Rocket Science or Coffin-Theory of credit controller demystified
The purpose of developing this framework is to underline the importance of the role played by the credit controller in a company especially in the present market scenario; to put forth some sagely advice to the new entrants into this field. At the time of entry to this field when I turned to literature to help me in understanding the role of a credit controller to my utter surprise I could not find concrete material on this area.
Credit controller is an important function of any company. Rocket and Coffin are used as metaphors to underline the importance of this function. If this function is handled efficiently and effectively then the company will reach the stars like a rocket and if this function is not taken seriously then the company will enter the coffin. This framework assumes importance when the breezes of second imminent recession are touching the shores of our country. The choice – as they say – is in our hands. The primary objective of this framework is to demystify the credit control mechanism and underlining the importance of a credit controller in a company.
Credit Control is A strategy employed by manufacturers and retailers to promote good credit among the creditworthy and deny it to delinquent borrowers. This will both increase sales and decrease bad debts, thus improving a company’s cash flow. Credit control is an important component in the overall profitability of many firms.
“Credit Controller” in today’s is proving magical words to everyone. I have developed a theory called “Choice of rocket or coffin”. One will understand the meaning of the same while going through the diagram given below.
The diagram depicts two pictures by and large.
One is identical with Rocket and another is a look alike of Coffin
The metaphors are detailed as under:
1) “Rocket” depicts the methods or processes or standard operating practices (SOPs) which are to be followed judiciously by any company in the area of credit control. The rocket if ignited properly y will boost sales, control the revenue leakages and take the company to a new level and to the new heights step by step.
2) ‘Coffin” is similar to “failure” – failure to take and implement decisions as suggested by the credit controller from time to time. Once this happens even though the sales will increase so as the debtors, company may face cash crunch and this may adversely affect the growth of the company and ultimately the company will end-up in the coffin.
New definition of CREDIT
a) C- CUSTOMER
“Customer is king” in every situation. He is the purpose of the company’s existence. The basic function of a credit controller is to retain the existing customers, recover bills in time from the customer and help boost sales by bringing good new customers. Cost-Wise retaining a good customer is cheaper to attracting a new customer. When there is a competition, both retaining and attracting a good customer becomes increasingly difficult. Remember – Companies have competition and the Customer has Choices. Contacts / rapport with the customers are an essential ingredient of any credit controller’s job description.
b) R- rating the customer
Sales review meetings on a regular basis are very essential for any company. Credit controller should be made part of this meeting if not already done by any company. One very good thing the credit controller brings to the meeting table is market intelligence. He will bring-in his expertise on various aspects of credit monitoring which interalia include:
• In depth study of balance sheets, Annual reports
• Grasp about the history of company
• Knowledge about the credentials of the company
• Market intelligence about the current orders in hand with the company
• knowledge about the development plans of the company
• Market Feedback about the company
c) E- emphasis on SOPs
Once the credit controller is satisfied with the data/feedback/visit report of the new client while approving the contract he should emphasis on the exchange of expectations between the two companies. One may call it as understanding the requirements of each one to start the business. A meeting with finance team, admin team, sometimes with the bookers/secretaries is required before he instructs operations department to start accepting booking of cars for the new client. Terms and conditions of the deal (both negotiable and non-negotiable) are to be finalized during these meetings on mutual agreement.
d) D- Directives to the stakeholders
After signing SOPs there is a need to issue directives / guidelines to all the concerned before the deal is executed. If required, training is to be imparted for the same. Controlling & monitoring mechanism is to be put-in place firmly and the same is to be communicated to all effectively.
e) I- Impact
Credit controller should check the impact of all the above four points from time to time. Constant monitoring of results will help him realize the impact of various procedures laid down by him. The power to negotiate / modify the SOPs is to be delegated to the credit controller
f) T- timely recovery of bills
Recovery of bills is the important job function of the credit controller. He should have the ability and expertise in preparation of aging report, meeting/follow up with the clients to know the status of bills as per contract, fixing the problems if any, timely recovery of bills before they become over due and infusion of expected cash into the system as projected and deciphering the early warning signals of debts turning bad. Last but not the least, to keep the management abreast about the status of recoveries regularly
Job description of Credit CONTROLLER
Credit controller is one who” controls roller coaster of receipt and payment” efficiently.
The first and foremost role of credit controller is accept the collection targets set by the management, mold the same into a workable action plan, execution of the plan and rigorous follow up with various staff/officials/clients, fixing the problems if any and collect predicted funds within time frame given by the management.
2) Keeping control on sales department/monitoring sales activities
He has to ensure that sales department is bringing only good clientele into the company. The credit limit and the volume of business allowed on credit are to be decided by him after reviewing all the data of the new client. He should make use of his power delegated to him by virtue of his role and communicate necessary instructions to operations department for execution of the action plan and also direct them not to accept any further booking for the defaulting client. He should be a go getter and should take along all the people with him in discharging his duties. He should keep keen eye on any commitment done by sales manager to the new customer with regard to maintenance of new account.
3) Customer grievance settlement mechanism
Many a times it is noticed that a customer relates operational issues with the release of bills which is unnecessarily. At this juncture he should take help from customer service manager to understand the nature of failure of duty, strike out solution with the managers and take up the same with the finance/admin authority of the customer. This will help him to solve the disputes amicably and prevent revenue loss to the company. By this way he can retain the old customer and also ensure collection of all payable bills in promptly. It is a visioning function of the credit controller.
4) Liaison between new customer and operations/sales department
He should monitor the flow of work, exchange of data, reports obtained from customer service manager to satisfy himself that all is well. If there is something lacking he should take initiative to bring the confidence back in the mind of new customer. Regular visits should be scheduled along with sales team for the same. He should be receiving report of feedback form from the service desk at regularly which will help him to protect the interests of the company in times of crises.
5) Liaison between accounts department of his company and the customers
He should get correct aging reports from accounts department from time to time. He should get the balance certificates duly signed by the accounts manager once in a month for each party. He should then arrange to issue the same to all the customers and get the confirmation of the customers before the month end. By this way ledgers of both the companies will go hand in hand, there will be no billing dispute, recon will be in control, he can project the collections in an accurate manner; monthly closing of account ledgers /MIS will be accurate. Balance confirmation certificates are also useful tools in case of litigation. This will also help accounts department to keep the position of debtors in control, overdue bills can be monitored effectively, and revenue losses can l be minimized Regular meeting is to be conducted with the accounts team to keep all this under control.
6) Reporting of debit and credit notes to credit controller
He should be in full control of the vouching the data of debit and credit notes passed by accounts department to various parties. Whenever required he should call explanation from the respective head of the departments for the same. A report of all such debit and credit notes passed during a month should be called for by him from accounts department to monitor the same. This makes the control function very effective.
7) Controlling on billing department
He should ensure that operations department is closing all the duty slips in a timely manner and handing over to billing department for raising the bills subsequently. The billing department should submit the data of bills dispatched to various customers fortnightly to him to calculate aging of each bill. A separate process is to be set to handle the bills returned by the customers for some dispute like wrong charges etc.
8) Implementation of effective software in the company
He should be consulted while implementing new credit monitoring software in the company. He should be able to retrieve the data like debit/credit notes, bills dispatched, aging, total receipts vs. total sales etc at a click of a button. In a way it should be a kind of MIS which helps him in taking effective and timely decisions. Handling huge data is possible only through leveraging technology. But this should be done effectively and efficiently. The more he reduces the dependency on others to get various types of data the more effectively he can function.
9) Role of mentoring
While implementing various SOPs at all the levels he should ensure that staff/officers accept the same with a right spirit. There is every room for resistance by users as people generally resist change. Because people are scared of change they like orthodox methods to be followed. He should have a knack of dealing with people and steering them through change. He should also see that sales staff should be under his watchful eyes to prevent them from accepting bad clients but at the same time also encourage sales team in pursuing with their new sales targets.
10) Review meetings and visit to branches
He should conduct review meetings with staff attached to operations, accounts, billing from time to time to review the progress. Any deviation to the procedures and practices are to be handled firmly He should also conduct periodic visits to the branches, customer’s premises and to all other stakeholders. Branch Manager and his / her team are responsible for the business development and they should be made accountable for all the lapses. Minutes of the meetings are to be prepared to make every one responsible. Visits and reports are helping tools in monitoring the credit.
In the end, we can say that Credit controller plays a vital role in the credit management of a company. The company and the incumbent should take the role seriously. The credit controller’s office should be equipped with proper human resources and the infrastructure to smooth delivery of results. As the metaphor says effective functioning of the CC mechanism will decide whether the company will reach the next higher level like a rocket in the sky or will rest in peace in a coffin. Ultimately, credit controlling is no rocket science; what are required are right knowledge, right attitude and right skills of a credit controller.