Customer onboarding is the first and one of the most important steps to reduce DSO. Most organizations ignore this step and take the word of the sales representatives or the customers to decide on credit limit assignments. Wrongly estimated credit limits could lead to bad-debt write-offs and high DSO.
According to a survey by NACM 33% of organizations are pressed for time to perform due diligence on prospective customers. This is because companies typically assign credit limits based on credit agency data, financials, credit insurance, and bank guarantees. All the manual processes including paper-based credit applications, gathering data from third-party agencies including D&B and Experian and credit reviews make it increasingly difficult for credit analysts to find time and onboard new customers.
Figure 1: Current Credit Application Process
The top bottlenecks for organizations in the credit application process are:
Figure 2: The Online Credit Application Process
Moving credit application online, integrating it with credit agencies and securing it with digital signature technology helps in eliminating manual work and incomplete documentation. It replaces a paper intensive credit management process with an electronic one to enable better credit portfolio and risk management and to quickly onboard new customers. Credit score and credit limits are calculated automatically while workflows are assigned to relevant credit managers to review and approve the assigned credit limits.
Figure 3: Credit Review and Customer Onboarding Process
Assigning the right credit limit to the customers helps firms to collect the payment on time thus, reducing DSO.
The adidas group has about 10 different types of credit application formats which are filled by customers for requesting lines of credit from its various business divisions across geographies. In what was a very manual paper-based process, the credit team at the adidas Group took more than four days to process a single credit application. In essence, what this meant was that the credit team was mostly focused on tactical activities while trying to get a complete credit application rather than spending it strategically on the credit review process. The Adidas group started deploying credit applications one by one at each of their business units. After deploying the HighRadius online credit application, the team was able to bring the new customer onboarding time to less than 2 days with more than 90% credit applications received with complete data, right on the first attempt. The end result was that the team was able to review more credit applications per given while using accurate data to reduce the credit risk exposure and alleviate the risk of high DSO due to wrongly estimated credit limits.
HighRadius Integrated Receivables Software Platform is the world's only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway - covering the entire gamut of credit-to-cash.