CICP Road Diary: Entry #2

"Neutral, relative and necessary."

If you read those three words out loud, dramatically and in a deep voice, they could almost sound like the tagline to a new political thriller or legal drama, possibly one that takes place in Switzerland, or during an especially captivating arbitration proceeding. I don't think such a film exists, but rest assured that if it gets made in the next few years, I'll be suing whoever made it.

In any case, those three words are culled directly from a lesson in the CICP course. At the beginning and end of every module, and sometimes at the beginning or end of a lesson (modules are the big chapters, and they're divided into lessons), the instructor offers some valuable, broader, more philosophical tips and summaries, and this one caught my eye. The thing that the course says is neutral, relative and necessary is risk. Whether it's political, financial, documentary, or interest rate-, acceptance- or foreign exchange-related, risk is a neutral, relative necessity in the world of commercial credit.

Now, this may be something that all credit professionals keep in mind at all times, but it still struck me as a remarkably powerful assessment of what risk is. I've written article after article about how to mitigate risk and reduce it, treating risk like it's a bad thing; the enemy of commercial credit extension, both domestic and international.

This is hardly the case though, and while I still stand behind those articles I wrote and believe risk mitigation is something that creditors do on a daily basis, it's important to remember that risk just...is. It's not an enemy or a friend, nor is it something to be combated or cultivated, it just...is. I'd imagine that recognizing this fact, that risk is something a credit department lives with, but can't do without, is one of the first steps toward becoming a great risk manager, and looking at it this way certainly affected the way I viewed the credit function as a whole. Credit departments and credit professionals aren't meant to eliminate risk, they're meant to make it manageable, and profitable, to be comfortable with something that's, by definition, kind of uncomfortable.

The idea that risk is "neutral, relative and necessary" speaks to credit's role not just as a financial buffer, but as a revenue generator. Another line I wrote down from the course, not from the same lesson, I don't think, is that credit should be viewed as "an investment in receivables." An extension of credit isn't just giving someone something for free and then hoping they pay back, it's an investment in the company and the company's future. I've probably written as many articles on risk mitigation as I have on credit's reputation as "sales prevention," which is something the CICP course recognizes and addresses with thoughts like this. Risk as a necessary constant, and credit is an investment.

Just something that struck me I guess. Back to work now. For those of you keeping track, I'm almost caught up, and should be 100% before week's end.

Till next time,

~Jake

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