Post-financial crisis, companies are taking a more cautious approach particularly when it comes to recouping monies. Simply invoicing a client for a product or service does not guarantee payment, and revenue only counts if it is in your account.
Companies should take a proactive approach to managing debtors and bringing credit management into the heart of their business processes.
A credit management department has many touchpoints within an organisation, but the most important is with customers. Credit managers are in contact with customers every working hour, and this close relationship effectively works as an ongoing customer satisfaction survey, as credit managers are well placed to spot any red flags around payment.
Credit managers may notice widening or fluctuating gaps between payments, arranging a scheme but defaulting within the first few payments, re-requesting invoices already sent, and recurrent querying of invoices.
Good credit management is not just about chasing debt; it’s about understanding the customer. It is common sense for firms to have the greatest understanding of their top-tier customers, discussing invoices before they are issued to iron out any potential problems and highlight any challenges around cashflow.
Eighty per cent of your income may come from 20 per cent of your customers. Such conversations will ensure that supplier obligations are at the forefront of customer minds.
Software can be used to profile customers, including their payment terms, historic payment behaviour, disputes raised and credit scores. It can help companies predict when customers are getting into difficulty by spotting early warning signs. Many such applications allow customisation.
A classic tactic is for customers to raise spurious queries or complaints around invoices. A root-cause analysis of these complaints may help you track the number of complaints by a particular customer over a set time against the number shown to be unfounded.
Software may also help reduce resource, cost and human error.
Conversations around late payment should be had with the appropriate people at the appropriate level. Being consistent throughout the process is vital, so defining and automating such processes can help to set out specific actions to follow, draft letters or write scripts.
This may allow people to spend more time getting to know the customers.
Software can help credit managers assess the cost of chasing up bad payers, creating transparency right down the chain, from the initial invoice to its resolution.
By combining external information around credit ratings, court filings and solvency with specific proprietary information on customer behaviour, credit managers can profile clients, building relationships with them and their finance departments.
These efforts will encourage customers to communicate with suppliers about their cashflow situation and any problems on the horizon, making it easier to manage the cashflow within your company and understand your own business.
David Taylor is chairman and chief executive of OnGuard
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