The changing face of credit

Launching a monthly series of articles, John Alexander and Nitin Joshi of Pannell Kerr Forster, accountants and insolvency practitioners specialising in the computer sector, write about the changes that have made credit the most talked about issue in distribution.

Credit managers are not debt collectors, nor are they sales prevention officers. If anything, they are responsible sales assistants, and this is the primary development over the past fourteen years in the distribution sector.

Today, credit managers are key members of the management team. Ideal Hardware, Northamber, Frontline, CHS Electronics, Ingram Micro, Datrontech and Metrologie are all clear examples of this elevation of the status of the credit manager. Credit in these companies forms a vital part of the overall corporate strategy.

Marks in the margin

The relenting pressure on margins, coupled with a self-perpetuating cycle of business failures and startups, has left credit managers to manage a highly credit-active customer base. Sales ledger management skills are now just part of the paraphernalia needed by a credit manager to deal with a dynamic and ever-changing market structure.

Steve Kendall, director of credit services at Northamber, says: 'In a sector where margins are under constant pressure, the role of the credit manager is critical. The entry cost for a dealer is relatively low, which makes management of the sales ledger even harder.'

The cornerstone to any credit policy is reliable credit assessment procedures.

Credit managers now invest heavily in providers of company and credit information. Credit managers now need appropriate trade references, latest audited accounts, up-to-date management accounts and, forming a departure from the past, an understanding of the customers' own client base. Customer knowledge is king.

Culture stock

The credit professional today has to have a real understanding of sales culture. Assessing current levels of trade, revisiting credit limits and even understanding product sales are all aspects of the credit function, previously taken to be domain of the sales manager. Eddie Pacey, pre-eminent among the emerging breed of respected credit managers at Ideal Hardware, says: 'I must believe in the quality of the management. For fledglings, respect must be earned and they must demonstrate their level of competence and reliability. For established customers, payment history is important.'

Distributors usually sell on an unsecured basis, unlike bankers who usually have directors' personal security. Even retention of title clauses may prove to be worthless where, for example, goods have left the customer's premises as quickly as they were brought in. Most dealers have low stocks, trading as they do on a back-to-back basis. All this merely heightens the level of awareness needed by the credit manager.

The period beyond the millennium will see a further growth in the credit manager's role. There will be a loud wake-up call for any Var that believes the credit manager is anything but a sophisticated, knowledgeable and motivated member of the team.