C-Suite Expectations from Credit in 2021

1 March, 2021
3 min read
Brett Johnson, AVP, Global Enablement
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What you'll learn

  • How Credit teams can drive profitable growth by mitigating risk in real-time and onboarding customers faster
  • Key components of an agile and profitable credit management process
Credit departments are challenged to prove greater value in a volatile economy
Credit can drive profitable growth by mitigating risk in real-time, onboarding customers faster and identifying sales opportunities
Automation is Driving Proactive Credit Risk Management
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This year will see a renewed focus on credit as a driver of profitable growth and faster cash recovery.

Myopic perception of the credit department in the past

We reached out to 100+ credit leaders from different organisations globally. We asked them the same question – “what do your finance, sales, and other internal team leaders think about the credit department,” and Figure 1 shows some popular responses that we received.

Perceptions from finance and sales of the credit department

‘No news is good news’ – it is a view of the credit team shared by most senior executives with a sales background in the past. However, with an unexpected economic downturn in 2020, most organisations realised that credit teams hold the potential to do a lot more than number-crunching and updating spreadsheets.

The credit department’s role has changed from a back-office function, limited to assessing customers’ creditworthiness on spreadsheets, to something much more strategic. Today, they must manage credit risk management while also supporting working capital optimisation and enabling sales growth.

Credit departments are challenged to prove greater value in a volatile economy

Credit teams have long played a crucial role in helping their companies avoid unnecessary risks by providing clear-eyed analyses of prospective customers, managing risks, and collecting payments from existing buyers.

But as corporations face increasing pressure to reduce costs and find new sources of revenue, the credit department, like every aspect of the business, is under pressure to demonstrate increased value to the company’s bottom line. It is not enough for credit departments to act as gatekeepers to prevent bad credit decisions; they are also expected to support company efforts to expand sales and meet growth targets.

Today, leading credit teams are trying to change this myopic executive perception while commanding tremendous leadership respect. They are collaborating with sales and FP&A teams and contributing towards a cautious and profitable growth of their organisations, even in a volatile economy.

Credit can drive profitable growth by mitigating risk in real-time, onboarding customers faster and identifying sales opportunities

In 2020 alone, according to the latest survey report by Forbes, 130 major companies filed for bankruptcy. This includes discount retailer Century 21 and Chuck E. Cheese’s parent company, CEC Entertainment.

To handle events like these, short-term contingency methods like ensuring the credit team spends more and more time analysing credit data, increasing the number of customer reviews, or blocking more orders, using the same traditional processes, tools, and resources, are not sustainable or practical solutions.

The credit management process needs a reliable and long term solution to defend their capital during volatile times and ensure that risk mitigation is based on real, current data. Revenue growth functions are also supported and efficient enough to facilitate smooth operations, even under duress. This requires:

  • Discarding outdated credit strategies and scoring methods
  • Laying a scalable and standardised digital foundation across all the credit operations
  • Optimising the credit evaluation process and credit approval workflows
  • Having real-time visibility into the changing financial health of all customer portfolios, risk indicators and key performance indicators

According to our latest Automation Survey in March 2020, two-thirds of respondents said their organisations have already implemented or are in the process of piloting automation in their credit and collection process.

Today, credit teams are spending more time studying their customer portfolios to truly understand what cash flows might look like to support working capital optimisation. They are now sought out as sources of insight and knowledge, becoming advisors for both sales and finance departments.

For identifying the right commercial opportunities, credit managers are analysing information from different credit bureaus and trade groups to identify creditworthy and profitable prospects.

The latest trends and management expectations mean credit departments are required to think not only in terms of risk optimisation but to help identify business opportunities. This requires insight, clear analysis of historical data and the ability to make predictions — and this can only be done effectively with technology.

Acknowledging the value this can bring not only to the way they work but to the business, credit risk management teams are becoming a lot more data-savvy and embracing advanced tools like Artificial Intelligence (AI) and Robotic Process Automation (RPA) and moving away from manual excel based work.

Credit teams are spending more time analysing their customer portfolios to truly understand what cash flows might look like to support working capital optimisation. They are now sought out as sources of insight and knowledge, becoming advisors for both sales and finance departments.

Automation is Driving Proactive Credit Risk Management

Access and automation are fundamental to running an agile and efficient credit management process. Cloud-based technology more easily aggregates data from multiple sources to deliver better visibility on the overall risk exposure across customer portfolios. Credit teams can leverage actionable insights based on real-time customer credit data, macroeconomic fluctuations, payment trends to arrive at accurate credit decisions.

Key components of an automated credit management process

At a time where businesses need to remain agile, customer-focused and be able to make confident and informed decisions, automation can deliver the following value:

20% Reduction in Bad Debt through Efficient Risk Management

Credit teams can perform proactive reviews based on internal factors such as credit utilisation thresholds. Real-time credit risk monitoring helps to continuously track macro and micro-level changes in customer portfolios. This fast-tracks ad-hoc reviews based on external bankruptcy alerts and negative payment trends. Better visibility of the overall portfolio risk helps to control bad debt reserves.

15% Lower DSO through Proactive Collections

Collectors can leverage insights from the credit department to prioritise customers based on their payment trends, change in risk class, and blocked orders. Collectors can proactively follow up with the critical customers to recover faster, improving the overall DSO.

90% Faster Customer On-Boarding Leading to an Improved Customer Experience

Online credit application takes away the major pain points of manual onboarding. These pain points include to-&-fro with customers for missing data, aggregating credit reports, and validating bank references. Digital customer onboarding makes the whole process faster and allows credit teams to focus on risk classification and scoring and other important decisions.

50% Faster Credit Reviews by Ensuring Better Visibility on Customer’s Credit Health

Credit teams have 1000+ existing customers to review. Credit Cloud analyses credit agency data, financials, payment trends, and blocked orders. It can then automatically flag critical customers who should be reviewed immediately while automating reviews for low-risk customers. The Credit department can prioritise these reviews to mitigate the risks, positively impacting the bad debt reserves.

Improvement in Productivity due to Real-Time Visibility into Customer’s Credit Data

Credit teams can spend more time on every critical risk evaluation. This is because essential data such as credit reports from D&B, Experian, financials, macroeconomic fluctuations reports, payment history reports, previous credit score reports, and credit limit utilisation is already auto-aggregated. This ensures faster reviews and a transparent audit trail for executive visibility.

Impact achieved with proactive credit risk management by some leading brands

Renewed focus on credit is the need of the hour

Credit management is the lifeblood of all businesses. Still, it has taken a global pandemic to expose the cracks in outdated systems and, all too often, a manual approach to risk mitigation.

Innovative new technology solutions extend the credit risk management’s location and value across the enterprise through a cloud-based technology platform, enabled with artificial intelligence.

Cloud-based solutions offer the benefits of reliability, mobility, and scalability while eliminating IT, data infrastructure, and upgrade costs. These solutions enable dynamic credit management workflows and process improvements that result in lower risk and improved response times, reduced costs and better customer experience.

The modern, technologically advanced credit management process gives organisations a proven ability to make quicker and more accurate decisions with real-time credit data. Its effects are real, immediate, and increasingly indispensable for any business looking to strive for cautious growth in today’s competitive world.

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