Credit managers will always be challenged to demonstrate the value of the credit operation to senior executives and shareholders. The credit function can and should be considered an enabler of sustainable Economic Value. The value of what you will learn in this publication will aid you in this process.
In today’s environment of extreme investment market scrutiny of corporate practices characterized by the EVA mentality, our credit policies need to be considered a key element in our strategy to maintain the sustainability of the return to investors. To the degree that we increase our own sustainability by investing in our customers’ businesses byway of providing easy access to trade credit, such credit may generate additional sustainable value, even though on the surface it appears to be “costly.”
This paper shows us (properly so) that design, maintenance and monitoring of optimal credit terms and policies should be conducted in the context of maximizing the ROE rather than minimizing the DSO. Making the DSO the principle focus and main target of your credit operation may lead to misguided and sub-optimal results.