When to engage upper management

Most decisions require careful consideration before reaching a conclusion because all decisions have consequences. When it comes to business decisions, there’s a lot more at stake because of the potential impacts on the financial health of the company and the risk that comes with making the wrong choice.

Why it matters: The decision to involve upper management in credit matters can have far-reaching implications for the financial health and stability of a company.

When involving upper management or any other teams in credit decisions, communication throughout the process is essential. Information flows top-down and bottom-up within an organization, so everyone’s input can be useful when it comes to making difficult decisions. Cross-communication ensures the thought process behind any decision happens cohesively and can be adaptable to any unforeseen circumstances.

Some credit departments involve upper management early in the decision process. “We communicate regularly with our leadership teams such as our area sales managers and directors every other week to discuss key accounts,” said Susan Thorn, CCE, area credit manager at Ferguson Enterprises LLC (Lakewood, NJ). “Upper management’s point of involvement usually varies but is more likely to happen when anything indicates a change that could impact the ability to be paid or potential to raise the risk of nonpayment. We’ll discuss positive updates too, such as learning a customer gave us strong financials, and we’ll want to go after them. It’s not always necessarily coming to upper management for raising red flags.”

Yes, but: When customers start to show obvious signs of red flags, such as late payments, it could lead to bigger trouble down the line. In this case, credit professionals will seek advice from upper management to make their final decision—especially when sales disagrees.

For larger customers, Michelle Achondo, CBA, CICP, director of credit American Fast Freight, Inc. (Fife, WA), involves the sales rep first before elevating to management. “If we have a customer submitting a credit application and the credit limit, they require is above my credit limit authority, then we get upper management involved,” said Achondo. “It doesn’t happen often, but it’s worked out when they’ve decided to go with sales over us. The customer didn’t have the financial history to support the credit limit required for that particular job, but it turned out well. Sometimes, someone above you needs to take the risk and it’s a business decision.”

Compromise is an important value in the decision-making process. Each department involved analyzes situations differently. A variety of perspectives leads to informed decisions. “We’re making the decision together, so we can either be heroes or zeroes together,” Thorn said. “We either win or don’t win as a team—but we take away the lessons learned and know how to move forward.”

On the opposite end, there are credit professionals whose approvals are limitless—upper management involvement is little to none. However, some companies don’t rely on a hierarchical structure, which leaves room to break the bottom-up, top-down process. For example, George Demakis, credit manager at Scafco Corporation (Spokane, WA), said his department does not have any limits at all. “I can approve anything up to a certain level,” he said. “The only time I involve the CFO or COO is if my salesperson is pushing hard for an account and I don’t believe it should be opened. At that point, I’ll go to upper management and let them know that if they want to open the account for salespeople, they can do it, but I’m not voting for it.”

Delegation of authority (DOA) also plays a key role in the decision-making process. It identifies the most effective model of distributing responsibilities and power to those involved in certain decisions. For example, those at the entry level handle the more routine responsibilities while senior management can focus on strategic tasks.

“At times when I think something may not be the best decision, upper management may have more information than I do because I don’t always have all the information that sales may be looking at,” said Achondo.

For example, there may be customers who provide additional revenue in another market. That can also play into the final decision upper management makes. “With credit limit authority, no one wants to be responsible for a million-dollar credit limit if it goes bad,” Achondo added. “Customers and companies are doing great until they are filing for bankruptcy. Sometimes there are no warning signs, and I’d rather have a million-dollar credit line approval be a group decision with other levels in the organization saying yes.”

The bottom line: Involving upper management early in the decision-making process can help mitigate risks and ensure a more comprehensive evaluation of potential impacts on the company’s financial health and stability.