The Evolution of the Credit Department: Part 2

Hi,
The changes of staffing and structure in credit departments has been dramatic over the last thirty five years. In the past, it was a requirement for a lender to be familiar with the particular business to which they were granting credit. For example, if a lender was setting up a loan for a farmer to buy farm equipment, the lender understood the uneven income stream of each farmer and structured the credit to match it. The lender was also familiar enough with farming to differentiate between needs and wants in loan applications. It was also necessary for the lender to assess whether or not the income of the farm could service the additional debt. Today, in many instances, the credit people responsible for funding farms have no experience in farming and grant credit with a generic process rather than an individualized one. This sometimes results in farm loans that are doomed from the start which, in most cases, are doomed through no fault of the farmer. The other dynamic in a credit department is the relationship between the sales force and the credit staff. In many cases, sales people pressure credit departments to get approval for their customer's credit applications. As many sales people are paid primarily on commission and bonuses, their motivation is understandable. This sometimes results in loan approvals that are questionable at best. Tomorrow I'll talk about the balance needed between credit and sales departments for a successful company.
Until then,
Alan