In the building materials industry, offering trade credit to contractors is often a necessary part of winning and retaining business. But as any seasoned executive knows, extending credit without clear oversight and controls is a fast track to financial exposure. Managing credit risk effectively isn’t just a finance department function—it requires active, ongoing leadership.
In a world of tight margins, volatile project timelines, and rising customer expectations, leadership plays a crucial role in shaping, reinforcing, and sustaining credit risk management as a strategic pillar of business health and growth.
Here’s how leadership can drive successful credit risk management with contractor customers across the organization.
- Setting the Tone at the Top
Leadership must make it clear: credit risk is a business priority, not just a finance concern. When the executive team consistently reinforces the importance of managing receivables and enforcing credit policy, teams follow suit.
What This Looks Like:
Discussing credit KPIs in leadership meetings
Including DSO (Days Sales Outstanding) and bad debt as performance metrics
Reinforcing the link between credit discipline and company cash flow
✅ Outcome: A credit-conscious culture starts with consistent executive messaging.
- Aligning Sales, Finance, and Operations
Credit policies fail when departments operate in silos. Leadership must ensure alignment between the teams that sell, deliver, and collect.
Leadership Actions:
Facilitate regular cross-functional meetings on credit issues
Align incentives (e.g., sales commission structures) with profitable, collectable sales
Break down barriers between credit managers and account reps
✅ Outcome: Fewer surprises, faster issue resolution, and smarter decision-making.
- Driving Strategic Customer Segmentation
Not every contractor should be treated the same. Leadership should guide the development of tiered credit strategies based on risk level, purchase history, and relationship value.
Leadership Questions:
Who are our most strategic customers—and are we managing their credit accordingly?
Are we overexposed to high-risk accounts?
Where can flexible credit terms improve retention without increasing risk?
✅ Outcome: Credit policy becomes a tool for growth, not a barrier to it.
- Empowering Credit Managers with the Right Tools
Too often, credit teams operate with outdated systems and limited visibility. Leadership must invest in tools that provide real-time insight and risk intelligence.
Technology Investments May Include:
Credit scoring systems and risk alerts
ERP dashboards with AR aging and credit exposure
Integrated CRM and WMS for a complete view of customer activity
✅ Outcome: Better forecasting, fewer surprises, and faster intervention when issues arise.
- Supporting Proactive Risk Planning
Leadership can take a long-term view of customer risk, preparing the business to weather downturns or contractor defaults.
Best Practices:
Conduct stress tests and “what if” scenarios for top accounts
Build contingency plans for large project exposure
Support efforts to secure receivables (e.g., joint checks, lien rights)
✅ Outcome: A proactive, resilient AR strategy—not a reactive one.
- Promoting Customer Education and Transparency
Leaders have a unique opportunity to shape customer relationships by making credit terms clear, fair, and easy to understand.
Leadership-Led Initiatives:
Publish customer-facing credit guides or onboarding materials
Encourage relationship managers to explain credit terms proactively
Host webinars or Q&A sessions on navigating credit and payment cycles
✅ Outcome: Contractors feel supported—not surprised—when it comes to terms and limits.
- Leading Through Tough Decisions
Sometimes, credit limits must be reduced, terms tightened, or accounts placed on hold. These decisions are sensitive—and require strong leadership.
Leadership Responsibility:
Back finance and credit teams when enforcing tough policies
Ensure consistent treatment across customers and branches
Communicate clearly and respectfully with affected accounts
✅ Outcome: Risk is managed without damaging long-term relationships or reputation.
- Tracking and Celebrating Success
When teams manage credit risk well, leadership should celebrate the wins—not just focus on the problem accounts.
What to Recognize:
Reduction in DSO
Recovery of aging receivables
Sales growth in low-risk, high-performing accounts
Improved cash conversion cycle
✅ Outcome: Encourages continued ownership and pride in credit performance across teams.
Final Thoughts: Leadership Is the Anchor of Credit Discipline
In a complex and risk-exposed industry, credit management must be led from the top. Leadership’s role is to ensure policies are clear, departments are aligned, tools are modern, and the customer experience remains strong—even when tough credit decisions are necessary.
By actively championing a smart, scalable approach to contractor credit risk, leadership doesn’t just protect the business—it enables it to grow with confidence and financial strength.
