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Published Articles by David Balovich

Published in: Creditworhty News
Date: 12/10/97

(Intro by Rich Hill)

In the December 12 edition of the newsletter I wrote "sales is entitled to all the information we use to reach our conclusion". This comment drew the ire of Nancy Adams, Credit Analyst with Oregon Steel Mills who not only wrote to me but also posted her concerns in the Credit section of the CMi&s Discussion Room.

I would like to first thank Nancy for writing. The purpose of this column is not to foster one person's opinion but rather to suggest ways to improve upon what we are doing in the field of credit and collections. Before reading further I would suggest you review my column of Dec 12 and Nancy's response.

I would like to respond to the concerns expressed by Nancy not as a credit manager but as a business owner, which I am, as she suggests my opinion "bears serious consideration".

Our business like all businesses was created to provide goods/services to those wanting to purchase same and to make a profit in doing so. In our business we have employees who are responsible for various functions; management, sales, billing, credit, distribution, etc. but regardless of their function they all work towards the same goal which is to make the company profitable. Our business, like all for profit firms, exists for no other purpose.

When our credit manager promises confidentiality to peers, that means that the information will be held confidential by the organization and to see that the information obtained is not released to others outside our organization. The information being obtained is for the organization to use for the determination of risk in doing business on credit with those firms who have requested open terms. The information is not the property of any individual or department within the organization. It is the property of the organization and is to be used by all members of the organization who contribute to the decision making process, so the organization can make money. The sharing of this information with management, sales, finance and others deemed necessary is perfectly acceptable.

We help each other become educated not only because we want our industry to stay healthy but most importantly we want our firm to be healthy regardless of what is happening in the industry. Our business is always our first priority and the industries condition will reflect how well or poor our business is doing. Our business is not controlled by the industry. In order to have an industry there first has to be an operating business.

The sales organization has far more information concerning our competitors sales figures then the credit department. This information is readily available through industry sources as well as reports obtainable from Dun & Bradstreet, Standard & Poors, the public library and the internet. Several members of the sales team may have previously worked for the competition or know someone who presently does and they have first hand knowledge of the sales volume. In fact, our credit department has no knowledge of our competitors sales information unless they receive it from our sales department. They are not permitted to ask either for sales volume or terms of sale during their credit investigation as our attorneys feel this may be an antitrust issue. What the credit department may ask is: highest credit extended; balance owed; amount past due by category (30,60.90); if there is security or guarantees; and if the customer discounts or anticipates its' bills.

When sharing this information if the credit personnel feels that someone in the organization is untrustworthy, then the source of the information is coded (similar to how NACM assigns member numbers for the use by its members) so that the reference name is not revealed. I mention this in the original column.

There is no question that good credit practices are the responsibility of the credit department. We must, however, always keep in mind who pays for and benefits from the information acquired, it is the organization. Good credit practices mean that we use and share the information with those in our organization who have the need to know and we protect the information provided from those who are not priviledged.

Sales is among those who has a need to know. How else can the credit department assist in showing sales the profit potential of the applicants?

Credit decisions are the responsibility of credit and sales working together as a team to produce profitable sales. This means they share with each other the information they obtain independently so that the companys goals can be met. "Let them figure it out and let them take the fall" is a motto that will never apply if there is open communication between sales and credit. Open communication guarantees that it will be figured out and if there is a fall, we knew the potential existed.

It is time that credit managers get "out of the tunnel" and begin to look at the "big picture".

All too often the credit community laments "that they are misunderstood and not appreciated for what they do". That will never change if we continue to foster the attitude that "we tell them what we learn without expressing details". If we are not sharing the details then how can we expect them to support the decisions we are making.

Our salespeople not only have confidence but support the credit decisions made because they are included in those decisions. That way when a customer becomes delinquent then it is everyones function to bring the account current. It is a team effort, both in the decision to sell on credit and the collection of the credit sale.

Albert Einstien defined insanity as doing the same thing, the same way, over and over again but expecting different results. As long as we continue to believe in the "old credit myth" then we continue the insanity.

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