Credit Department Organization; Centralized vs. Decentralized Credit Operations

The requirements of the business determine the size and type of credit department. Historically, the credit department tended to remain fairly stable in size and staffing even during periods of business decline.  Why?  Because in an economic downturn the credit department will face more collection problems.  During periods of economic prosperity, the credit department were likely to be busy approving new accounts or evaluating existing accounts for higher credit limits.  As a result, in the past credit departments tended not to change much in size.  

Factors including mergers, acqusitions, centralization and automation mean that no one's job in credit can be considered secure.  Consequently, the organization of the department is particularly important, as is the need for every individual to improve their skills and their value to their employer.

A measure of permanence and stability must be achieved that will assure that the department functions under all economic conditions. Although the organization should not remain static, it is highly desirable to have experienced and capable employees always available within the department.  Options exist to accommodate heavy workloads.  Cross-training personnel permits greater flexibility.  It is even possible that other company employees and in particular accounting department personnel can be trained to perform credit related tasks.  Alternatively, temporary staff can be hired or work can be outsourced to companies specializing in credit-related work such as cash application and dispute resolution.

Many companies have faced the questions of whether to centralize or decentralize the credit function.   It is a complicated decision, made more complex if the company is large with geographically diverse operating units. The topic of centralizing the credit function has become more important recently as many corporations are reengineering their business processes to take advantage of automation and electronic commerce.

• In a centralized structure, the credit function is controlled and administered from a principal or central location. Smaller businesses or companies operating in only one geographic area have centralized credit functions.
• In a decentralized structure, the credit function may be report to a principal location (headquarters) with credit personnel located at remote offices.

An overwhelming number of companies have opted to centralize their credit operations. This has resulted in a significant amount of job loss among credit professionals.  However, improvements in software and in communications techology, combined with the use of company wide ERP software make centralization of the credit function more efficient than ever.  Combined with the application of software including collection management and deduction management software, a small and centralized credit department is often more productive than a formerly decentralized credit function.

Edited by Michael C. Dennis.  Mr. Dennis is the author of "1001 Collection Tools and Tips."  He can be reached by email at mcdennis13@yahoo.com