Quick Contact

Are you missing valuable credit information on those you deal with?

Find out what information is available. Just complete the form below and we will contact you.




Re-Type Code:

Refer Potential Members

Why should I submit potential members to NACM?

Are you tired of dealing with
credit reference requests?

Direct the requesting company info to NACM. As a member they will have access to our reports. You will get fewer credit reference requests and their information will be added to your NACM reports.

Connect With Us

< back to News
Jun 01 2011
The Importance of Credit Policy
Susan Archibeque, CCE, Nicholas & Company

We literally changed our "credit culture" from one of finger pointing to one of teamwork and commitment.

When asked to write an article on the importance of having a good credit policy, I jumped at the chance. I experienced firsthand how a good policy can assist in effectively reducing DSO, bad debt write off, and managing conflict between credit and sales. A well written Credit Policy that is backed by upper management will improve efficiency and productivity. This is one of the biggest challenges credit managers are facing today.

Before establishing a Credit Policy or making changes to an existing policy, it is important to identify your company strengths and weaknesses.


Your current performance levels - Research your industry and ask your colleagues how they measure performance. Create charts and graphs that pinpoint trends and areas of opportunity. Some common areas to measure are:

1.  DSO/ Best Possible DSO - Is cash flow an issue?

2.  Bad Debt Write off % Sales - How much do you need to sell to offset your write offs. (The Commercial Law League of America has an excellent chart that can help you determine this).

3.  Percent over 90 days, Deductions & Short Payments - These require hours of research and cost to reprint invoices, sending out correspondence, and calling the customer.

4.  Workload Management - Is your department staying on top of the workload and meeting deadlines? What is your timeline in establishing new accounts?

5.  Bonus/Performance Measurements - Are the Credit/Sales Department goals conflicting or are they tied together?

Determine your companies "FEEL" rate - Develop surveys to determine the "feel' rate between credit and sales and the customer. ("Feel rate" is how your department and/or company is perceived)

*Credit Department "perception" of Sales - What kind of "credit culture" has been established in your company? Are the Credit Analysts frustrated because upper management over rides their credit decisions, which in turn limits your ability to hold them accountable? What is the "trust level" within your organization?

*Sales Department "perception" of Credit
 - Is Credit perceived as black and white, rigid, difficult to work with? Is the credit staff finding solutions to sell marginal accounts?

*Customer Perception
- Is Credit and Sales talking the same language or is the salesperson telling the customer one thing and credit is telling them another?

*Credit Department -
Are you and your staff overwhelmed and feel undervalued, feeling that there isn't enough time in the day to get everything done? Are you missing deadlines and spending hours researching old stuff? Are you and your team members lacking motivation due to lack of support? Are you expected to do more with less people? Are your repeated requests to hire more help being denied? How are you going to manage the increased workload?

*Sales Department
- Are the sales people frustrated with Credit and continually involving sales management? Are your salespeople collecting current invoices and dealing with current issues? If not, it takes double the amount of time to resolve issues and this is time they could be out selling product rather than dealing with problems. Resolving issues leaves them unable to devote time to selling.

*Customers -
Are your customers frustrated because they get the run around, experience broken promises, and perceive a lack of follow through? Is the sales person making promises for which you didn't agree?


Measurements - What you should be doing: 1) Working together on DSO variance and below industry average bad debt write off; 2) Staying on top of workload and looking for solutions and process improvements; 3) Short pays and over 90 days past due reduced so you are dealing with current issues; and, 4) Credit Analysts and Sales are measured by both Sales and A/R performance.

"FEEL" rate: 1) Credit and Sales should be working together for common goals so upper management does not need to get involved because Credit and Sales are attaining their goals; 2) Stress levels are reduced and team members are happier. The culture is one in which each department supports one other and are working toward common goals; 3) Trust levels are high and there is more consistency and flexibility in credit decision making; 4) Customers see one company, professional and efficient and customer satisfaction is stellar; and, 5) Team members are recognized for their achievements and the overall mood in the office is one of pride and accomplishment.

Productivity - You can do more with less people. Instead of always solving problems and working on old stuff, you are actively looking for ways to improve on processes. Exceptions are minimal and managed easily. Credits are processed timely. Team members are empowered and given more authority, and there is a higher level of trust among team members. Customer's are impressed and want to do business with your company.

Once you have identified where you need to focus, tailor the policy around that and make certain the credit philosophy reflects your company's mission, vision and passion. Remember that the credit policy itself should be relatively short. The procedures are more detailed and contain who, what, and why. It is important to determine the "scope" of the policy. Identify what other departments will be impacted and involve them in the process.

I developed a credit committee which included finance, sales, legal counsel, and transportation. I researched how the policy could solve some of the problems they were currently facing and how it benefited everyone. Educate the committee on the impact the DSO has on cash flow. This committee should review and bless the policy before it is presented to company officers for approval.

The Credit policy should contain at least the following:

*Policy Statement - Reflects the company's mission, vision, and passion.

*Goals and Objectives - DSO variance, bad debt write offs, etc.

*Roles/Responsibilities - Both Credit and Sales

*Authority / Reporting - Establish a credit committee to review and make decisions outside of the policy and explain the purpose of the committee.

*Training on the Policy - Determine who will train each department, who will handle new hire orientations, and how measuring success will be determined.

*Tracking/Monitoring - Prepare simple charts and graphs that can track performance and spotlight outstanding achievement in credit and sales.

Recognition/ Rewards - Establish a fund that will be used to reward outstanding achievement. Most Sales Departments celebrate sales achievement and Credit should be part of that celebration. After all "a sale isn't a sale until it is paid for."

In closing, this is the process we went through at Nicholas and Co. and we are first in our class in credit and collections. The entire company understands the impact the A/R has on our profitability, future growth potential, and sustainability. We have effectively reduced our DSO by 20 days which is equivalent to $20 million additional cash flow a day. Throughout this time we experienced double digit sales growth and profits. I contribute much of our success at Nicholas and Co. to having a well written credit policy. We literally changed our "credit culture" from one of finger pointing to one of teamwork and commitment. Most important is the fact that we have less conflict between credit and sales, which makes for happier and more productive teams. We utilize our time more effectively and get more done with less people