Jacob Bronowski, The Ascent of Man
What is the best value proposition for the credit function in business? If we consider the most common key performance indicators (KPI)—Days Sales Outstanding (DSO) and percent of bad debt—it would seem that the major role of credit is risk management. However these measurements and the thinking behind them are flawed, out-of-date, and potentially detrimental in today's business world.
Accounts receivable (A/R) is one of the largest and most liquid of corporate assets, credit and A/R management may be the most misunderstood, underutilized, and undervalued business process. For example, the potential cash flow that can be generated when A/R is brought under control is huge. A very modest three-day reduction in A/R for a typical $20 million company can be in excess of $200,000!
Yet, most often credit and A/R management are thought to be part of accounting—a cost center and a necessary evil. However, because of the potential of credit and A/R management, they should be an integral part of the sales process, by helping establish a framework for a long term and mutually beneficial relationship between buyer and seller. They can play a critical role in the prospect-to-cash cycle.
What is the best value proposition for the credit function in business? If we consider the most common key performance indicators (KPI)—Days Sales Outstanding (DSO) and percent of bad debt—it would seem that the major role of credit is risk management. However these measurements and the thinking behind them are flawed, out-of-date, and potentially detrimental in today's business world.
Accounts receivable (A/R) is one of the largest and most liquid of corporate assets, credit and A/R management may be the most misunderstood, underutilized, and undervalued business process. For example, the potential cash flow that can be generated when A/R is brought under control is huge. A very modest three-day reduction in A/R for a typical $20 million company can be in excess of $200,000!
Yet, most often credit and A/R management are thought to be part of accounting—a cost center and a necessary evil. However, because of the potential of credit and A/R management, they should be an integral part of the sales process, by helping establish a framework for a long term and mutually beneficial relationship between buyer and seller. They can play a critical role in the prospect-to-cash cycle.
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