The 21 st Century Credit Manager Czech Institute of Credit Management Mark Harrison BA (Hons) FICM...
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The 21st Century Credit Manager
Czech Institute of Credit ManagementMark Harrison BA (Hons) FICM (grad)
Founder & CEO www.creditcee.eu
Value of Debtors
• How much % of assets is debtors on Balance Sheet?
• Typically > 30%
Phases of Credit Management
Credit worthiness testing
Credit decision
Collateral (guarantees/underwriting)
Credit monitoring
Collection handling
Insolvency proceedings
3
Measures etc
• Working capital
• CA - CL
• Liquidity ratios
• CA/ CL
• CA- stock /CL
CzICM 7-8 November 2012
Days Sales Outstanding• Definition:The average debt period in days, called Days Sales Outstanding, referred to as an average
number of days, from the invoice date until payment.
• This ratio indicates, in what relation outstanding customer receivables to turnover for the last accounting periods are.
• It represents the average length of debtors and is an indicator of the efficiency of the collections
• Formulas
• DSO = average amount of receivables of the last 3 months x 90 / turnover of the last 3 months
• DSO = current o/s balance x 365 / turnover of the last 365 days
• DSO = receivables at the end of period x number of days period / turnover within the period (without cash sales)
CzICM 7-8 November 2012
Provisions
• What do you understand by Bad debt provision?
• Calculations can be:
• % of total debtors
• % of over 60 days
• Actual known cases
• Combination of above
• Reduces sales and profits PTPI /EBITDA
CzICM 7-8 November 2012
Cost of Credit
• balance outstanding 5,000,000
• interest @ 11% 550,000
• daily cost of credit 1,507
• dso / cost of credit 45 67,808
• dso / cost of credit 42 63,288
• saving 4,521
CzICM 7-8 November 2012
WHAT IS A CREDIT MANAGER?
• A Debt Collector?
CzICM 7-8 November 2012
DEBT COLLECTOR
CzICM 7-8 November 2012
WHAT IS A CREDIT MANAGER?
• A Salesperson?
CzICM 7-8 November 2012
SALESPERSON
CzICM 7-8 November 2012
WHAT IS A CREDIT MANAGER?
• A Banker?
CzICM 7-8 November 2012
BANKER
CzICM 7-8 November 2012
WHAT IS A CREDIT MANAGER?
• Perhaps even Customer Service?
CzICM 7-8 November 2012
CUSTOMER SERVICE
CzICM 7-8 November 2012
THE TEAM
CzICM 7-8 November 2012
THE ROLE OF THE CREDIT MANAGER
• To promote the highest possible volume of profitable sales, over the shortest period of time, with the minimum of bad debt
• That involves risk assessment, credit control, accounts collection, and above all, customer service
CzICM 7-8 November 2012
A COMPETITIVE WORLD
• If we get it wrong, our competitor wins
• A changing world: new business replaces old business at an ever increasing rate
• Now over 4.8 million small businesses in UK
• 18% fail within 12 months
• 40% fail within 2 years
• 50% fail within 3 years
CzICM 7-8 November 2012
Credit Manager/Customer Service
• The “go between”• Main point of contact• Who’s interests are being served?• A Sales function or a Finance function?• A Customer Service function• Linked closely to query resolution• Assistance benefits both supplier and customer
CzICM 7-8 November 2012
A COMPETITIVE WORLD
• There will always be someone else ready to pick up our customer when we fail him
• Big is not always beautiful• Success is based upon customer focus• It should be just as easy to get it right as it is to
get it wrong• Getting it wrong is dead easy!!
CzICM 7-8 November 2012
First rule of credit
• Never assume!!INSERT BENNY HILL CLIP HERE How do you know your invoices
are…………….. printed posted received opened correct
CzICM 7-8 November 2012
Benny Hill tells us not to 'assume'.mp4
HOW MUCH CAN GO WRONG?
• Price• Discount• Shortage• Damage• Model• Size• Colour• Early delivery• Late delivery• Credit terms• Credit limit• Wrong delivery
• Special deal arranged with Sales• Wrong rate of VAT• Errors in extension• Wrong address• Wrong description, or misleading
description• Insufficient details• Customer order number• Unable to match to order• Unable to match to quotation• Wrong name
Every invoice you send represents all that is good or bad about your company
AND THERE’S MORE
• The way we respond to customer complaints
• The way we resolve customer complaints
• The way we listen to customers
• The way we talk to customers
• The way we communicate with customers
• INSERT COASTGUARD CLIP HERE
• And take emails for example……………
CzICM 7-8 November 2012
German Coast guard trainee.mp4
E-MAIL If you don’t stop, think and check, you could say something you don’t
mean…………………………………………………………………… By the time he was admitted his rapid heart had stopped, and he was
feeling better The patient has a chest pain if she lies on her left side for over a year The patient states that there is a burning pain in his penis which goes to his
feet The patient has no history of suicides She slipped on the ice and apparently her legs went in separate directions
in December Between you and me, we ought to be able to get this lady pregnant The patient left the hospital feeling much better except for her original
complaint
CzICM 7-8 November 2012
MEETING CUSTOMER REQUIREMENTS
• Keep customer focused
• Internal reorganisation is “internal”
• Cost savings must not damage customer interface
CzICM 7-8 November 2012
THE LANGUAGE OF CUSTOMER DISSATISFACTION
• Silent
• Vocal
• Vitriolic
CzICM 7-8 November 2012
KEEP REFRESHING THE SKILLS BASE
• Script without understanding - NO
• Knowledge and experience - YES
• Cost versus efficiency - NO
• The wrong decision for the right reason ?!
CzICM 7-8 November 2012
NOT MY JOB
• “Dedicated” customer service
• Has this had the effect of saying to all other employees – customer service is not my job?
• Someone else’s responsibility
• NO NO NO!!!
• Major reason why the Credit Manager is at the heart of customer service
CzICM 7-8 November 2012
THE COST OF NOT GETTING IT RIGHT?
• Lost sales
• Damaged goodwill
• Tarnished reputation
• Word of mouth
• Falling profits
• Redundancies
• Insolvency
CzICM 7-8 November 2012
THE CREDIT MANAGER
The key to the success (or failure) of any business which survives and prospers through the granting of trade credit
The real B2B banker – forget RBS, Allied Irish or any other amateur operation
The focal point for all customer contact The one person in the whole organisation who can unite all
functions with one common aim – meeting customer needs
2nd rule of credit????
3rd rule…
CzICM 7-8 November 2012
Rights
• Right goods
• Right place
• Right time
• Right price
• Right colour
• Right quantity
• Right quality
• ALL add up to the right to be paid
• Why give any customer an excuse not to pay?
• We have only ourselves to blame
CzICM 7-8 November 2012
Any questions?
Never doubt that a small group of thoughtful,
committed people can change the world. Indeed,
it is the only thing that ever has
Thank you
CzICM 7-8 November 2012