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Guest Blogger: Michael Dennis on Credit Issues

June 25th, 2012 Comments off

     I wanted to introduce a friend, and a new guest blogger, to the site. I previously worked with Michael during a period where he was a key member of my staff for what was a very complex business. Our company was a manufacturer of UPS systems, which involved no shortage of contract reviews, along with ensuring the collections on projects where any mishandling along the way could reduce already pressured margins. Michael not only currently works for a very notable company, but also has his own site at , as well as a contributing writer to .  Thanks Michael!

“Supersize or Specialize?”

     Another friend of mine lost her job after many years when her credit department was combined with customer support and order entry and her position as credit manager was eliminated.  I honestly and sincerely don’t get it.  The skills required to be effective in the collection role are very different from the skills required to handle the order entry and customer support functions.  How do I know?  At various times, I have managed all three departments… and I never once thought:  What a good idea it would be to take an order entry representative and turn them into a collector… or… Wouldn’t it be great to cross train everyone and make one supersized Collections/Order Entry/Customer Support department!

     I don’t disagree that creating a larger combined department would enhance the customer’s experience when placing an order, asking a question, or requesting assistance for the simple reason that more people working generally means shorter waits and quicker responses.   That is certainly good for your customer.  However, I cannot imagine how combining job functions could possibly improve collection performance for the company for all of the following reasons:

•           Not everyone is cut out to be a collector, but this Supersized department assumes that individuals will be equally adept at collections as they are in their other roles

•           The economist Adam Smith wrote that specialization leads to greater efficiency.   Creating generalists, which the Supersized department requires, is the opposite of specialization.

•           Expecting most if not all the employees trained in customer support to become effective collecting outstanding debts is unrealistic.  Why?  Because collections is not for everyone and given a choice, I believe that most people will spend more time helping customers and less time calling for payment.

•           The skills needed to manage a Supersized department are different than the skills required to manage the collection process.

•           By eliminating the credit manager’s position this company apparently overlooked a very basic fact.  The credit manager’s biggest value add involves establishing appropriate policies to monitor and manage risk before orders are released, not in managing the collection team.  Unless credit limits and credit terms are set appropriately and credit risk is managed proactively, the chances of collections improving as a result of this departmental merger and the layoff of the credit manager are somewhere between (a) highly unlikely and (b) it’s never gonna happen!

That’s my opinion anyway.  What’s yours?

Michael Dennis’ Covering Credit Commentary. Michael’s website is