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Credit Department and Organizational Structure
Organizational structure is the framework within each organization in which the lines of authority, duties and responsibilities are assigned. Typically, companies are organized by department. There is some disagreement about where the credit department fits best into business organizations. Typically, the credit department is part of the finance group and the credit manager reports to the Controller or CFO. In other companies, the credit function reports to the Treasurer. In light of its role as the department responsible for collecting cash on behalf of the company, having the credit function report into Treasury has merit. Occasionally, the credit department will even reports to Sales.
There is no one best or only place in the organization chart for the credit department to reside. Traditionally, credit has been part of the corporate finance department. Often it becomes a matter of how the company itself is structured. As more decentralization of the credit function takes place, the credit and collection team find that it must report to a product manger, a division or regional VP, or even the President of a subsidiary. Sometimes a "dotted line" relationship to the regional VP and to the CFO or Treasurer exists.
In my opinion, the most controversial reporting relationship involves the credit department reporting to sales. It is fair to suggest that this can be likened to asking the fox to watch the hen house. This is not to suggest that the credit department is at odds with the sales department. Ideally, the credit and sales function will operate in a company in a way that creates or fosters checks and balances. The credit department needs to be challenged to ensure that the decisions it makes strike the correct balance between risk and reward. Striking the correct balance between credit risk and reward is one of the most difficult but most essential tasks that any credit department can perform.
Edited by Michael C. Dennis. Mr. Dennis is a business consultant. Please email and questions to him at mcdennis13@yahoo.com