Chasing payments is nobody's favorite part of running a business. But when cash flow runs dry, companies can quickly find themselves in hot water.
That's why credit management is so important. It's all about keeping a company's finances healthy by managing who it lends to and how it gets paid back. Credit managers decide who gets credit and how much and make sure those bills get paid on time.
So, what does it take to become a credit management pro? Read on as we break down the top 10 skills that every aspiring credit controllers needs in their tool belt. We'll break down each one and show you why it matters.
Table of contents
Introduction
6. Risk assessment capabilities
9. Customer service orientation
10. Ethical judgment and integrity
Conclusion
1. Analytical skills
When a company is considering hiring a new credit manager, the first skill they look for is strong analytical abilities. That's because analysis is vital for making smart credit decisions. It's about spotting patterns, understanding trends, and making intelligent decisions based on what you see.
Credit controllers pore over financial statements, payment histories, and credit reports to spot potential issues. Sharp analytical skills enable professionals to translate raw data into actionable insights.
For example, by analyzing a company's financial ratios over time, a credit manager can gauge whether they're at risk of defaulting on payments. If profits are declining and debts are piling up, it might be time to adjust their credit terms.
In the business world, this means being able to dig into financial data and credit reports. You need to be able to spot trends that others might miss. Maybe you notice that a specific type of customer always pays late or that sales always dip in August. These insights can help you make better decisions about who to give credit to and how to manage payments.
Many people think analytical skills are something you're born with. But the truth is, they can be developed with practice. Here are some tips:
- Take accounting, finance, and data analysis classes to improve your understanding of financial statements.
- Read articles and books on analytical methods like ratio analysis, benchmarking, and forecasting.
- Study real-world financial cases to sharpen your analysis on actual business scenarios
- Learn to use data visualization tools to spot patterns in numbers.
2. Financial acumen
In credit management, financial acumen enables professionals to gauge clients' fiscal health accurately. It's like having a sixth sense for finances. You need to be able to look at a company's books and understand what's going on under the surface.
It all starts with mastering the two cornerstones of financial reporting:
- Financial statements: These documents provide snapshots of a company's financial position. They include the income statement, balance sheet, and cash flow statement. By analyzing these statements, credit managers determine trends over time.
- Key performance indicators (KPIs): KPIs like net profit margins, return on assets, and debt-to-equity ratios reveal how efficiently a company uses its resources. Unusual fluctuations in KPIs can indicate developing issues.
Sharp financial acumen gives credit managers the basics they need to operate efficiently. It's a baseline for thoroughly assessing client financials and making sound credit decisions. Over time, professionals can strengthen their money mastery through finance classes, industry research, and reviewing case studies.
3. Communication skills
Crunching numbers all day might seem like a solo activity. Something you can do at home, just you and your calculator. But productive communication is critical for credit management professionals. Yes, it requires just as much people skills as math proficiency.
Think about it - you're not working in a bubble. You need to work with other departments in your company. Sales might want you to extend credit to a big potential client. The legal team might have concerns about a contract. You need to be able to talk to all of these people, understand their problems, and explain your decisions. Poor communication cripples these discussions.
Master communicators get the message across while maintaining positive relationships, even during difficult talks. Nobody likes talking about money they owe, but as a credit manager, that's part of your job. You need to be able to negotiate payment plans or deal with overdue accounts without burning bridges.
Communication excellence also enables credit controllers to provide financial coaching and advice to struggling clients. They convey intricate financial concepts in a simple, straightforward manner. This ensures comprehension across teams with varying levels of financial literacy.
The good news is that communication skills can be improved through practice. Techniques like active listening, paraphrasing, and gentle assertiveness can go a long way in productive conversations.
4. Negotiation skills
When money is tight, tensions run high. That's why strong negotiation skills are another part of credit management success. Contrary to popular belief, negotiation isn't about confrontation or driving hard bargains. Instead, it's a collaborative process focused on finding mutually beneficial solutions.
Credit controllers regularly negotiate payment arrangements with cash-strapped clients. The goal is to strike a win-win deal that helps the client's business survive while recouping the money owed.
What does it take to become an ace negotiator? Key skills include:
- Active listening: Hear the client out to understand their whole situation
- Problem-solving: Brainstorm creative solutions that work for both parties
- Compromise: Be willing to meet halfway when needed
- Assertiveness: Politely stand firm on the core conditions that protect the company
Say you have a client who's always paid on time but suddenly misses a payment. You call them up, and it turns out they've lost a big contract and are struggling. Perhaps you can work out a payment plan that gives them some breathing room while still ensuring you'll get paid. You've solved their problem and protected your company's interests.
Sharp negotiating abilities lead to favorable payment terms and strengthened client relationships over the long haul.
5. Attention to detail
"Don't sweat the small stuff" does not apply to you. In credit management, the small stuff can have enormous consequences. In handling sensitive financial data, credit pros must have superb attention to detail. Even minor errors can spiral into major issues down the road.
Some examples include:
- Reporting an inaccurate credit score for a prospective client, leading to the wrong credit decision
- Misreading a credit report and missing crucial information about payment history
- Overlooking a slight discrepancy in a payment record, enabling fraud to go undetected
Meticulous attention to detail ensures accuracy in reporting, record-keeping, and data analysis. While redundant at times, double and triple-checking those small numbers is crucial. It saves significant headaches by flagging potential problems early.
6. Risk assessment capabilities
At its core, credit management is about risk assessment. Will clients pay us back if we extend a line of credit? What could go wrong? How much will it set us back? This skill is crucial because it's all about protecting your company's money. Every time you extend credit, you're taking a risk. Your job is to make sure that risk is worth taking.
Some potential risks you might need to assess:
- Credit risk: The financial stability of a prospective client. May include credit score and payment history with other vendors.
- Market risk: Evaluating if changes in the market can affect the client's ability to pay.
- Operational risk: For example, declines in sales or profits that may precede nonpayment.
- Fraud risk: Is this client who they say they are?
Over time, credit managers cultivate a "sixth sense" for spotting red flags.
7. Regulatory knowledge
Credit management has become such a challenging job because the rules keep changing. The regulatory environment around credit is always evolving. Usury limits, reporting requirements, and collection restrictions. Keeping it all straight is tough. Still, credit managers must maintain sharp regulatory knowledge.
As a credit manager, you need to be familiar with laws like the Fair Credit Reporting Act and the Truth in Lending Act. These laws set the rules for how we can collect and use credit information and how we must disclose credit terms to customers.
Flouting the rules risks heavy penalties. Regulatory slip-ups can also spawn expensive lawsuits or seriously damage a company's reputation.
However, remember that regulatory knowledge isn't just about avoiding trouble. It's about building trust with your clients and protecting your company's reputation. It's a central part of being a responsible and effective credit manager.
8. Technological proficiency
All these skills we've talked about might seem like a lot to keep track of. Spreadsheets and paper files were instrumental in the last century. In today's tech-centric environment, credit controllers use powerful fintech to enhance productivity.
Sophisticated tools like automation, analytics, and credit risk modeling sharpen and speed up critical processes like:
- Credit application reviews
- New client onboarding
- Existing account monitoring
- Invoice delivery and tracking
- Payment reconciliations
- Cash forecasting
There was a growing debate in the industry on whether technology would replace human credit managers. The answer is no. Technology is a tool, not a replacement. It can crunch numbers and spot patterns, but it can't make judgment calls or negotiate with clients.
Yet, that doesn't mean you can ignore it altogether. Professionals who embrace new innovations gain a competitive edge. And if your competitors are using these tools and you're not, you might fall behind.
For example, tools like Chaser have a full suite of credit control features that can help you track who owes what and when it's due. They can even send out reminders automatically, saving you time and helping you get paid faster.
9. Customer service orientation
At many companies, the credit department has a reputation as cold and rigid number crunchers. But positive client relationships are the cornerstone of success. And these relationships are often long-term and intimate. After all, you have access to sensitive financial information.
Your role is not only as a gatekeeper of credit but also as a partner in your client's success. With so much repeated contact, a spirit of partnership pays off in spades. Friendly, responsive service keeps clients engaged. It also earns goodwill during occasional bumps in the road, like late payments.
Specifically, stellar service in credit management entails:
- Patience: Willingness to explain policies and financial concepts multiple times
- Empathy: Treating clients as people first, not just transactions
- Proactivity: Reaching out early when potential issues arise
- Fairness: Even application of policies to avoid perceptions of favoritism
Though less quantifiable than number-crunching ability, customer service excellence drives results.
10. Ethical judgment and integrity
We've reached our final skill, but it's definitely not the least important. In fact, you could argue that ethical judgment and integrity are the foundation on which all the other skills are built.
Credit management professionals are privy to sensitive client financial data spanning many years. Handling mountains of confidential information requires sound ethical judgment. Ethical credit management is about more than just following the rules (although that's important too). It's about making decisions that reflect honesty and integrity, even when no one's looking.
Beyond basic honesty in accounting and reporting, credit controllers must:
- Safeguard client data privacy
- Avoid conflicts of interest around financial relationships
- Refrain from transactions that could be perceived as coercive or predatory, even if legally acceptable
Ethical choices aren't always black and white. Navigating gray areas while maintaining principles and client trust calls for maturity of perspective.
Conclusion
Juggling intricate data, legal requirements, and client relationships makes credit management a complex but vital role. Companies rely on healthy cash flow, and credit pros supply the lifeblood.
If you're intrigued by this high-stakes, high-reward career, now is the time to start sharpening your skills. Ready to take the first step? Why not start by exploring some of the technology you'll be using in your career?
Tools like Chaser's accounts receivable software can help you put these skills into practice, automating routine tasks so you can focus on the high-level decision-making where your expertise really shines.
