The Art of Making Credit Decisions

Financial risk analysis involves a combination of art and science, attendees of the “How, What, When and Why of a Credit Review Without Financials” session at NACM’s 119th Credit Congress in St. Louis learned.

The science part, or the black and white of the credit review process, makes up the smallest part of the process, said presenter Ed Bell, Ph.D., CICP, ICCE. “The art part—or the gray part—makes up most of it,” Bell said. The senior manager of credit administration for W.W. Grainger, Inc. added that it involves “interpreting and making decisions based on gut feelings, what we’ve learned through experience.”

It’s critical to develop both parts, Bell noted. “That’s how you protect your company’s assets.” If credit professionals rely only on science to make credit decisions, they’re “going to limit sales potential.”

The art of making credit decisions is important “because you can’t assign a number or program a machine to properly evaluate the character of an individual,” Bell said. “The ultimate decision involves judgment on part of the credit manager.”

Bell explored the options and tools that are available to help credit professionals determine the appropriate risk and exposure to apply to a customer. Key points of the presentation included the credit review process, including what information they need, information sources and steps for completing the review.

-- Diana Mota, NACM associate editor




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