Downsizing the Credit Department; Planning and Pitfalls; Outsourcing

Some companies are outsourcing the collection function.  Other organizations are centralizing what was previously a decentralized credit function.  Other companies are combining the credit and collection function with other departments such as sales order entry. Other companies are attempting to reduce headcount by implementing lean principles focused on eliminating low value added tasks considered wasteful and through an ongoing process geared toward higher value from the credit and collection function through continuous improvement.  Other organizations simply outsource some or all of the credit and collection function based on assumptions that this work can be done better and less expensively by a third party service provider.

In most companies, collection of accounts receivable is the primary source of cash.  Changing the size and composition of the credit department can have a ripple effect throughout the company, especially if the changes or cuts in the credit function go too deep.  Before making changes, companies should attempt to measure the risk.  Unfortunately, most companies reduce staff first, and then try to figure out how everything will get done including  Risk assessment, Collection, and Dispute resoution. Unfortunately, many employers under estimate the amount of work the credit department does in order to collect past due balances as well as disputed amounts due. 

Credit professionals can help prepare themselves for the possibility of that their position will be downsized by:

• Making certain senior management knows what you do and is aware of your accomplishments,
• Tooting their own horn when it comes to individual or departmental accomplishments,
• Look for ways to quantify the monetary value of the work done by the credit department.  For example, if the credit department can take credit for reduced DSO by x days, place a monetary value on that reduction in DSO,
• If you are accomplishing the same or better results with fewer people, it is simple to quantify the changes in terms of the increase in the number of accounts managed and the amount collected per person

Credit professionals should prepare themselves for the unexpected by continuing to invest in their professional growth and education.  Here are some examples:

• Obtain professional credentials,
• Consider returning to college to complete a degree or to obtain an advanced degree,
• Be sure that your computer skills are current,
• Prses that help improve problem solving and inter personal communication skills

Downsizing often leaves gaps that affect the credit and collection department's collection effectiveness, ultimately cost their employer money.  When downsizng occurs, the credit department needs to understand the implications of the process.  Responsibilities should be purposefully and carefully re-allocated.  It is essential that everyone knows who is responsible for which accounts.  This is a critical step in that is often overlooked with predictably bad consequences.

Many companies are evaluating outsourcing the credit function as a "none core business function."  Outsourcing involves contracting with another company to perform some aspect or all of the credit function.   Concerns about outsourcing the credit and collections function are well founded.  The credit department is the prime source of cash for most companies.  Equally important, it is difficult to outsource the credit decisionmaking process.

Edited by Michael C. Dennis.  Michael is a consultant and can be reached by email at mcdennis13@yahoo.com