What came first – the chicken or the egg? Well, let’s leave that one for the evolutionary theorists. In the business of trade credit, instead of simply chickens and eggs, we deal with three factors: people, a purpose and a credit process. If I’ve learned one thing in the last year and a half, it’s that the people and their purpose need to be flexible, while a solid credit process is imperative to propelling your business forward. But which one should be put in place first? In this first article for my mini-series on credit management, we’ll explore how the three fit together. 

Let’s start with your company’s credit process. Are you clear on what it is? For example, can you formulate it in an elevator pitch? This is something that I talk about on a daily basis with clients and prospects alike. 

I have found that there are generally four schools of thought:

1. “I like the folks I deal with so therefore I provide them the necessary credit”

2. “I get a credit application and if it checks out, we process it accordingly”

3. “We obtain credit reporting to understand the sale and supply chain before making a decision”

4. “We have a credit manual we follow, which sets the amount of credit we must sign off on based on the information provided and validated”

Whichever process you follow, there is feeling involved. Any trade credit decision, then, falls back on the people making it, and the purpose to which they are making the decision.

For example, if a company is in hyper growth mode, a decision maker might deviate from the company’s credit process to approve a sale they feel isn’t right. In other words, they may be willing to take a gamble to reach the company’s goals. It’s all well and good to have a solid credit process, but it’s useless if your people don’t apply it properly. The process needs to be aligned with the company’s goals: it should include airtight guidelines for when a client should be shifted to prepay, and the people using it must be properly trained on how to make decisions. 

Don’t forget that in this context, the people are not just your credit management team. In today’s market, you need to be able to identify a company’s creditworthiness during an initial conversation. And if your sales team is properly trained to do this, it grows their confidence in the company’s credit process, removing friction between sales and credit management teams. Sales should be able to answer questions like: 

- If the client needs more credit but is facing major exposures, what is needed in order for you to approve the credit?

- If onboarding a client, what questions should you ask? 

- What is necessary for you to operate your business in a proper manner?

Having knowledge of competitors, industry and overall market conditions will enable you to create more than a process, but a timeline for trade credit as well.

What comes first – the people, the purpose or the process? Well, just as with the old chicken-and-egg conundrum, we can’t be 100% sure. No matter the people you have in place, or the purpose of your company, you need a strong credit process. But it needs to work with your people and the purpose, and evolve continuously. My advice is, find the resources to look deeper into the process, align it with your company’s purpose, and the people will be propelled even further. 

We will continue to explore the steps of a proper credit process over the coming months. Next, I will focus on the origination of a sale, and answer the question, “What are the tools that will enable your sales team to confidently make the right sales?” Stay tuned!

Ryan Hurtado

Senior Credit and Receivables Consultant,
 Allianz Trade USA