5 Steps to Better Credit Decisions

1 May

We recently wrote an article about the inherent problems in human decision making, but algorithms and computers cannot make every decision. So what should you do to help aid your decision-making process? Here are five suggestions we have to help you make the right call.

Define your problem

What is it that troubles you about this particular customer? While a holistic approach can be helpful at times, it can also be important to focus your attention on the key part of the credit agreement that is causing problems. You may find that only a small part or detail of the credit arrangement is hanging up the whole deal.

Data, Data, Data

It is important to collect all the possible information you can on this customer and anything related to the agreement. The more information you have, the more informed decision you can make. The worst thing you can say when a deal comes back to bite you is that you “assumed” something about a customer or the deal that you did not know to be true.

Know Your Situation

Are you simply renewing the contract of a long time customer or are you treading into a new industry with a customer you have never worked with before? Do you need this customer? What does this customer mean for your bottom line and your long-term business growth? Your answer to each of these questions will determine the risk and reward of each deal. For example, a customer in a new state and industry can pose a very high risk, but it could also open up a whole new market for your business. It is a constant balancing act that must always be considered.

You Are Part of a Team

While the decision may ultimately rest on your shoulders, a good credit manager knows when to seek the advice of those working with him or her. A pair of fresh eyes and a new perspective may reveal a detail or bring new information to the table that may have otherwise gone unknown. Making a great credit decision is not always a solo effort, in many challenging cases involving multiple people can aid the process.

Do not rush

A large amount of psychological research has gone into investigating human decision making. One of the key pieces of information researchers have gotten from this is that humans tend to make mistakes and rely on preconceived biases if decisions are rushed. While you clearly have deadlines to meet and must decide in a timely manner, taking an extra few hours or even minutes can make a difference.

Making decision as a credit manager is often not an easy task. Sometimes you are lacking key information, other times it simply comes down to gut feelings that could go either way. While these decisions will always be hard, following these steps can help ease the process.

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