As a credit manager, it’s easy to get lost in the weeds of your day-to-day responsibilities. You have plenty to keep up with, of course, including meetings, credit decisions, collections activities, and more. With so much on your plate, it’s hard to find time to think about the big picture, and more specifically, sound credit management.
Doing so can be beneficial, however. From time to time, it’s good to step back and think about how properly managing credit in your home furnishings company can help drive greater results in the years to come. Let’s look at what a healthy credit department can mean for a home furnishings and accessories company over the long haul.
Protecting Your Greatest Asset
It’s almost certain that the biggest asset your company holds is your accounts receivable. This is where all of your future revenue can be found, as these are sales that are waiting to be turned into cash. The entire company works hard to create sales that will land on the accounts receivable ledger, so protecting this asset is vital.
Of course, it’s the job of the credit department to turn as much of what is found in accounts receivable into cash as possible. It’s highly unlikely that your business will collect 100% of accounts receivable, but minimizing write-offs in this area will maximize cash flow. With as much cash on hand as possible, your company will have the flexibility required to invest in new projects, expand operations, and more.
Building the Right Relationships
An ultra-conservative approach to credit management will optimize the percentage of accounts receivable that turns into cash. But is that the right way to grow a home furnishings business? Maybe not. Building relationships with retailers by extending credit terms can grow the company’s reach, even if that means exposing accounts receivable to slightly more risk. Striking the proper balance of sales and credit risk exposure is one of the core responsibilities of a credit manager.
It should be noted that not all relationships will benefit your company in the long run. Taking a chance on extending credit to a retailer with a known history of non-payment or legal trouble may not be worth the exposure. Sound credit practices in this industry include knowing where to draw the line between giving a customer a chance and being taken advantage of for credit that is not likely to be repaid.
The Credit Department is Not an Island
For credit practices to positively impact a company over the long run, the credit department needs to be properly integrated into the organization as a whole. If credit is run independently of everything else, adversarial relationships will always exist. Credit shouldn’t be an enemy of sales or marketing, but rather one of many important pieces that drive a company forward.
How Can We Help?
The Furniture Manufacturers Credit Association is fully committed to the success of your credit department and your organization as a whole. With so many benefits available to our members – like ten-day final demand letters, community engagement, credit interchange reports, and collections services – you’ll start to get value from your membership immediately. Contact us today to learn more about the FMCA!
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