5 signs that you should invest in a dedicated credit management tool

Article by Bruno Baets

The complexity within this part of the Order-to-Cash process is the fact that it requires a seamless interface between financial data and interpersonal relationships with your customer. The dual character of this requirement makes it very complicated to model this process in any system, let alone systems that are not uniquely focused on this segment of the value-chain.

In this article, we will identify five signs that your Credit and Collections management process would benefit from investing in a dedicated credit management tool. Ignoring these signs may result in your company fighting an uneven battle with other suppliers for a smaller slice of the same pie.

1. There is no coherent end-to-end dunning process

Everyone knows the (bi-)monthly batches that are being processed from the ERP or Finance & Administration system. For a lot of companies, the Credit management process is a combination of the processing of this batch and calling customers. Often, this is a never ending story, which is repeated every two weeks or every month.

If you want to stay on top of your accounts receivable, you require an end-to-end dunning process, which revolves around capturing information. This information can either be the announcement of an incoming payment, or a reason of non-payment. Either way, this information needs to be captured, monitored, and correct follow-up actions need to be initiated. Also, the process must have a clearly defined flow, with no open ends.

This is in my experience the most common pitfall: collection processes that leave open ends, and do not incorporate an endgame strategy. This means overdue amounts are allowed to grow steadily, and the chances of recovering them grow slimmer every day.

Dedicated credit management software can provide the solution for this. It allows you to create an end-to-end process your overdue customers need to follow. This way, no customer is left untouched, and the softwares suggests all necessary actions, in accordance with the company credit policy. The perfect tool to get in control of the process! Also, it is often very easy to adapt your process in this dedicated software yourself, which eliminates the need for expensive software consultants. This way, continuous improvement is ensured as well.

2. Collectors spend a lot of time on scanning multiple sources for information

The collection process is often the point in the customer journey where all pieces of the puzzle connect: the customer evaluates the entirety of the customer experience, and debates whether or not to confirm the collaboration with a timely payment. All agreements and interactions with the customer build up to this moment. In any case, when payments do not follow, credit controllers and collectors must act. It is important that they have an easy access to all sources of information.

In most companies, Credit and Collection department employees are often the ones with access to the largest amount of systems. We’ve seen instances where they need to search for information in up to seven different applications (document management system, accounting system, CRM system, Salesforce, online information providers such as Creditsafe or KBO). This is not only an inefficient use of resources, but also does not provide your employees with the necessary capabilities to ensure excellent support and service to your customers.

With dedicated credit management software, it is possible to create one source of truth for all information with relation to customers. This encompasses both master data, financial information and documents, credit information, customer relationship management information, etc. Also, due to these applications’ focus on transparency in the customer relationship, information that is now often stored locally on hard disks or inside employees’ minds, becomes visible to the entire organization, and can also be used in other areas (for instance commercially).

3. Collectors spend a lot of time on low-value repetitive tasks

Credit controllers and Collectors often struggle with having to perform a number of low-value tasks repetitively. A few examples of this are executing dunning letters, preparing ageing lists, informing sales department of customer status, etc.

One of the main perks of managing credit and collection through a dedicated software, is the possibility to automate most of the low-value and repetitive tasks, so Credit and Collection employees can focus on the value-adding tasks, such as analyzing customer accounts and interacting with customers to improve service and obtain faster payment.

4. There is no synergy between the credit management and complaint management processes

You do not always have a direct impact on customers that cannot or will not pay their overdue invoices sooner than they want to. You do however have an impact when the reason for not paying them, is a dispute or complaint. In many companies, there is no link between disputed invoices and the process of resolving those complaints.

As consultants, we often come across companies who struggle to collect their overdue amounts due to issues with accuracy of invoicing. The greatest impact on lowering DSO can be achieved through excellent dispute management and root cause analysis on complaints and disputes.

Most credit management applications also carry dispute management modules. These allow not only for the monitoring of external customers, but also the monitoring of internal stakeholders, which were prompted to take action to resolve customer disputes. An efficient interface between credit and complaint management reduces the overdue by minimizing internal causes for non-payment. Also, the fact that there is a direct link between the disputes, the process of resolving and the underlying invoices, allows for reporting on the financial impact of various types of complaints within the company. These insights can later be used to better determine which processes need to be optimized to achieve the largest positive financial impact on cashflow.

5. You have a very diverse customer portfolio

Different types of customers require a different approach. For instance, when your customer portfolio ranges from large multinational corporations to private consumers, you need a large arsenal of collection weaponry to collect your cash.

An example that comes to mind is the recent development of not only sending letters and emails, but also using text messages or whatsapp to request payment. Of course, the effectiveness of such channels is largely dependant on the accounts payable processes at your customers. An interesting case was presented by a building materials company we worked with. They traded with both big construction companies, as well as private consumers and small contractors. Obviously, it is of no avail to send whatsapp or text messages to the former. A differentiated approach was developed based on the size and organisation of the customer. Companies large enough to have a dedicated administrative department, were targeted through the traditional channels, where as small one-man enterprises and private persons were targeted personally through text message.

Implementing the right channels for the right segment of customers requires both a clear understanding of your customers and their processes, and the tools that are compatible with multichannel output.

To stay on top of these changes in context, depending on your type of customers, investing in dedicated credit management software allows you to partner with a provider whose core business is to develop efficient and effective methods to interact with your customers in regards to invoices and payments. This allows you to adopt best practices from the innovators in the credit management sector, and eliminates having to develop these features in other applications which do not specialize in this.

If these five signs sound familiar, it might be time to get some information on the credit management software market, and to get started on that business case.

Remember, there is no size fits all solution. Therefore it is not possible to identify the best match before knowing your process and the specific requirements for your context.