September 28, 2023

In the rapidly evolving landscape of artificial intelligence, ChatGPT stands as a pioneering and transformative force. Developed by OpenAI, this state-of-the-art conversational AI system has ushered in a new era of human-machine interaction. With its remarkable capacity to comprehend and generate natural language text seamlessly, ChatGPT has emerged as a game-changer across various industries. This article delves into the fascinating world of ChatGPT, exploring its capabilities, applications, and the profound impact it is having on our daily lives.

In fact, the paragraph above is completely written by ChatGPT. At my request, ChatGPT provided me instantaneous results and followed my suggestion for a more journalistic style. Not only did it save me time from writing an intro paragraph, but it allowed me to focus on the body of the story. But it doesn’t automatically adhere to NACM’s in-house writing rules (we don’t use Oxford commas) and it also lacked authenticity. ChatGPT also cannot interview my sources and pull quotes.

Just as ChatGPT can help writing professionals when used strategically, it can also be a tool for credit professionals. One in every four credit managers are already leveraging ChatGPT in some capacity for work, according to an eNews poll. If you are not experimenting with the AI tool, you risk falling behind the curve.

How ChatGPT Assists Trade Creditors

ChatGPT assists trade credit professionals in the rapid gathering of information, which saves time from the rigorous research required to onboard new customers. “I will use ChatGPT to avoid reading through lots of information on different websites that may be repeated on several regular search results,” said Chantal Rousseau, CCP, corporate credit director at MPG Canada (Marieville, QC). “For example, if I need to know the relation between two entities or if I am looking for the owner of a corporation.”

One of the biggest ways ChatGPT can help save time in the credit department is by writing emails, contracts or dunning letters. “I use it to generate ideas and write more professionally as it can craft sentences in different ways,” said Elliott Jenneman, CCE, regional credit manager at McNeilus Steel, Inc. (Dodge Center, MN). “By providing a bullet list of the facts, the system can write an email asking a customer for a payment. But I make sure not to copy it verbatim as it tends to use a lot of corporate jargon.”

The AI system can define concepts and answer complex questions from risk mitigation to mathematical equations, ultimately leading to better credit decisions. Alejandro Ojeda-Nonzioli, CCE, eastern regional credit manager at Schlumberger Technology Corporation (Oklahoma City, OK), uses ChatGPT when establishing corporate relationships between subsidiaries and parent companies. “Before, we relied on credit agencies and other providers for information, but you’d have to scroll through menus and different options which can be very time-consuming,” he said. “ChatGPT helps me find out how subsidiaries and companies are related or what their corporate structure and management are like, and so on.”

ChatGPT also has the ability to identify holes in contracts which can be beneficial in the credit application process. For example, if you want to avoid indemnity clauses, ChatGPT may be able to help comb through contract language. “Although ChatGPT wasn’t designed to identify holes in smart contracts, it has been demonstrated to find contract flaws,” reads an article by Malwarebytes. “Experts say that ChatGPT’s ability to identify contract flaws will only improve with advancements.”

Concerns with ChatGPT

From misinformation to missed cultural cues, ChatGPT is no stranger to mistakes. After all, the information on ChatGPT is only updated to September 2021. “One time, I asked ChatGPT to explain what a FRISK score was for a colleague of mine, which is one of the creditworthiness statistics that Credit Risk Monitor (CRMZ) uses to measure probability of default or different percentages,” Ojeda-Nonzioli said. “But instead of saying that the highest risk was one out of 10, it confused itself and said the reverse. So, my colleague pointed out that one is the highest risk where 10 is the best score. A few minutes later, ChatGPT corrected itself and apologized. The rest of the information was correct, but as you can see, it's a system that is able to learn from its mistakes, which to me was very surprising.”

One of the biggest concerns for credit professionals is the security and confidentiality of ChatGPT. You should never type personal, business or customer information into ChatGPT. “My company has not implemented it yet because of the security risks,” said Martin Smith, CCE, CICP, credit manager at Ash Grove Cement Company (Sumterville, FL). “But I use ChatGPT on my personal computer to pull a variety of news reports when making credit decisions.”

ChatGPT should not be used for information gathering without fact-checking it yourself. This tool is trained on patterns, not facts, which means it can be inaccurate if it picks up on fake citations. “I use the thought process of ‘trust but verify’ any and all information that I wasn’t the author of,” said Gweneth Weeks, operations manager at Big D Concrete Inc. (Dallas, TX), who uses ChatGPT to help write emails and the company policy handbook. “ChatGPT is not industry-specific and does not have the most current information, so double-checking facts, dates and guidelines is a must. Also, make sure you understand your company’s policies, state laws and audience.”

To avoid security breaches, ChatGPT provides a warning that it is an external site, so the user should not disclose any private or confidential information. “Let’s say I have a question about a particular financial ratio or financial statement, then I would just input those numeric values but not reveal the customer’s personal identifiers or information,” Ojeda-Nonzioli said. “It would all be theoretical questions. Other than that, we’re aware of our usage and make sure it complies with the corporate guidelines and policies of our company.”

It is key to be knowledgeable on how ChatGPT works and realistic about what it can and cannot do for you. “It’s not for everybody, but if you use it the right way, it can be beneficial,” Jenneman said. “AI helps significantly but it won’t replace the human aspect as we rely on building customer and departmental relationships.”

A written delegation of authority (DOA) is a crucial document in any organization, serving as a blueprint for effective management and decision-making. The DOA is meant to define and clarify roles, responsibilities and levels of authority of individuals within the organization. By clearly outlining who has the power to make specific decisions or take certain actions, it minimizes confusion, reduces the risk of duplicated efforts and empowers employees to take accountability.

This document is essential for maintaining operational efficiency. And in times of transition or crisis, a well-defined delegation of authority provides stability and guidance, allowing for the smooth continuation of operations. A DOA is especially important for positions that are in charge of multiple tasks. For example, approving credit lines and payment terms, treating of past due accounts, approving letters of credit and treating of nonpayment events.

A DOA should identify all of the risk-associated decisions made by the credit department using a matrix. As the risk or credit line increases, the approval must come from higher up in the company. For example, a credit analyst can approve a $1 million credit line, but CFO approval is needed for a $20 million credit line.  

A thorough delegation of authority document must include the following:

• Title and Purpose: Begin with a clear title and a brief statement explaining the purpose and scope of the document.
• Delegator and Delegate: Clearly identify the delegator (the person assigning authority) and the delegate (the person receiving authority). Include their names, positions and contact information.
• Authority Limits: Define the limits of the delegated authority. Specify what decisions or actions are excluded from the delegate’s purview.
• Reporting Structure: Describe how the delegate will report back to the delegator. Include any reporting frequency and format requirements.
• Duration and Renewal: Specify the duration of the delegation, whether it’s permanent or temporary and any procedures for renewal or modification.
• Review and Update: Specify how and when the document will be reviewed and updated, ensuring its relevance as the organization evolves.
• Succession Plan: Include details about what happens in case the delegate is unavailable or unable to fulfill their role.

Although most professionals see delegation of authority as an essential leadership and management skill, some leaders see delegation as one of the hardest tasks to complete. As an illustration, some leaders might believe that explaining the task requires more time than personally completing it. Or in some cases, a leader may think their way is the only way to complete the task correctly. However, delegating tasks does not mean you are fully abandoning your role as a leader.

Transferring a job through delegation requires a foundation of trust and confidence in the individual to whom you are entrusting authority. In fact, 35% of CEOs acknowledged the need to strengthen their delegation skills, while 37% said they are actively trying to enhance their delegation skills, according to a survey conducted by Stanford University.

Some credit professionals in managerial roles work with their CFO or COO in order to delegate the proper responsibilities. “We figured out the proper threshold for our business to have certain decisions over a certain dollar amount escalated up the chain of management,” said JoAnn Malz, CCE, ICCE, NACM chair elect and director of credit and collections at The Imagine Group, LLC (Shakopee, MN). “From a control standpoint, when auditors come in, they are seeing our company use consistent standard processes and when they look for proper approvals, it’s very defined.”

Important business decisions should include more than one person or department. “No single person could possibly make all day-to-day business decisions in an organization,” said George DeMakis, credit manager at Scafco Corporation (Spokane, WA). “A written delegation of authority can help lower-level managers to develop the skills necessary to move into higher-level positions and can also help to identify managers who are not ready for higher-level positions and where they might need help in developing the necessary skills.”

Not only can an overwhelming workload lead to an unsustainable level of responsibility for one person, but it also can impose a significant level of risk because of the lack of team involvement. Having a delegation of authority can also help prevent fraud because decision-making can become based on one viewpoint without consideration of a multitude of factors. “There would be no diversity in the decision process,” said DeMakis. “Business decisions should include input from all levels, with the final say up to a group of senior management making recommendations.”

The challenge of operating through a DOA can be a double-edged sword. It can lead to the person in charge making decisions not based on their expertise with potential of losses to the company, but more for personal gain. For example, approving an order to get commission from a riskier customer that does not end up paying. “The organization is vulnerable if one person is solely responsible for a critical task or decision and that person is unavailable or makes a mistake,” said DeAnna Leahy, CCE, NACM chair and corporate credit manager at Sunroc Corporation (Orem, UT). “Delegation fosters better communication and collaboration within teams because team members need to communicate effectively to fulfill their responsibilities, bringing a sense of teamwork.”

Checks and balances should always be implemented within all department structures to ensure an even separation of job duties. For example, having a system of checks and balances in place can reduce any risk in someone unknowingly agreeing to terms that go against company policy. “A defined delegation structure in place regarding who can sign contracts, purchase orders, lien waivers or trade references is vital to the well-being of the organization,” said Alaina Worden, CCE, credit and collections manager at CECO (Portland, OR). “Fraud is more susceptible if standard processes of authority do not include double check processes, or multiple approval levels depending on the request.”

Enterprise resource planning (ERP) systems support several business functions such as accounting, production, customer services, procurement and credit. ERPs provide companies with a platform to help manage parts of their business. Nonetheless, businesses frequently compelled to transition their ERP systems as a result of mergers or acquisitions must discover efficient methods for data integration.

Depending on the needs of your company and credit department, some credit professionals have formal procedures to follow during an ERP system change. But the features of the ERP system itself are one of the most important factors.

A few challenges to consider when undergoing an ERP change include operational disruption, potential data loss and little to no knowledge of how to use the new system. Migrating data is inevitable when switching systems, and without any data backups or testing, a company could potentially lose years’ worth of data. If just one step in the process goes awry, it could set the credit department and entire company back weeks. 

You want to know what tools are available so that you don’t have to go outside the system, said George Antonopoulos, chief financial officer at TriStar Metals (Aurora, IL). “In a merger and acquisition, if you’re keeping your ERP system, it’s a much easier scenario because you’ll be adding more customers to it,” Antonopoulos explained. “You want to be more in tune with the new customers who are being acquired, so you want to approach them and keep that customer relationship going while learning how to keep credit management side of it going.”

But if a company is going through a merger or acquisition where a new ERP system is needed, multiple rounds of testing are a critical step in the process. “The last thing you want to happen is to try and do your job in an ERP environment where your ERP isn’t functioning correctly,” Antonopoulos said. “From a functionality standpoint, you should test to make sure credit management functions are built in, such as alerts when customers pay late, or the system has automatic functions that may hold shipment or put a customer on credit hold. Know how each function runs before actually using it.”

The environment of a merger and acquisition pushes credit departments into new territory. The learning curve is all part of the experience, but putting operational procedures to use helps mitigate big losses. “You learn to adjust when it comes to work culture and how that culture impacts their customers when merging or being acquired,” said Antonopoulos. “You have to know how your environment is changing in this scenario.”

In addition to thorough system testing and up-to-date written procedures during an ERP system change, it starts with credit professionals getting a seat at the table, said Eleanor Hartman, CCE, credit manager at Autodesk, Inc. (Portland, OR). “The credit department’s needs very rarely line up 100% with what other departments think of as necessary, so advocating for what you need is where it starts,” Hartman said. “Any sort of large-scale data movement should have an agreed upon procedure. It’s important to have a source of truth to be able to go back to.”

To continue the discussion about ERP systems and other technological challenges in the credit department, be sure to join NACM’s virtual Technology Thought Leaders Discussion Group.

Preliminary notices should not be overlooked in the complex world of construction and project management because they serve as the crucial foundation upon which the entire payment process hinges. A preliminary notice serves as a notification to the owner or general contractor of a construction project to notify them that a contractor, sub-contractor, materials provider or other party is reserving their right to file a mechanic’s lien in the event of non-payment. But some customers may pushback if you they are served a preliminary notice.

“Sometimes a customer can get frustrated because once it’s served, it’s served to everyone,” said Chris Ring of NACM’s Secured Transaction Services. “But once the owner gets the notification, they move the money down the ladder of supply, which means that the customer gets paid faster and can, therefore, pay the credit professional faster as well.”

Customer pushback on preliminary notices has a lot to do with the type of industry and job. “In our industry, being HVAC, it depends on the type of job,” said Jayce Alfonzo, CCRA, CBA, senior credit manager at Watsco, Inc. DBA: Carrier Enterprise (Orlando, FL). “A new construction job is quite different from a residential changeout. There’s pushback in the event that they haven’t filed a permit or gotten paid upfront for the jobs and will be hesitant if a supplier filed a notice to the owner on projects. There’s more pushback on smaller scale jobs than larger projects.”

The customer could feel offended when served a preliminary notice and to try to force the company to stop, which means the credit manager has to help them understand it further. “The customers who do a mixture of residential and commercial work seem to be a little more unsure about preliminary notices,” said Alissa Brown, credit manager at Koch Air LLC (Evansville, IN). “They see the notice and immediately think that means we're putting a lien on the property even though we always let them know upfront what the expectation is so that they can let their owner know so that nobody is surprised when the notice is actually served.”

When the serving of a preliminary notice is objected by your customer or your sales team, it’s always best to have a clear policy as to when a notice needs to be filed. The need to serve a preliminary notice is normally based on two factors, the risk of the customer and the amount of credit extended on a job account.

Risk of the customer examples: 

• Brand new customer
• Customer with deteriorating financials
• Returning customer with a track record of slow pay and/or write-off
• Second or third generation taking over the business
• Principal contact with the customer is looking to retire
• Customer is looking to sell the business
• Customer is expending rapidly
• Customer is expanding into other trades (example, they’ve only done HVAC work, now they are doing electrical)

Risk of the amount of credit extended on a job account:

• Industry average is to serve preliminary notices on all job accounts over $10,000. Every company must develop its own threshold, so collaborating with sales regarding that job account dollar amount is helpful.
• Once you’ve established a policy regarding when preliminary notices must be served, then you’re able to manage this process by exception. The exception could be that a preliminary notice should be served by your policy but will not be served based on an exception granted by someone in authority such as the sales manager.

Miscommunication can often get in the way of a preliminary notices, especially for customers who are not keen on paying you back. “We had a customer on a private job who made payment arrangements that would take us out past our lien period,” Brown said. “My company turned to NACM’s STS for help in sending a preliminary notice to our customer. A week later, the customer became upset at the prospect of us placing a lien on the equipment, even though they had arranged a payment plan. We agreed to proceed with the lien, with the understanding that if they completed their payment arrangement sooner, we would file a release of the lien. If there were any issues with the bank, I offered to explain the situation. However, the customer declined my assistance, likely because they had already been paid the amount a couple of months ago but chose not to pay us for the equipment."

In the end, it’s best to do your due diligence and collect as much information on the project to provide that security. “If we file a preliminary notice to the owner, we run industry reports on the general contractor and look at the actual job and see if other industries file liens or any concerns,” Alfonzo said.

It’s also important to remind the customer of the benefits of serving a preliminary notice. “The main advantage is that we can establish lien rights as security for them,” Alfonzo said. “I do not think there’s any disadvantage as it helps both parties. For us, it provides security on our receivables if we can file a lien on a project.”