Credit managers find footing in shaky markets

The nature of credit and collections requires credit managers to always keep an eye out for risk on the horizon, whether it’s concern towards a customer’s persistent cash flow issues or a weariness towards extending credit in a country with growing geopolitical instability.  

Why it matters: As tariffs, supply chain issues and global trade issues increase tension in the market, credit managers across industries are likely feeling the pressure of a weakening economy. Amid growing concerns about the economy, customers may begin acting unpredictably, paying late or asking for extended terms, and addressing this onslaught of requests is a large task for credit managers.  

As the economic forecast becomes increasingly murky, many customers will ask for extended terms that might offer them more time to make payments. Each credit manager will have a different approach to addressing these customers, depending on the customer and their credit history.  

“The decision on whether or not to offer extended terms is made on a case-by-case basis,” said Jason Mott, CCE, corporate credit manager for MFA Incorporated (Columbia, MO). “For me, one of the biggest factors is communication. If a customer is up front about not being able to pay me by the due date and is clear about when they will be able to pay, I can usually work with them. In these situations, I am often looking at character and capacity. I can work with somebody who can’t pay me but wants to, but I can’t work with somebody who can pay me and won’t.” 

Periods of economic uncertainty prompt a larger need for increased contact with customers, as many businesses may experience cash flow issues or even file for bankruptcy. “Keep the line of communication open,” Mott said. “Don’t be afraid to pick up the phone and call your customer. Drive out and see them if they’re within driving distance. Send them an email or a text message. Just make sure to check in on them and see how they’re doing.” 

With markets straining under a tougher economy, it is important to consider each transaction and the implications of extending credit. “You need to get creative,” said Alfredo Puerta, ICCE, director of credit Latin America for Osterman and Company (Cheshire, CT). “When you’re vetting a customer, don’t just look at the numbers, run a deep analysis. Get in touch with the other businesses in your industry and share what you are seeing in the market.” 

Where your sales team and upper management may zero-in on the industry and region your company operates in, the day-to-day work of a credit manager sees them analyzing payment trends across a broader customer base, allowing credit managers to see economic strains early. “Most credit managers’ first reaction after noticing new payment trends is to communicate directly with their sales team,” said Puerta. “Often, we don’t need to stop selling, but we need to keep an eye on the trends so they does not become a larger issue in the future. Then if we perceive that the risk is higher than expected, we go to upper management.”  

No other department analyzes risk trends as closely as the credit department, making their perspective on the conditions of the business landscape valuable to their leadership teams. Information on everything credit managers see in their customer portfolio, from payment delays to bankruptcies, is collected for the monthly Credit Managers’ Index (CMI) forecast.  

“The CMI is a valuable tool that can be used to help senior leadership and management understand what’s going on in the economy,” said Mott. “I use it when I report to the CFO to let her know what is going on in the economy and when I update my board of directors on what’s going on in the agricultural industry.”  

By completing the CMI each month, credit managers are able to give back to the profession and help refine an economic forecast that helps predict troubling economic conditions to come. As the market tightens and businesses struggle with decreased cash flow, an economic forecast that can offer a hint at the near economic future is immensely valuable.  

“The survey doesn’t ask intrusive questions, it’s as pain-free as possible, so it does not require specific metrics,” said NACM Economist Amy Crews Cutts, Ph.D., CBE. The CMI is a diffusion index, which means the survey asks participants whether a specific collections variable has increased, decreased or stayed the same compared to a past period.

“By sharing what you’re seeing in the comment section, you can help other credit managers look out for signs of trouble,” said Cutts. “I see it as almost a professional courtesy to share the experiences you’re having, whether it’s fraud or bankruptcy or anything.” 

The bottom line: When the economy enters periods of uncertainty and customer behavior becomes more unpredictable, it is important that credit managers not lose sight of the resources at their disposal to aid in strong credit decisions. Whether it’s leaning on other credit managers or carefully reading the results of the CMI each month, there are resources available that can soften the blow of a troubling economy. 

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