Credit Risk Automation: How To Reduce Manual Credit Risk Analysis

Impact of uncertainty on mid-market businesses

Post pandemic, businesses have seen challenges such as a rise in default payments, possible insolvency, socio-political upheaval, supply-chain challenges, rising inflation, and varying global economic trends. These challenges also affected mid-market organizations—a critical business segment and a key contributor to the economy.

According to a study by NCMM Middle Market Indicator (MMI) in December 2020, mid-market organizations reported an average revenue decline of 1.2% after the pandemic set in.

As mid-market organizations crawl back to normalcy, organizations with low cash reserves and unstable cash flows are especially vulnerable. This has a cascading effect on cash transactions between businesses, given the lack of clarity in assessing their creditworthiness.

These factors have complicated an already error-prone and unstructured credit risk assessment process, for mid-market businesses assessing the creditworthiness of their buyers. It is now crucial for mid-market organizations to improve credit risk management, plus increase earnings, and improve efficiency in 2022 and beyond.

In 2022, mid-market businesses need to determine the creditworthiness and risk factors reliably. They can do this by putting together an efficient risk analysis process that minimizes costs to arrive at the right decisions for credit extension across their customers’ lifecycle.

Without a cost-effective credit evaluation framework, mid-market CFO offices may extend excessive credit limits to high-risk buyers and low credit limits to low-risk buyers impacting top-line KPIs.

What Is Credit Risk Automation?

Credit risk automation uses technology-driven workflows to collect, analyze, score, and continuously monitor customer credit information, reducing manual effort in credit assessment and risk management. By automating credit analysis and risk signals, finance teams can make faster, more consistent decisions while identifying emerging exposure before it becomes bad debt.

Mid-market CFO offices cannot continue to mitigate credit risk manually

For years now, growing mid-market businesses have depended on manual credit risk management and analysis. The first step for mid-market CFOs to consider and is to move away from relying on manual processes to manage the credit risk of your customers, especially as:

• Mid-market organizations face the risk of being in business with high-risk firms
• There might be personal biases that sneak when you establish credit limits
• Conflicting interest of teams (sales vs. finance) may harm the processes
• Manual credit risk management might generate an unsatisfactory customer experience (CX)
• You do not have an overall risk profile based on industries and geographies increasing your customer portfolio risks

These challenges typically start at the onboarding stage, as several mid-market organizations still follow the manual practice of managing paper-based credit applications, which is laborious, and error-prone. The lack of intelligent integration at the onboarding stage means these applications are sent arbitrarily via fax or an email from their buyers. Not to forget the additional time it takes to manually transfer data from these applications onto an excel sheet or an ERP for further processing.

The manual practice of handling credit data not only causes slower response time as multiple teams work in silos, but it is also prone to duplication and fraud which is detrimental for your businesses.

Additionally, such a traditional approach weighs down a business’s ability to control credit risks, lower productivity, and reduce the competitive advantage. Which is why it’s high time businesses abandon error-prone and time-consuming conventional credit risk analysis, and adopt a solution that will mitigate credit risk throughout the buyer’s lifecycle.

How to Automate Credit Risk Management

By infusing automation into credit risk management, CFOs and credit risk managers can gain deeper insights from advanced analytics, identify risks quickly which helps in better decision making. So, while you are simplifying the credit risk management process, you are also making it robust as it increases efficiency, improves compliance, and levels up your team’s productivity.

#1 Increase efficiency

Automation of the credit risk management process helps organizations efficiently monitor and red-flag potential risks in real-time by:

• Empowering credit teams to run quick and accurate assessments for new customer accounts, enabling faster buyer onboarding
• Aggregating buyer data, based on the source, industry, and return on investment (ROI)
• Gaining actionable insights to determine the potential impact of extending a specific amount of credit limit to the business
• Maximizing the efficiency for credit risk mitigation with automation

#2 Improve compliance

When you digitize Credit Risk Management, your business can perform compliance tasks faster, more accurately, and without bumping up the cost significantly. As opposed to the manual process of managing credit risk, automating the process allows these businesses:

• To drive cost efficiencies, reduce manual effort, and focus on creating exponential value for their end customer
• It also acts as a central repository for credit analysts to consolidate the data from multiple sources into one secure database, which they can share, audit, append and update accordingly
• It helps businesses adhere to the regulatory compliance for each geography they operate in and helps avoid any fallouts

#3 Enhance productivity 

Organizations that typically use archaic methods to manage credit risk often set up small teams that manage a disproportionately large number of buyers. Such arrangements dent a business’s throughput and limit its growth prospects, given the high volume of buyer data the teams have to manage. Especially today, when pandemic has made credit decisions more challenging, as business health is more volatile than it was a couple of years ago.

Supporting your lean teams with AR function automation can mitigate credit risk more efficiently by boosting team productivity, as –

• It enables leaner teams to seamlessly onboard customers
• It improves the management of existing customer data
• Faster processing of credit applications and payments

Apart from the three benefits explained above, mid-market organizations can use digitally enabled credit risk processes for Portfolio Risk Management. Automated credit risk solutions allow businesses to reliably monitor real time leading indicators across multiple credit risk data sources and generate alerts and notifications in the event of bankruptcy and other risks that help CFO offices make better credit extension decisions.

While the teams benefit a great deal from these features, infusing automation in the credit risk management also enhances revenue and lowers wasted spend with improved decision making, resource optimization, shorter turn around time, and a frictionless buyer experience.

How Credit Risk Automation Reduces Manual Work

Now that we’ve established the reasons why automation is the go-to solution for efficiently managing credit risk for customers, let us understand the features you should be looking out for, in a SaaS software like HighRadius. HighRadius talks to 1000s of CFOs each year and understands the requirement of CFO offices, based on which – here are automation solutions for the challenges that credit risk management teams face:

To effectively manage credit risk, organizations need to look at credit risk mitigation into two steps:

1. Effectively onboard new customers

Challenges to solve:

• Speed up the onboarding process for faster order processing
• Nullify paper-based expenses for easy data management
• Reduce the possibility of human error for better data integrity

Mark Twain once famously said, “The secret to getting started is getting started.” A perfect start for any organization willing to digitize its credit management process is to digitize the onboarding experience. Time, cost, and compliance are three critical elements of customer onboarding.

HighRadius’ Credit Risk Management Solution enables organizations to accurately capture credit data, using a customizable online credit application. The easy-to-integrate function of the Credit Management Solution with businesses existing CRM also makes it efficient. Additionally, users can get real-time alerts whenever a customer submits the application for them to commence with credit evaluation.

2. Mitigate credit risk for existing customers

HighRadius’ AI-enabled Credit Risk Management Solution allows CFOs and credit analysts to track changes in customer credit risk based on their past payment behavior. Challenges that you can solve include:

• Better risk assessment to understand your customer’s creditworthiness
• Improve overall efficiency with less reliance on larger teams for data entry and analysis
• Better reporting and adherence to compliance

The solution also enables them to access historic credit reports, to get a holistic view of their customer. Based on these findings, businesses can then set credit limits and notifications for any credit risk that may occur in the future.

How HighRadius Credit Risk Software Helps Improve Credit Risk Assessment

HighRadius credit management software helps finance teams move from periodic, spreadsheet-driven credit reviews to connected, AI-powered credit decisioning. The platform combines customer payment behavior, external credit intelligence, financial data, configurable scoring, automated approvals, and continuous risk monitoring to give teams a clearer view of changing customer risk. For mid-market companies scaling with lean credit teams, this means automating routine decisions and reducing manual reviews without adding headcount. For global enterprises, it brings credit risk visibility, policy governance, and decisioning across complex customer portfolios, entities, and ERP environments. 

• With real-time credit risk analysis software and credit decisioning software, you can receive alerts for any changes in your customers’ credit profile and make data-driven credit decisions from unlimited credit reports. Our software integrates with your ERP system and can start monitoring your customers in just 30 days.
• We offer configurable credit scoring software and approval workflows that can be customized based on geography, customer segments, business units, and other factors. You can fast-track credit approvals through complex corporate hierarchies, making the credit application process more efficient and streamlined.
• Our highly configurable online credit application allows you to onboard customers across the globe with multi-language, customized credit applications embedded on your website. You can automatically capture financials, personal guarantees, and check bank references, reducing the need for manual data entry.
• Our software also automatically extracts credit data from over 40+ global and local agencies, including credit ratings, financials, and credit insurance information. You can configure the auto-extracted data in your preferred currency, making it easier to analyze and interpret.
• With AI-based blocked order management, you can auto-predict blocked orders based on the customers’ credit limit utilization and payment history. You can leverage AI-based release or partial payment recommendations for faster credit decisions, reducing the need for manual intervention.

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