The ‘golden rules’ for managing credit in the post-COVID economy

Business-to-business transactions often include credit terms whereby the final payment is made after the good or service has been delivered.

Deciding on whether to extend credit to a customer is a question businesses constantly ask themselves, calculating whether the expected reward could offset the risk.

The decision is mediated by a subjective assessment made by suppliers, who bear responsibility for ensuring that sales neither become too difficult to make nor so easy that the company is effectively subsidising its clients.

This year’s annual conference of the Malta Association of Credit Management, which took place on Tuesday, saw Glen Bullivant address the matter, and how it should be approached, in an economy that is very different to the one existing prior to the onset of the COVID-19 pandemic.

Mr Bullivant is vice-president and treasurer of the Chartered Institute of Credit Management, and quite literally wrote the book on the subject, which is the set text for the institute’s examinations.

He did not attempt to downplay the scale of the present crisis: “Today’s combination of post-COVID turbulence and the energy crisis is about as serious as any previous calamity,” he said.

He drew attention to some of the factors that have impacted the way people approach employment, from the increased focus on work-life balance, including the marked increased in those asking to work remotely, to the elevation of mental health and wellbeing from the fringes of discourse to its centre.

Interpersonal skills were singled out as a particular element that “seemed to have gotten rusty” over the pandemic, with Mr Bullivant describing them as the most important skill in business.

“Business is a social endeavour, and can only be done in relation to other people,” he said. “The recultivation of the interpersonal skills that grease the wheels of negotiations therefore takes on a role of prime importance.”

He stressed that the effective management of credit goes far beyond number-crunching.

“It’s about trust, and determining the extent to which that trust can be extended. Some of that depends on the figures, yes, but that will only take you so far.”

To illustrate his point, he drew on his experience as a credit manager at a manufacturer of printing equipment.

“The big publishers were good customers, with a strong balance sheet and healthy cash flow. We could trust them to honour their payments, and there was no question as to whether we should extend them credit.”

He continued: “However, their large orders would be discounted, and the profit margins for us as their supplier were correspondingly low.”

“Bad customers”, like small printing presses in developing countries, he argued, got the company far higher profit margins, making it his job, as the credit manager, to come to a suitable agreement that minimised risk while ensuring the contract gets signed.

“It is not our job to say no,” he told attendees. “It’s our job to find a way to say, profitably, yes.”

“If I want the business, I need to be prepared to negotiate to get the business. That often means having strings attached, like a higher deposit or tighter credit terms.”

Speaking to BusinessNow.mt, Mr Bullivant pointed out that the basic principles of good credit management are even more important, not less, for those companies without a dedicated person in the role.

The first of these “golden rules” is the fundamental task of knowing your customer.

This runs from the basic – like ensuring that the customer details are accurate and regularly confirmed – to the complex – like knowing your customer’s position in the market place.

In the current economic landscape, this includes having an understanding of their reliance on supply chains and their vulnerability in the labour market.

“A business should know the value of its customers, but also the value it provides to its customers,” he said, encouraging attendees to get out from behind their desks and visit their clients.

“A closer relationship allows you to be more in tune with their practices, and lets them know that you are there to help and support when it is needed,” he said.

Another rule businesses should live by, Mr Bullivant continued, is to reach out for help and to avoid working in isolation.

“No one person can know and understand everything, which is why membership of organisations like the MACM is imperative for serious businesses,” he said. “The wealth of knowledge provided would require its own department in a company.”

He concluded by highlighting the need for businesses to say what they mean and mean what they say.

“A final notice is final, not a precursor to the final-final notice,” he said. “You need to show that you mean business.”