are no
substitute for a professional credit
manager.
The danger with these
packages is that you may oversell their
advantages or your management may
misunderstand their shortcomings.
This misunderstanding combines with
the downsizing of companies to
produce another dangerous trend, the
splitting of the credit and collection
functions. Many firms have decided
that if the computer package can make
the credit decicions, then management
can become more efficient by letting
the “clerks” make collection calls. But
not everyone can pick up the phone
and ask for money nor should
collection calls be equated with
effective risk management.
Many firms do not
understand that good credit decisions
are based on feedback from collection
activity and that good collections are
founded on credit information about
the customer. It is difficult to measure
the effect of poor credit decisions,
wasted collection efforts, and lost
customer satisfaction if primary
contact is not with a credit
professional.
Keeping ahead of problem
customers was one of the major
reasons that the NACM was formed.
Trade-credit groups are the very life
blood of most credit departments.
These credit groups will become
meaningless if the credit professional
who knows both the credit and the
collection story no longer exists.
Greater industry losses will be the
result.
We can learn a lesson from
consumer credit. When I worked at
Sears in the early 1970’s, every store
had a credit manager with a large
department. The credit manager and
staff approved every credit application
and contacted the customers for
payment. Now, computer scoring
models approve applications and
determine the collection action based
on behavioral scoring models.
Collection calls are made by clerks in
a massive phone center. The resulting
losses are covered by the extremely
high credit card interest rates. The
consumer credit professional is a
modern dinosaur.
Auto-Cash and Document
Imaging
Automated cash application and
document imaging are two technical
innovations that every credit executive
should consider using. Auto-cash is
offered by many software vendors
either as part of the basic accounts
receivable package or as an add-on
feature.
Auto-cash uses the Federal
Reserve System micro coding on the
check document to capture your
customers’ bank account numbers and
automatically apply payments to your
invoices using certain rules. These
rules usually include whether the
check amount equals amounts such as
the account balance, the past due
balance, and the last statement
balance. Some systems also test
combinations of invoices for a match.

2. Credit Career
Reengineering the Credit Profession
Business Credit * September 1994 Page 44
The accuracy of auto-cash will
increase dramatically if you have your
bank key invoice numbers listed on
your customers’ remittance advice.
Auto-cash can be a time saver and
reduce application errors although it
may not work in certain environments.
Document imaging reduces
needed storage space and makes
retrieval more efficient. Documents
are stored for a period of time on a
computer file and are then
downloaded to optical diskettes for
long term storage. Documents can be
indexed on the computer for instant
retrieval. For example, the credit
department can retrieve a freight bill
from the accounts payable system in
order to provide proof of delivery to
the customer because the freight bill is
indexed in the computer.
Imaging technology is
rapidly developing and therefore has
many variations. The cost of these
systems is dropping quickly and
storage devices vary from
computer-drive storage to optical
diskette drives linked to the CPU by a
controller. The major question
concerning optical storage remains the
use of those images in court.
However, you can still retain the
original documents as a backup in
inexpensive public warehouses.
TQM and the Business School
TQM has become the business school
panacea of the 1990s. Managers are
convinced that this is the answer to all
business problems. Focus on the
customer and involve the employees
in decision-making and you will have
a more efficient operation that serves
all of your customers’ needs.
This idea has been misused
by many firms to eliminate the need
for experts such as the credit
professional. Business management
schools have never been comfortable
with credit management. Credit
management does not fit neatly into
the traditional courses of marketing,
accounting, business law, finance, and
the like.
Credit managers must be
experts in all but do not belong to any
of these professions. The subject of
credit management is never taught to
business majors or M.B.A.s. Thus
credit management is poorly
understood by senior managers, and
because credit managers are not state
licensed like CPA’s, they are poorly
understood by the public. Most people
think of credit management in terms
of things that are familiar, such as
credit cards and mortgage loans.
The other long-term issue is
the lack of training for credit
management. Where will the new
credit professionals be developed?
Management can use the old credit
professionals until they die out. But,
then what?
The Way of the Dinosaur
Is the credit professional going the
way of the dinosaur? Look around the
country. You will see more and more
credit professionals disappearing.
Anheuser-Busch, Coca Cola, Ralston
Purina, AT&T, Levi Strauss, Pioneer,
and Proctor & Gamble are just some
of the firms that have reduced their
staff in the last year through
reengineering. One of my close
friends remarked recently that he was
appalled by the apparent lack of
knowledge demonstrated by some of
the questions asked by credit people
representing top companies at credit
meetings.
Reengineering in the 1990s
Indeed, we must implement needed
changes in our organizations.
However, we must change without
allowing the latest craze to be a
cover-up for allowing the “sales” side
of the business to completely conquer
the “credit” side. The credit
professional is an essential part of any
viable business.
Many credit and collection
departments are being merged into
“customer service” groups. The only
goal is serving the customer by
furnishing the requested goods or
services as quickly as possible. This
means that holding orders to
encourage the customer to pay may
border on sacrilege. One credit
manager, recently reengineered, told
me that he not only faces this problem
but that his credit and collection
people are too busy entering orders to
make any collection contacts because
the organization was also downsized
to be more efficient. He feels that he
cannot object or he will be branded a
reactionary.
Trade-credit groups have
been the backbone of the credit
profession for over a hundred years.
However, times are changing. The
new service industry firms o not
belong to credit groups. Therefore, the
value of the NACM has changed for
these firms. Today’s NACM must
concentrate on research, education,
and professional credentials.
We must expand on the
recent movement of the national
association to enhance the Credit
Research Foundation and improve
credit education. We should also
move credentials beyond the realm of
an organization designation and into
the realm of state licensing. The
alternative is the way of the dinosaur.
Anthony Kelley, CCE is Manager
Accounts Receivable, Express Scripts
Inc., Maryland Heights, MO.