COLUMBIA, MD—October 23, 2002: Each week, viewers of the top-rated television series CSI follow the forensic adventures of a crack team of crime scene investigators—the CSIs of the show's title—as they sift through mountains of microscopic evidence in search of an answer to the perennial question, "Who done it?"

Meanwhile, another crack team of investigators—this one strictly reality based—is busy searching for clues of a different sort of wrongdoing, every business day.

Rather than using fingerprint kits, DNA samples and test tubes in their work, these investigators rely on financial statements and credit reports, calculators and highly specialized computer programs. Instead of questioning witnesses, they check out personal references. And instead of profiling, they scrutinize character, capital, capacity, collateral and economic conditions.

These CSIs are the nation's 300,000 credit managers. And in our white-knuckle economy, they're on the case. Credit managers are the financial specialists business executives turn to with the toughest of all questions about any new account.

The question isn't "Who done it?" but "Should we do it?" Should we do business with this customer? Should we grant the customer credit? If we do, will we get paid on time—or ever? How much risk is involved? How much reward?

"For credit managers, these age-old business worries are marching orders," says Robin Schauseil, president of Columbia, MD-based National Association of Credit Management. "They launch an investigation into the customer's financials that, for sheer diligence, rivals anything you'd see on CSI." That's because, to these fact-finding sleuths, every shred of business information is potential evidence. They read corporate financials like most people read mystery novels.

From the credit manager's perspective, a customer's financial statements are a prime source of clues. These clues—when added to assessments of the customer's character and bill-paying record—supply the basis for the decision to do business with the company on any terms except full payment in advance. In other words, to extend the customer credit. Granting customers credit, of course, is the way 98 percent of commerce is done. If it weren't, the nation's business would grind to a halt.

Common clues
It's awfully tempting to grant credit to a willing customer, especially after the sales force has worked long and hard to land the new account. But it's the credit manager's job—and it's a gritty one—to make sure his or her company doesn't become entangled with accounts that are unable to pay their bills. Even-especially-those new let's-pop-the-champagne million-dollar accounts.

The credit manager probes for information about the prospective customer's business, digging deeply into the company's financials and scouring the waterfront for any signs it may not pay on time.

Some of the most common clues include:
• Footnoted liabilities—such as settlements for lawsuits—that aren't "expenses" by accounting standards and represent a drag on the company's liquidity;

• Joint ventures, which can also represent unrecognized liabilities;

• Sales that are out of sync with inventory—indicating the company could be booking bogus sales;
• Receivables that wildly outpace collections—again a warning sign the books might be cooked;

• A concurrent increase in reported sales and decrease in the line-item of the balance sheet labeled "factors"—signaling the company could be too-readily selling its account receivables at a discount; and

• Outstanding liens, a history of slow debt-payment or changes in ownership, management or corporate structure.

Dodging the next Enron
Like the CSIs on the TV show, who always know—long before the police—when a crime has been committed, credit managers are the very first ones to detect there's trouble afoot. Case in point: Enron, whose creditors took a $40 billion bath after the go-go energy trader collapsed. Although Enron's paltry cash flow should have been a clear warning to the entire business community, it wasn't.

But the nation's credit managers, with eyes trained to spot trouble, poured over the firm's financials and came to understand Enron's problem well-and early. "Credit managers were in fact among the first outsiders to discover Enron wasn't liquid," according to Schauseil.

Beside poor cash flow, there were other red flags spotted by credit managers who combed through the Enron evidence: danger signs that the company was drifting from its core business; that senior managers were fleeing the scene of the crime; that Enron was engaged in rampant speculation; and that the mammoth company was maneuvering to disguise its liabilities.

Appreciate your CSI
In the wake of the colossal failures that have marked the past few months, business executives need to take a second look at their credit managers and recognize them for the special point-of-view they bring. These crime scene investigators know better than anyone else in the company that yesterday's most glamorous accounts can become tomorrow's ugliest, loosing a tide of bad-debt losses. Or worse. In a tight economy, the Enrons of the world can easily take their creditors down with them.

Ironically, while analysts at the big debt-rating agencies are high rollers compared to modestly paid credit managers, it was the nation's credit managers who first detected the Enron caper. So listen carefully to your credit manager. Seek out his or her advice. And learn a little more about the fine art of business credit. You'll keep bad-debt losses to a minimum.

How to improve credit management
One of every two businesses is tightening credit. According to a survey by the National Association of Credit Management, slightly more than half (52 percent) the nation's credit managers say they have increased their rejections of credit applications since February this year. But tightening credit is not the only way to stem bad-debt losses. Based on nationwide surveys of credit management professionals, here are the five most popular ways to arrest bad debt and improve your company's cash flow:

• Start managing your slow-paying and bad debt accounts before they are beyond recovery.
• Take firm steps to identify high-risk accounts and learn how to recognize late-payers early.
• Strive to improve the working relationship between your credit manager and your sales department.
• Re-educate salespeople who routinely bring in accounts that don't meet your credit managers' standards.
• Create credit standards that match your tolerance for risk and your company's financial goals.

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About NACM: The National Association of Credit Management (NACM), headquartered in Columbia, Maryland supports more than 25,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services which improve the management of business credit and accounts receivable. NACM’s collective voice has influenced legislative results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy. More information is available at www.nacm.org or contact Norma Heim at 410-423-1842.

For more information contact Norma Heim at 410-423-1842.