The Balance Between Managing Risk and Supporting Revenue

The Balance Between Managing Risk and Supporting Revenue

One of the most under-appreciated aspects of Credit Management is the balance between managing risk and supporting revenue.  I specifically say “managing” the risk instead of “minimising” the risk.  Minimising is easy;  put all of your debtors on 100% hard security or ask for cash in advance;  your risk potential will be nil.  However, you will not receive any thanks from the commercial side of the organisation if you adopt this policy as it is virtually impossible to grow revenue on this basis.

Credit Management, whilst having a definite scientific aspect;  formulas, ratios, statistics, et al, is also a delicate art form in terms of the range of issues with which we deal as well as the tact required in various scenarios;  both with customers and key stakeholders.

Credit Management “in a bubble” is relatively easy and is mostly based in common sense;  if a customer is late with a payment, over their credit limit or is considered a high risk then you can withhold new orders, reduce their credit line and/or ask for cash in advance or another form of 100% hard security or terminate them as a customer altogether.

Credit Management within the context of a commercial organisation is much more of an art form where we are required to balance the growth & revenue driven aspirations of the business vs the need to protect your company’s debtor asset.

In this recent era of increasing number of business insolvencies, squeezed cash flow, weak balance sheets and P&Ls, timing has also become a crucial factor for Credit Professionals to consider as to when to “drop the hammer”.  What I mean by this is that in instances where a customer’s risk portfolio has increased either due to a deterioration in their financial situation and/or payment performance and the inevitable failure of their business looms, the timing of when to exit that business becomes paramount.  Exit too early and the customer survives (and potentially even thrives), then you are seen by your company as too risk averse and “not commercial”.  Exit too late and you are left with a potential credit loss and the extra and pain staking debt recovery workload.

In my career, I’ve had customers which, on paper, have either been on the brink of failure or should have failed long ago but have have limped on for years and years after the statistical model suggested that failure was imminent.  If my department had exited when the risk models / scorecards suggested failure, my company would have lost out on significant revenue and profit.  However, by managing the risk, developing an exit strategy as well as execution of the timing of said strategy, meant that my company could continue to trade with the customer and realise additional revenue and profit opportunities.

This delicate form of Risk Management and timing is definitely an art form more than it is a science and is generally not recognised as a specific skill set by those outside of the Credit profession.   It is not an easy skill to acquire nor is it a linear learning;  it’s a matter of experience, business nous, the ability to “read between the lines” and sometimes good old fashioned luck !  In these difficult market conditions, this skill is becoming more and more crucial for the Credit Professional to possess and will be vital in your business’s overall success.

“There is an art to science and a science in art; the two are not enemies but different aspects of the whole”. – Isaac Asimov

Focus and Fatal Distractions

Focus and Fatal Distractions

At a recent seminar I thoroughly enjoyed a presentation by two young and recently appointed Credit Managers talking about the job of a Credit Manager and the place and purpose of the Credit function within the enterprise. They split the presentation into three sections.

1. Collection Management.
2. Risk Management.
3. Peripheral External Issues affecting the company.

Their strong conclusion and recommendation were that their order of their priority of focus should be exactly this and there should be no deviation from the order. I totally agree with this approach, and it should be regarded as a cornerstone of any successful organisation. Over the years when conducting High Performance Credit Workshops, early in the methodology we undertake an exercise to articulate the purpose of Credit and Collection and do so in as few words as possible. From its’ first iteration to its last it has remained.

Maximise Collection and Manage Risk
This is why Credit and Collection Managers are hired and Credit and Collection Departments are created.

The Distractions
As time passes, events occur, laws are passed and technologies emerge, that in the main are external but are often touted as the number one priority, challenge or next big thing for the Credit Professional. We are encouraged to divert resources, hire consultants, make plans and horror of horrors make this “flavour of the month” our number one priority. Whilst not wishing to diminish the importance of any, or suggesting they should not be managed they have to be firmly placed in category 3 of the focus hierarchy.

Although not exhaustive these are some examples of my experience in this regard.

1999 The Millenium Bug
Perhaps the biggest damp squib of all as during the year vast resources were allocated, contingency plans were drawn and we became extremely worried. In the event at midnight on 31 st December precisely nothing happened! We  journeyed into the new millennium with our systems intact and working. Also, to my certain knowledge no aeroplanes fell out of the sky.

2002 Sarbox
This was a much-needed piece of legislation but there was minimal effect post sale within Credit and Collection. American Corporations became compliant to the point of paranoia and were more difficult to deal with pre-sales. It has since retreated into our everyday business life and remain part of our consciousness.

2008 The Credit Crunch
For me, this has been the most significant event in our recent professional history and the most relevant. When we cut through the chaff, the key to our successful navigation of these waters is that we have doubled down on Category 1 and 2 of our focus parameters.

2009 Crypto Currency/Blockchain
In my view, the biggest and most inappropriate distraction, it remains on the edges of our core work but the impact did not come close to the hype.

2012 Grexit from the Euro
This was closer to the core of our activity than other distractions as we had to establish planned. These included retrospective security measures like use of consignment stock, ROT planning and the use of agents. We had the additional worry of contagion to Portugal/Spain and possibly Italy but in the end, exit did not occur and we were relieved. The situation was managed and managed well but remained firmly within Category 3 of our focus.

2016 Brexit from the E.U.
This was a seismic event with far reaching effects but from an International Credit and Collection operational point of view it pretty much resulted in business as usual. The side effect for the UK itself was, I believe that it accelerated a trend started in the 1990’s that large SSC’s moved to more favoured destinations like Eastern Europe, Ireland, Asia and the Far East.

2018 GDRP
I personally, have reservations about GDRP but understand why it’s there. It’s now embedded in what we do and it has to be respected and complied with. We also need to manage it strictly as a Category 3 focus.

2019 Covid19
I do not regard Covid19 as a distraction as this would be disrespectful of the magnitude of this human catastrophe and the millions of lives lost or shattered. I was not affected directly and suffered no losses to my immediate family for which I am grateful.

On the question of it’s effect on operational Credit Management, we were still required to maintain Cat 1 and Cat 2 focus but had to it from different places, namely home or office. As a profession we dealt with this change with great skill and inventiveness but the ebb and flow between home and office continues to be debated. Another area that we have had to keep to the forefront of our minds
is incremental risk accruing to economic sectors more effected than others, notably Hospitality.

1950’s to Present ESG
At the start of this article, I said that I was writing it after being inspired by a presentation made by two Credit Mangers but when discussing ESG, I am responding to another presentation that I witnessed on ESG alone, which did not inspire me at all. At the outset the presenter, who was not a Credit Manager promoted the notion that “the absolute first priority of every Credit Manager was to manage and promote ESG” In view of all of the aforesaid I find this statement is ludicrous. ECG is noble and worthwhile and should be regarded as a set of aspirational goals for the Enterprise to be achieved over time and is evidenced by the lengthy timeframe of its’ evolution. ESG should be led by the enterprise and inspired by the enterprise within which Credit and Collection will play its’ part as Cat 3 focus.

Our future
As a credit professional it has been of continuing comfort to me over my career that our PURPOSE is clear and unambiguous and our hierarchy of FOCUS is such that it equips us to deliver our obligations to the enterprise. Our history tells us that we will remain able to address future challenges.

Bill Dunlop President AICDP

March Newsletter 2024

March Newsletter 2024

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Celebrating 10 Years…

Celebrating 10 Years…

We need you…

As we celebrate 10 years of AICDP, we want to ensure that we are constantly evolving and providing our members and partners the highest quality events and content.  After 2 years of lock-downs due to Covid, we were finally able in 2023 to resume F2F events much to the delight of us, our members and our partners.

However, unlike other Credit organisations who employ full-time staff to plan, run and manage events and content, AICDP is run by Credit Professionals who also have senior roles in industry and each and every Board Member gives their free time to support our organisation.

Planning and running high quality events and content in addition to our 9-5 responsibilities, is of course, very demanding. Therefore, we are inviting all partners and members to join our new Events Committee whose main responsibilities and remit is to assist in the planning and organisation of 3 main areas:

  • Newsletter content
  • Webinars
  • Events, both virtual and in-person

This new Events Committee will be completely voluntary and will be open to all members and partners of AICDP.   The Committee will manage itself and will report on progress to the Board on a regular basis to ensure alignment with our events and newsletter schedule for 2024.  Also, given how busy everyone is with their “day jobs”, the Events Committee will also be able to manage their time and schedule even outside of the 9-5 to minimise impact on your working life.

I would encourage any member or partner who is a keen organiser or planner and is looking to take a more active role in delivering content to maximise the reach and impact on our membership and also to maintain the highest quality deliverables to take advantage of this opportunity to shape our future events.

Interested members or partners should send an email to marketing@aicdp.global to express their interest in being part of this initiative.

Thanks to you all for your hard work, ideas, engagement and enthusiasm over the past 10 years and we’re very much looking forward to the next 10!

“Many hands make light work.” – John Heywood

Intellimind Joins AICDP as Corporate Partner

Intellimind Joins AICDP as Corporate Partner

The Association of International Credit Directors and Professionals (AICDP) proudly announces the addition of Intellimind to its esteemed roster of Corporate Partners.

As AICDP continues to expand its membership to provide unwavering support for Credit Practitioners, our Corporate Partner network stands as a beacon of experience and expertise that members can readily access.

The inclusion of Intellimind strengthens the foundation of knowledge that our members consistently identify as pivotal for the industry’s advancement. Intellimind’s global presence has served clients worldwide for over three decade. In alignment with AICDP’s mission to shape the future of international credit, this partnership is a harmonious convergence of shared objectives.

Intellimind stands as a global leader in B2B Credit Management solutions, driven by the belief that superior information fosters superior business decisions. Their cloud-based platform offers a comprehensive suite of products and services, empowering companies to make timely credit decisions and effectively manage credit risk. Intellimind’s Credit Voyager solution is supporting clients to manage over 4 million individual credit lines and collaborates with more than 40 Credit Agencies and Insurers, Intellimind’s impact resonates across the globe.

Mike Diette, CEO of AICDP, expressed his enthusiasm for the partnership: “AICDP remains steadfast in evaluating the evolving needs of our members, ensuring our Corporate Partner network comprises leading experts equipped with invaluable insights. I have had the privilege of knowing Nick Riby for many years, and his support of our association speaks volumes. Through this collaboration with Intellimind, our members gain access to Nick’s unparalleled expertise, and we eagerly anticipate his contributions at future events.”

About AICDP

The Association of International Credit Directors and Professionals (AICDP) is a premier organisation dedicated to supporting Credit Practitioners worldwide. With a commitment to fostering knowledge exchange and professional development, AICDP empowers its members to excel in the dynamic field of credit management.

About Intellimind

Intellimind is a global leader in B2B Credit Management solutions, offering a cloud-based platform designed to facilitate informed business decisions. With a presence of teams on three continents and a track record of almost three decades, Intellimind provides comprehensive products and services to effectively manage credit risk and drive business success.