Strategic planning can be appropriate for a large company, a department within a company, a smaller company and collection agencies. This section will focus on why you should develop a strategic plan for the credit department. Strategic planning is a good idea in any type of economy, but it can be particularly important and effective during tough economic times, such as what we are experiencing right now. Strategic planning typically involves evaluating how things are at present, setting a longer-term goal and then determining what needs to be done currently and into the future to accomplish the goal.
You might be asking yourself, why do I need to create a strategic plan for my credit department? Well, there are several very important reasons why this is a good idea. The first is that it is critical for every department to be in sync with the company as a whole. This means that any goals a department has must support whatever the company’s bigger goals are. In the case of the credit department, strategic goals will likely involve controlling and minimizing credit risks, achieving a specified percentage of account receivable collections, etc. How these goals are affected by the company’s bigger goals needs to be assessed. For example, if the company plans to increase its customer base by a certain percent, how will this affect the credit department’s ability to assess the credit worthiness of these new customers, monitor accounts receivable patterns, make adjustments, and make necessary debt collections? Can the current staff handle this additional workload? Future hiring is just one aspect that may be impacted by long-term company goals.
Obviously, if the credit department or any department for that matter does not stay in sync with the company’s overall strategic plans, this will create a myriad of problems for the department. If the company succeeds in bringing in the forecasted number of new customers, and the credit department continues to do business as usual, will their staff be able to handle the added workload? Will the current computer database be up to the task of the added data input and processing? If the answer to these questions is no, the credit department will be in catch up mode all of the time. They will always be running one step behind. This is a catch 22 because not only will they be constantly behind the eight-ball, but there will be no time available for the department to figure out how to become more efficient and better able to handle the new demands. This will result in lower productivity and morale. Clearly, this is not a smart strategy for any department to follow.
The final reason for the credit department to put together a strategic plan follows directly from the downward spiral just described. In today’s business climate, less is more. In other words, companies are constantly on the look-out for ways to improve efficiency and productivity, all for fewer dollars spent. Usually this means that some functions are eliminated, while the responsibilities continue. The responsibilities are absorbed by other ongoing functional areas within the company. For a credit manager, this could mean that the credit department’s functions might be absorbed into the bigger finance department for example, and many credit department positions eliminated. This is a scary reality of today’s business environment. When the credit department stays in sync with the company’s overall longer-term goals, this can help the department continue to exist. Of course, job security is never a given these days, but a department that runs efficiently and productively usually has a positive impact on the company’s bottom line. The key for any department is to be a contributor to the bottom line, not a bottom line suck.
When a credit department hires collection agencies to assist with debt collections, the credit department’s strategic plan should include goals directly tied to the performance of the collection agency. The collection agency goals should be in sync with the company’s overall goals as well. For example, if the company plans to increase its customer base, the credit department’s strategic plan should determine what role the collection agency will play in the handling of the additional workload generated by the new customers. Collection agencies can provide a great deal of support to a credit department, especially during growth spurts. Building this into a strategic plan can help maintain efficiency and productivity, and hopefully add to the all-important bottom line.
During tough economic times, strategic planning can help companies and collection agencies stay competitive and profitable. Strategic planning can also be helpful for departments within a company or collection agency because planning leads to a proactive rather than reactive approach to doing business. A proactive department gets things done, and gets noticed for its efficiency and productivity. This section will focus on the first step in creating a strategic plan for the credit department – assessing the present.
A very important step in developing a credit department strategic plan is to take a hard look at what is happening right now. This doesn’t mean, just looking at what is taking place within the credit department, but also looking outside the department at the internal workings of the company as a whole, and the company as it fits into the industry and economy.
The credit department should start this evaluative process by looking at its role within the company and determining if it is adequately satisfying the needs of the company relating to the credit and accounts receivable functions. Does the credit department have the necessary resources, including staffing and technology to perform its varied credit functions? This question alone may take quite a bit of time to define and understand. A huge positive of looking at the department in this way is that it may help the credit manager identify areas where efficiencies are possible or duplicate efforts can be eliminated.
If the credit department hires agencies, this is a good time to look at the current status of its collection agencies. Are the agencies providing the level of service that the credit department needs at this time? Are the agencies successful in their accounts receivable collections? Is the fee structure enabling the credit department to add to the company’s bottom line? Are the debt collections coming in enough to adequately offset the fees being charged by the agencies? Does the credit department need to reassess the quality of its agencies? Are there long-standing relationships in existence which may be marrying the credit department to the collection agency, which when removed show a less than stellar debt collection history by a particular collection agency? When a department or company is committed to looking to the future and strategic planning, these tough questions need to be asked. Sometimes the status quo can unknowingly be a big negative. Examination can bring these deficiencies to light.
Once the hard internal look is complete, it is a good idea for the credit company to look at the bigger pictures. How does the company currently fit into the industry in the current economy? What is its market share? Who are its key competitors? Is the economy growing, stagnant, or in decline? How is the company performing in this economy? Is the company increasing sales/market share, maintaining, or struggling? This external look will provide the credit manager with a lot of important information. These data will be useful in the next step, which will involve looking at what the future goals of the company might be, and for the credit department in its support of the company in this context. Connecting the dots between the present and the future will lead to the strategic plan. What strategic actions will the credit department need to take to help the company get to the desired future? These actions might include such things as new credit policy development, additional staffing, new technology or additional collection agency assistance.
Strategic planning can separate the successful companies and collection agencies from the not successful. A big reason for this is that planning forces a company or collection agency to look to the future and set goals. Strategic planning can be helpful for departments for the same reason. When a goal is set, it is then possible to plan the actions necessary to work towards this goal. This section will focus on completing the strategic plan for the credit department – assessing the future and determining the necessary action steps to get there.
Once the present state of affairs has been carefully evaluated and understood, the next step is to look to the future. Any department’s strategic plan must support the overall company’s future goals. Therefore, it is important to understand where the company expects to be down the road. The first thing that needs to be defined is how far out into the future the strategic plan is going to go. Due to the technology explosion we continue to experience, it is not advisable to look too far ahead because no one knows exactly what is coming via technology. Therefore, it is best to focus strategic planning on two to three years out.
Here are some questions that need to be answered in order to develop the credit department’s strategic plan:
- How much growth does your company expect to experience during the next three years? In the case of the credit department, it might be good to look at percentage growth of sales as well as number of customers. The strategic plan should take into account how this growth will affect the credit department’s need for additional staffing, technology and collection agency assistance to support this growth projection.
- Will there be any change in the products or services sold by the company? If significant changes are planned, the credit department will need to look at its processes to assure that existing systems will support the expected changes.
- Where does the company plan to do business in the future? If the company plans to expand operations into new regions, or even new countries, how will this affect the credit department and how it is set up to perform its functions? The credit department provides important services to many different departments within a company. If these services need to be available to even more departments, this could lead to additional requirements in staffing, technology, etc.
- How competitive does the company plan to be in the future? This can lead to either easing or tightening of credit policy standards, depending on what the goal of the company is. If the company plans to expand into new untapped territory, it is likely that a looser credit policy may be necessary to attract new customers. The credit department will be required to study the new areas and become knowledgeable to provide the necessary support.
- What changes can be anticipated in the internal functioning of the company as it moves forward? If the credit department can anticipate any restructuring that may be on the horizon, plans can be developed to support these changes. For example, new reporting can be developed in anticipation of new territories or products.
- Are there any computer systems that need to be updated or added to enable the credit department to support the company’s future goals? If so, this should be put into the strategic plan and the credit department should research the systems available and make it own recommendation. The credit department wants to lead this charge, not rely on the computer systems department to make the choice which may not be optimal.
- What legal changes in the credit function are expected? Accounts receivable debt collections must comply with all applicable laws. The credit department should be fully aware of the laws of today and anticipate known impending changes in laws. Often hiring a collection agency is a good way for a credit department to stay abreast of changes in laws. Collection agencies know the laws relating to debt collections. Using ethical collection agencies to assist in the debt collection process will assure that laws are followed.
Once you have answered these questions and developed actionable answers, the final and most important step is to come up with the action items that will get you from today’s position, to the future as you have defined it in your strategic plan. At this point, it is time to get management buy-in so that you can move forward with your plan and be on the cutting edge of supporting the company’s future growth.