CHAPTER 4: CREDIT MANAGEMENT
Credit policies provide the logic and rules. Credit procedures are instructions on how to execute the tasks and should be written to comply with the Sarbanes-Oxley Act (SOX) of 2002 (see Chapter 7: Accounting, Records and Regulations). Once the policies and procedures are written, it is important to update them to keep them current. Too many times, what happens at desk level does not reflect the policies and procedures. Compliance with policies and procedures is a discipline that needs to be built into job descriptions and regularly reviewed. Another aspect of ensuring adherence to policies and procedures, especially in a decentralized and high-volume environment, is the use of an automated credit and portfolio management system that automates, captures, and records activities applied to client AR and billing information. With a system in place for some or all aspects, policies and exceptions can be monitored and the credit manager can make changes as required based on business conditions. If there is more than one credit manager, it is critical that the policies and procedures are repeatable. If two credit managers were to review, analyze, and assign a line of credit to the same customer, both decisions should be close if not exact, in regard to the line of credit and terms assigned to that customer. There are times when the assignment of a line of credit should have a second approval. The second signature could be required for all accounts assigned by a new credit manager and over a certain dollar amount for all credit managers. The second approver must take this job seriously, thoroughly evaluating the line of credit and comparing their analysis to that of the first credit manager. If there is a difference of a certain dollar amount (to be determined by the organization), the second signatory should review his or her analysis with the first credit manager both for training purposes and to ensure that the best decision is made on the assignment of the line of credit. Special care should be taken when selecting the proper role for the second signatory. The second signatory for new credit managers and small lines of credit could be the director of the credit department. The financial controller or the CFO could approve large credit limits. Signatures can be manual signatures or be system-based. In system-based signatures, the employee’s assigned ID, role, and permissions become the system of record for both audit and control purposes. This also applies to second signatures and exception approvals.
Here is a sample policy guideline for new and existing customer lines of credit:
New credit manager should have all lines of credit approved, including a zero credit line, by director of credit department. Credit managers with 12 months’ experience and small line of credit — random audit by director. Credit managers with 12 months’ experience and large line of credit — random audit by financial controller or CFO.
The second signatory should see that:
All documentation is in the file—application, credit bureau reports, credit group notes, sales representative input, trade articles, etc.;
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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