Credit Department Goals and Objectives

Departmental goals align the activities and the objectives of every department to the goals of the organization.  This alignment is critical to the success of every organization.  The typical credit department is responsible for monitoring, protecting and managing the company's investment in Accounts Receivable.  A typical credit department is responsible for each of the tasks or goals listed below:

• To communicate the condition, cost and trend of the company's investment in receivables to management,
• To convert accounts receivable to cash as quickly as possible,
• To reduce delinquencies,
• To limit bad debt losses,
• To address the root causes of customer deductions,
• Resolve deductions in a timely manner,
• Work effectively with sales and other departments to maximize sales while limiting delinquencies and bad debt losses,
• Use the resources available to the credit department to help sales to pre qualify companies identified as potential new accounts,
• Look for ways to make sales on open account terms safely, not for excuses to hold orders or reject new credit applicants,
• Cross train the credit department team,
• Reduce turn-around time on every function handled by the credit department,
• Take steps to improve cooperation between sales and credit,
• Maintain and increase goodwill with customers whenever possible,
• Develop the skills of credit department personnel through appropriate supervision,
• Educate other departments about credit and the credit function,
• Control operating costs and expenses within the credit department,
• Reduce payment delinquencies and bad debt losses.

The goals of the credit department can sometime conflict with customers' goals.  For example, as banks tighten their credit granting policies, some customers are turning to trade creditors as a source of interest-free short-term operational financing resulting in an increase in DSO and in slow paying customers.  At least in part, the credit professional's role is to ensure that A/R is converted into cash quickly enough that customers' slow payments do not create significant cash flow problems for the creditor company.

Edited by Michael C. Dennis