A Threat to the Credit Professional?

Credit card use in business-to-business transactions, while perhaps not a threat to the actual profession, signals the move to increased automation in order processing and is perhaps indicative of a speedier, less human credit decision process that's waiting just around the corner.

Still,

none of these topics are imminent and immediate threats to the profession and nested in each of the articles that have addressed them is an attempt to link the commercial credit profession of yesterday to the commercial credit profession of tomorrow: how credit scoring will leave more time for more productive activity and offer a competitive edge, how outsourcing can offer labor high in both quality and value and how credit cards can be used to a great, profitable advantage.

But in the future, if these recently discussed items become ever more ubiquitous in credit departments across the country and staff numbers tend to trend downward, it might not necessarily be because credit professionals are no longer needed but because they're needed elsewhere. A number of companies, as briefly discussed in last month's feature article, have started giving credit staff a greater role in strategic decisions. Given the current global economic situation, the credit skill set is becoming a more valuable longterm planning resource.

Why Credit? Why Now?

A recent phenomenon in global economic development has been that a number of boom countries are also the riskiest places to do business. China, India and Eastern Europe are all offering American companies a wealth of opportunity for growth--as well as an opportunity to get burned by selling indiscriminately without considering the economic and political risks endemic to selling in those countries.

"For most multi-nationals, where's your growth going to come from?" asked Richard Clark, CICE, director of global credit at Ingersoll-Rand Co. "These countries are growing at 20-25%, 30%," he said. "The growth rate in the U.S. is 5-7%." Clark has recently become involved with his company's strategic planning initiatives. "We're starting to expand and develop into emerging markets," he said. "As that happens, risk and capital management become more important."

"I participate in the long-range planning process and, particularly, working capital and the amount of capital that's going to be required," said Clark. "My role is to make sure the senior leadership understands the risk and how long it takes to get paid." Clark noted that as corporations continue to grow into these high-growth, high-risk areas, the credit skill set becomes even more valuable. "If I think about what is becoming strategic to businesses, working capital and cash flow management are certainly vital," he said, adding that both of these areas are places where the knowledge of a well-seasoned credit professional can come in handy.

As the marketplace continues to grow globally, foreign exchange management skills are also becoming more important to an organization's strategic decisions. "Even for companies only selling in the U.S., these things still apply," said Clark. "Foreign exchange is important locally because you might be sourcing [or] facing competition from Europe or Asia." Depending on the strength of the dollar against certain currencies, business in certain areas and industries could be more or less susceptible to the threat of foreign competition.

Growth in these riskier nations isn't merely for the benefit of American companies bold enough to invest there, but also for companies within their own borders, and as a country's economy continues to spur greater business for its companies, credit becomes a much more sought after item. What may have once been a cash-only environment could now be a place where a number of customers are seeking credit terms and financing agreements. "As they continue to grow, customers are looking for financing terms," said Clark. When a company wants to sell to someone, and the customer is looking to finance the purchase, the credit executive is the most logical source to know what's feasible and what's foolish. "People go out trying to find what kind of financing options could be offered," said Kevin Chandler, CCE, director of global credit and collections for Halliburton Energy Services Inc. who echoed Clark's statements, noting that many customers are becoming interested in specific trade finance programs, and that credit professionals tend to be a resource for information in this regard.

In addition to an economic climate where growth is coupled with financial hazards, the risk mitigation skills of credit professionals are beneficial throughout the current era of mergers and acquisitions. As companies continue to fuse together, a credit manager's knowledge of their industry and competitors becomes crucial for a company that remains on the fence of about acquiring to acquire another business.

Ultimately, the nature of modern business has increased the need for effective risk management. "Acquisitions, [entering] a certain market or not, process related questions," said Chandler. "We get involved in the issues that we have [as a company]."

How It Happens

Different approaches exist for how a company's group of strategic, upper-level decision makers would go about inviting a member of the company's credit department into a long-term planning meeting, from a simple, impromptu invitation to a meeting, to a regularly scheduled set of recurring meetings.

"My interaction is pretty broad," said Clark, who works with regional sales managers, regional business managers and country specific managers, as well as with the company's credit team. Clark also participates in monthly business reviews with business sector presidents where he and his associates go over each month's results, issues, actions and necessary orders.

The situation for Chandler is a bit different. "More impromptu than anything else," he said. "Someone would say, 'Kevin might have something to say on this'." In his case, the decision of his company to utilize his expertise was a bit more informal.

Once a meeting like this takes place, some might think that a credit executive was invited solely for the purpose of numbers; what matters most is the bottom line and only the bottom line. Upper management wants to know how much it will cost and if it's worth it. Chandler noted that, in some instances it might be a demand for very technical, concrete data, but at other times, upper management might want a more fluid, risk-based assessment. "I think it's a little bit of both," said Chandler. "It depends largely on the skill set of the credit professional."

As with any meeting involving higher-level company officials, it's important that credit executives invited into these meetings take the opportunity to prepare a solid response. Be sure to know what the meeting will focus on and what would be relevant and valuable information for your company's strategic decision making. "I think if you're smart, you go out of your way to make sure you've got a good response," said Chandler. "It gives you a chance as an individual."

What It Means

If this becomes a greater, more widespread practice, the role of the credit professional may also experience some changes, like the expansion of one role, skill or expertise and the contraction of others. The normal skills essential to a successful career in business will always still apply. "You've got your basic skill sets," said Clark. "Ability to multitask, good change management skills, all these things." These skills may even become more important as credit executives come to play more of a role in strategic planning and as the overall number of staff and customers they have to deal with increases. "You've also got to be a good communicator," he added. Solid relationship skills will also come to be important as, in Clark's case, involvement in strategic planning further couples the sales department with the credit department. Even though these two parties have traditionally had trouble getting along, the health of the relationship between both of these entities will have an effect on the productivity of any meeting.

Other things will come into play and while the credit executive may always remain involved in tasks dealing with credit extension and risk assessment, the job description may come to include many other seemingly unrelated issues. "It's outside the normal realm," said Chandler. "Credit executives have a little more different kind of task," in this sort of environment. "I think you need to expand your current role," Clark added, noting that knowledge of foreign exchange management, enterprise resource planning (ERP) systems and point solutions providers is valuable to credit professionals as strategic decision makers.

Ultimately, it's about immersing one's self in the entirety of the company's processes and its future. "We have to be open to change," said Clark. "We need to insert ourselves into the process."

Trend?

How frequently these requests are being made of credit professionals is debatable, even between Clark and Chandler, whose opinions differed on how widespread this phenomenon really is and whether or not it could even be considered a trend.

"I think a lot of companies are moving in this direction," said Clark, who added that, recently, company interest in the specific elements of customer financial statements, traditionally the territory of credit and financial analysts, has risen. "In the past, companies didn't pay much attention to the balance sheet side of the financial statements," he said. "As an organization in today's environment, even in the senior leaders, part of how they're paid is balance sheet management. Now, today, part of compensation is based ... on the balance sheet."

It could be said that the inclusion of credit professionals in strategic planning, as well as management's burgeoning interest in the specific details of a customer's financial statements, is indicative of a wider trend in business, or at least a recent revelation regarding the importance of a company's receivables, which are often its largest asset.

"Think about DSO (days sales outstanding)," added Clark. "In times past it was a scorecard for the credit department. Now, we talk about DSO with the sales people." Clark noted that DSO, for certain regional managers in his company, has become part of their compensation packages.

But, in contrast to Clark, Chandler stopped short of calling this a trend. "It's tough to say whether it's a trend or not. You don't always know," said Chandler. "It's hard for me to say it's a trend." Still, Chandler conceded that the frequency with which credit professionals get involved in their company's strategic planning might be on the rise. "It's a little more common than what it used to be," he said.

"They (credit professionals) have an internal focus ... and an external focus," said Chandler. Credit executives tend to deal both with internal matters like processing and account management, as well as items that touch the customer like sales. "The combination of the two provides some with a very unique look at how things go," added Chandler.

"I think it's a desire on behalf of the organization to look internally for answers," said Chandler. Traditionally, he added, there's always been a fascination with third-party consultation and, of course, in some instances the opinion of a detached and objective observer can be invaluable. Still, the answer to some of a company's most pressing questions about what markets to enter, what companies to deal with and what to offer a particular customer could be just down the hall. "There's an internal resource [in the credit professional]," said Chandler. "I would imagine if you asked most credit managers, they would say they have something to offer if they were only asked."

"They might say, 'it's great that we're doing this, but I had something to add,';" he said. From a more general perspective, if this becomes more popular and if credit becomes more of a part of the long-term aspects of a company's future, it will offer each commercial credit professional a chance to illustrate their worth to the company, both as an individual and as a representative of the profession itself, which may see a rise in visibility and weight as it applies to the future of corporate decision making. "I think it adds stature," said Clark. "It gives the credit person an opportunity to show what they can do." As growth continues and businesses continue to seek out more customers in new markets while in the presence of new competitors, companies will have to offer newer and more creative financing options to attract customers while still mitigating risk. "The credit organization needs to be driving that," said Clark. "It's important."

Jacob Barron may be reached at jakeb@nacm.org.