Credit Management magazine December 2017

OPINION
AUTHOR – CHRIS SANDERS
Chris Sanders
If any proof were needed that this was the
case, one multinational collections function
was brought to its knees a few years ago for
that reason – taking months to recover not
only equilibrium in its sales ledger, but also
the reputational damage caused with customers.
Trust, or lack of it, in credit management
can take a long while to recover.
Cash allocation is so much more than
a transactional process that can just be offshored
or outsourced without too much
thought, and unless you are an operational
credit manager, it is often difficult to comprehend.
It is usually the ‘finance’ people that
do the defining of what can and cannot, or
should and should not, be offshored and outsourced,
and as credit managers – how many
poor decisions do we see? It is therefore very
good to know that such critical processes are
now gaining even greater recognition, not
least in the level of effort organisations are
putting into developing new and innovative
software solutions. As the average Enterprise
Resource Planning (ERP) system only has a 54
percent auto allocation rate, it doesn’t take a
rocket scientist to figure out what a 90 percent
auto allocation rate will do to a business.
To reach those levels takes a credit manager!
PAYMENT HABITS
Capturing data on payment habits is becoming
critical; as I have mentioned before, ‘you
can automate anything where there is a predictable
outcome’, but you only know what
the outcomes are if you are gathering the
data in the first place. Again, this information
is becoming recognised as the driver for
collections activity. This sort of automation
percentage now makes us question whether
the accountants made the right decision to
migrate this activity offshore, other than to
make it someone else’s problem. These offshore/outsourcers
are now looking for ways
to combat this shift in thinking by creating
teams or implementing new ways to deliver
automated solutions. Trust me, when these
guys do this, you know that there is something
they are concerned about.
Ultimately of course, everything is
about the customer and their experience,
and this is what we should really be considering.
Too much offshoring is about reducing
cost, not improving the experience of the
customer or effectiveness of the process. Being
a professional organisation is about how
you treat all other organisations you interact
with.
In the work that I do I meet many organisations
with brilliant credit management
teams, yet their accounts payable seem to
have in-built processes designed to delay
payments not necessarily deliberately, but
because they are done to a cost not a quality
standard, and this impacts reputation. Why
spend huge sums on new collections and
credit management software, and not consider
what happens when the cash is paid? With
new specialist systems, the ‘transactional’
cash allocation process has come of age and
is helping drive the upstream processes of
collections and risk assessment.
FIRE AND FORGET
The ‘fire and forget’ approach to financing
from years ago has also thankfully
changed. Back in the day, invoice financing
‘factoring’ was not something
that many organisations wanted to discuss
or admit too, since it was associated
with organisations in difficulty or without
the skills or resources to manage
their cash collection effectively. Additionally,
the ‘factors’ had a poor service reputation
largely because they were not too concerned
with an ongoing business relationship with
the debtor as they saw them. This is very different
today.
There is significantly more due diligence
carried out when financing, the impact of the
2008 credit crunch has provided more rigour
in this regard, and financing is being seen
as a real opportunity for improving working
capital, especially at times of seasonal increases
in revenue. Better to have the money
in the bank than on the sales ledger. Financing
arrangements are fast becoming more
commonplace and customer focused, providing
the company with the money and the
customer with extended terms. With more
acceptance comes innovation.
One organisation in the building trade
facilitates finance arrangements like this for
their customers, the builders, to help them
with short-term financing. By doing this, not
only are they getting paid quicker but the customer
experience is also such that they are
less likely to change suppliers. This service
is offered with a suite of other ‘products’ like
assistance with collections, credit insurance,
risk assessments. This particular organisation
started offering these services two years
ago.
Here are two activities at the back end of
the order to cash process – cash allocation
and financing – that are at last gaining greater
recognition and understanding for their
importance to a business’ cashflow. Neither
of which were glamourous, but both considered
mysterious and unwanted by most of the
business, and are now being de-mystified as a
result. Organisations that are managing these
processes well are really benefiting both the
business and their customers – proof that a
more holistic approach to credit management
is now needed.
For more information about the CICM
Best Practice Network please contact or visit
the CICMQ page on the CICM’s website cicm.
com.
The Recognised Standard / www.cicm.com / December 2017 / PAGE 43