the art of credit management

ER$ Consulting Services

In Collaboration with CMA

Presents

The Art of Credit Management

October 19, 2007

Las Vegas

ByEddy A. Sumar, MBA, CCE, CICE

A Fundamental Checklist

for the Success

of Every Credit Professional

Construct Your

Checklist!Gather The Ingredients!

"It is not the mountain we conquer, but

ourselves."

- Sir Edmund Hillary

Define Credit

Credit comes from the Latin word “credere,” which means trust. It is a mutual trust between the grantor and recipient of the credit. It involves a great deal of

trust and confidence in the ability, willingness and character of a “debtor” to deliver on its promises to the

“creditor,” according to agreed upon terms. Credit also implies a reciprocal trust that the creditor will deliver what was contracted or agreed upon. Thus, credit is “a cooperative function between seller and

buyer or between creditor and debtor.

Credit Redefined

1. A Sales Tool

2. A Marketing Tool

3. Financial Vehicle

4. Strategic Alliance

“Before you can score, you must first have a goal”

“A Fundamental Checklist”

-- Anonymous

Know Your Vision

Your Goals

Company Vision--Goals

Your Dept Vision--Goals

Credit and Sales—One TeamCredit is a Sales & Marketing ToolCredit Department becomes a

Center for Client Services

Vision

Understand Your Mission

PurposeReason for company existenceStrategyWay of doing things

[behavior & standards]Values

Mission

Understand Your Company Culture

Conservative Liberal Profit-oriented Customer-centric Sales & Marketing-oriented

Culture

Construct

Your Policies & Procedures

Reflect the mission & vision Reflect the culture Encode your standards & behaviors Reflect your values All encompassing of your functions

New customer policy Credit investigation policy Credit analysis policy Authority level policy Credit limit policy

Policies & Procedures Credit & Collection

All encompassing of your functions (Continued)

Credit terms policy Credit hold Policy Periodic credit review policy Collection policy Cash application policy Dispute resolution policy Third party referral policy Bad debt and write-off policy Record keeping & disclosure policy

Policies & ProceduresCredit & Collection

Chart the Process

Set-up sheetCredit applicationCredit reportsTrade ReferencesBank referencesFinancial statements

Credit scoringFinancial ratios analysis Z score

Salesman’s Comments

Chart the processFor new accounts

Security instrumentsL/CStandby L/CGuaranteesPromissory notesSecurity agreements & UCC filingLiens

Credit insuranceTrade financing alternatives

Chart the processFor new accounts (Continued)

Call, e-mail, send letters & back upInvolve your sales forceInitiate payment plansInvolve your in-house legal departmentRefer to collectionRefer to outside legalPut an account on bad debt listWrite-off

Chart the processFor collection & write-off

Know the legal

& Regulatory Environment

Fair Credit Reporting ActFair Debt Collection Practices ActTruth-in-Lending ActEqual Credit Opportunity Act (ECOA)Anti-trust Regulations

Sherman Act 1890Clayton Act 1914Robinson-Patman Act 1936FTC Act 1914

Know the legal Environment

Bankruptcy Act (BAPCPA)Money Laundering ActThe Patriot ActSarbanes-OxleyExport Administration Regulations (EAR)Customs regulationsSEC regulationsGAAP & IAS

Know the legal Environment

Master the Cs

Willing

Unable

Able

Unwilling

Know Your Customer---CharacterChoose The Path

Master the Matrix

Willing

Unable

Able

Unwilling

Know Thy Customer---CharacterChoose The Path

Master the Matrix

Willing

Unable

AblePursue!!!

Unwilling

Find DealEnhancers& Enablers

Work on Desire and Willingness

AbandonThe

Prospect!!!

Classify your Customer---Character

Master the Matrix [Sales focus]

Willing

Unable

AbleApprove!!!

Unwilling

Think OutsideThe Box

Seek Alternatives

Work the DealProtect YourTransaction

Reject This

Applicant!!!

Classify your Customer---Character

Master the Matrix [Credit focus]

Willing

Unable

AbleGreat!!!

Unwilling

Work WithYour Customer

Pursue VigorouslyThird Party Involvement

Write-OffCancel

Don’t Waste your time

Classify your Customer---Character

Master the Matrix [Collection Focus]

Master the 18 basic Cs

Of Domestic Credit

1. Character

2. Capacity

3. Capital

4. Collateral -- guarantees

5. Conditions -- business economic,

political

industry

6. Computers --

technological state

7. Common Sense

8. Credit Insurance

9. Communication

–The interpersonal Cs

10. Cooperation

12. Courtesy

11. Collaboration

13. Carelessness

–The Negative Cs

14. Complacency

15. Competition

16. Concern

–The Positive Cs

17. Compassion

18. Care

2. Currency Control -FX Risk

1. Country Risk

3. Cultural Differences

The International Cs

• C -- CREATIVITY

• I -- INNOVATION

• S -- SPEED

• A -- AGILITY

• A --ACCURACY

• C --COURTESY

Flexibility and willingness to change Open-mindedness Negotiating skills Honesty and integrity Leadership Dedication, dependability and reliability Love of learning (continuous education)

The Mark of True Credit Professionals

“We make a living by what we get, we make a life by what we give.”

Sir Winston Churchill

ERS Consulting ServicesEddy Sumar, MBA, CCE, CICE, CEW7841 Leucite AvenueRancho Cucamonga, CA. 91730

909-481-9869ealberto@aol.com

Thank You!