What Do Credit Managers Do?

To be a good credit manager you should have a 4 year degree in business management or finance. This requirement can be waived depending on the company if there is adequate professional experience. An extensive knowledge of credit and collections is helpful along with the ability to read credit reports. The credit manager should have a working knowledge of the Fair Debt Collection Practices Act which basically guides the activities of third party debt collectors. Management and supervisory skills are also needed along with excellent communication skills verbal and written. The credit manager should have excellent computer skills as well.

Credit managers oversee the credit policies and procedures of an entire department within an organization. The make sure credit procedures are adhered to during the course of operations. Companies extend credit to their customers and clients in an effort to increase sales. If a company has large ticket items which can cost a substantial amount of money sometimes customers are not able to pay cash therefore credit is needed. Credit gives customers of an organization the purchasing power they need to purchase the goods and services to make sure their needs are satisfied.

If a company does not have the means available that enable customers to make large purchases then they will lose customers to competitors and sales. Customers can pay by cash or credit. If the credit department has a high rate of delinquency then they are probably too lenient when it comes to extending credit. Management will then tighten the reins to make sure they are not extending credit to customers who should not be approved. On the other hand if they have a very low rate of delinquency then they may not be approving enough customers and the bottom line is they are missing some good opportunities for sales. In order to run a credit department one has to balance sales with losses, therefore balance is needed in order for the department to run effectively and efficiently while at the same time maximizing profit opportunities.

In order for a company to determine if a potential customer should have credit the credit manager will take a look at several categories. The first category is Ability to Pay. Does the customer have the income which would enable them to make payments on time? Can the customer afford this loan? If the customer does not have a sufficient amount of income there is a chance that their application could be denied. Once a customer is denied a denial letter is sent out within 30 days explaining why they were denied. Some customers take this opportunity to explain themselves. Perhaps they had other income which was not disclosed. If that's the case the customer can reapply and present the credit department with the new information.

The next category looked at is the customers stability. How long has the customer been living at their address? How long have they been on their job? Do they rent or are they homeowners? Most credit departments like to see two years at the residence and two years on the job which shows stability. Although this policy can vary from company to company and some feel one year at each place is sufficient. If a potential customer is a homeowner rather than a renter then they are considered to be more stable. Companies that use a credit scoring system will most likely view this customer as a more promising prospect than the renter and award them more points within the confines of a scoring system.

The next category is willingness to pay. How has the customer paid their debts in the past? Are their any delinquent accounts? To answer these questions a company has only to take a look at the potential customer's credit report. They will be able to view the customer's entire credit history. Sometimes a customer may have to explain why he is past due with certain creditors. If the creditor feels that the explanation is valid and that the problem leading to the delinquency has been corrected then the customer may receive credit.

Customers that ultimately don't pay are forwarded on to a collection agency for further collection activities. Normally this does not happen until the debtor has not paid for 4 to 9 months. Most companies have different policies concerning this procedure. When an account is forwarded to a collection agency it is simultaneously reported to the debtor's credit report as a bad debt account or as a charge off. This reflects on the debtors file as a "9" rating which is a derogatory rating and it will seriously impact a debtor's credit report in a negative way. It remains on file for seven years.

The credit manager will normally have a credit supervisor and a collections supervisor who answer to him. The credit manager will normally supervise the credit correspondents or the credit analysts within the department. They are responsible for taking credit applications from customers, setting credit limits, and ultimately approving or denying them for credit. The collection department is responsible for collecting on the delinquent receivables prior to submitting them to a collection agency.

A credit manager has to make sure the entire department is running efficiently and effectively. The best way to do this is approve the appropriate number of customers which allows the department and ultimately the company to make a profit. The credit manager must also make sure costs and expenses are kept under control which helps to increase the profit of the organization. If costs go overboard then manager must take a look to see why things went beyond their budget. The credit manager will have a number of reports which he uses to gauge how effectively the department is functioning. There will be 30, 60, 90 and 120 day reports which outline the number and percentage of customers who are delinquent in a given category.

Credit managers also review approval rates, and credit limits to make sure the department is approving enough customers which ultimately results in a profit.

The credit manager has to administer performance appraisals to the credit and collection supervisor to let them know if they are performing in a satisfactory manner. They also check to ensure the supervisors are delivering performance appraisals effectively and in a timely manner to the associates that they supervise.

The credit manger must answer to the Vice-President of Finance with his findings. If there are large unexplained variances pertaining to any company activities then the manager will have to address those issues with the Vice-President of Finance. Normally there is some explanation for the variances that take place.