Importance of developing a C&C policy

Last February 9, 2008, we had a very successful seminar on Developing Effective Credit & Collection Policy. It was held in Cebu Midtown hotel.

Designing and developing Credit & Collection Policy is really not an exact science. You don’t need to have master’s degree in business management to be able to develop and formulate a working model. However, I have noticed that a lot of existing companies here in Visayas and Mindanao have been operating without one. In my over 15 years of working with CIBI Information- the leading business information and receivables management company in the Philippines - I have been privy to a lot of my clients’ collection problems and almost always, the culprit is that they don’t have an effective credit and collection policy or procedure. And I tell you, some of these companies are not considered small. My wild guess is that, they have a good product or good marketing people and their credit and collection “just evolved” from whoever is in charge. This practice is commonly called “credit & collection legacy”, instead of policy!

       For me, it is always logical to have policy or procedures to guide the conduct of business in terms of marketing, manufacturing, accounting, treasury and most especially credit and collection functions.

In reality, however, the majority of businesses have not deliberately developed credit and collection policies and procedures. If there is such a system, the policies and procedures used only evolved and developed after years of operation. This inordinate reliance on experience and not on fundamentals aggravated by inexperience is risky and costly. 

Developing and implementing an effective credit and collection policies and procedures must be based on the sound basic principles and guidelines of credit and collection management.

 The following ten questions are some of the leading questions a company should ask itself - and which it must answer - in developing its own credit and collection system or policies:

1. Who shall initiate the system? Is it the owners/ stockholders, directors or officers?

2. Is the credit function under finance/treasury or under marketing/sales?

3. What is the credit & Collection policy's philosophy or rationale?

4. Should credit policies and procedures be liberal or conservative? 

5. Is the system you have in mind suited to the industry to which you belong at present?

6. What products and/ or services do you sell and what advantages you have now or should you have when you sell these on credit?

7.  What is your market share now and how much share do you want to attain? What kind of competitions do you have at present?

8. What is the perspective status of the industry/ business to which you belong? 

9. Are the political, social and economic environments conducive to the business you are in to sell on credit?

10. And lastly, do you have the competent, experienced personnel to implement and enforce the said policies and procedures?

Remember, the credit and collection policies you devise must be flexible. Conditions can change quickly in your company and in your market; and, the credit policies that are just right at the present may be too liberal or too restrictive tomorrow.

Your sales, credit and collection records showing relationships between total sales and credit sales may be a good starting point to review your credit policies and to adjust them to the prevailing conditions.

(Mr. Ed F. Limtingco can be reached at 0917-7220521 or at [email protected])