The Crystal Ball of Credit Management

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“We should have seen that coming…” Chances are you’ve uttered this
phrase more often than you would like to as a result of an unexpected event
impacting your credit management activities. More often than not, the phrase
should have been “We could have seen that coming”. If you’ve got your credit
management up to a strategic level, it might even become “We CAN see that
coming!”.

Successful credit management is fundamentally about increasing the predictability and thereby reducing the risk associated with your cash inflow.

 

The most obvious starting point in increasing your knowledge of your customer portfolio is by obtaining valuable information about your customers from your customers.

Lots of our customers ignore the importance of a credit application in obtaining valuable information on their customers’s licensing structure, management, key stakeholders, related entities and banking & financial information. So simple, yet so effective.
The two biggest external sources are
Information providers
There are quite a few information providers who do the necessary due diligence on the company’s credit-worthiness and report the same back to you. In the Middle East, a few parameters are critical in determining the external information provider who best suits your requirement. We have noticed that understanding payment behaviors and historical evidence of defaulting on payments play an important role in assessing the credit-worthiness of companies.

Insurance companies
If you are in a high stake business with large invoices on a single customer, chances are that your organisation has credit insurance. In short, these insurers offer policies covering the non-payment of invoices by your customer due to numerous reasons. They provide credit limits and additional information so you know at all times what the maximum exposure is with a customer that is covered by the insurance. This information is of course valuable to credit management.

 

Getting a 360 Degree perspective of your customer is critical to increasing the PREdictability of credit management

Gathering all the information from its sources is an excellent starting point. But information
really increases in value if it’s put to action. This can be done by segmentation of your
customers based on the criteria acquired, creating different dunning profiles per segment
which can change dynamically, and scoring based on the combination of the internal and
external information you have collected. This is really putting the insight into action.

5 Steps to improve your Credit Management

1. Asses your current approach
How long ago did you implement your current dunning strategy? Is it still up-to-date?
Taking a closer look at your processes and procedures regularly is bound to yield results.
When are your actions planned, how many actions are planned? Are they planned at the
right time and is the frequency and amount effective?

2. Plan intelligent actions
Adapt your actions to the information available of the customers and size of your outstanding invoices.

3. Plan focused/targeted actions
Segment your customers into groups based on a combination of information and criteria:
• Internal information (historic payment behavior and complied appointments)
• External information (credit information)
• Risk level (based on history, industry, country)
Divide your clients into profiles and adapt your dunning strategy to this.

4. Plan actions at the right level
Make sure to match a collector of the right level to the action that is required and the
person that needs to be contacted. A combination of the invoice sum and clients profile
helps to determine if a junior or senior collector should be responsible for collecting it.

5. Use pro-active actions
Consider planning an action before the due date of your invoices. This may seem to
cost you extra care but could save you time in the long run. It is an opportunity to detect
possible questions or queries about a delivery or invoice that might otherwise cause a delay
of the payment.

 

Adapt your collection strategy with customer scoring

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