Towards an Integrated Credit Management

‘Coordinating the entire O2C process’: credit management’s changing role

Broadening the Credit department’s role since the 2008 crisis, organizations have their credit team collaborate closely with Sales, Marketing, Legal and Finance departments, subsequently getting it involved in outlining the company’s broader Order-to-Cash (O2C) strategy.

Following the department’s changing role, the roles of credit professionals have evolved accordingly. Credit professionals take up a very different position in today’s organization. The focus on analytical skills and risk awareness has made room for more commercial awareness and people management skills. Ideally, the credit manager coordinates the entire O2C process, from prospection to payment.

Another major change was brought about by digitization. With a wide variety of tools available, the department is now ready to centralize customer information, automate risk assessment processes as well as dunning strategies. It enables credit professionals to shift their focus from operational work to value-adding activities for the O2C process, such as creating a credit policy, strengthening relationships both internally and externally, and working on the continuous improvement of the O2C process.

Besides organizational and technological developments, changes in the legislation also have an impact on the credit function. Since May 2018, new insolvency legislation has been introduced and Belgium’s corporate law has been reformed.

The aim of this new law is to bundle the existing legislation and to bring it closer to economic reality. In the new insolvency law, e.g., ‘excusability’ is being replaced by ‘remission of debts’; a director’s liability has been broadened in scope (member of professions, non-profit organizations and foundations can also go bankrupt); and judicial reorganization procedures have been changed.

The impact on the Credit department is mainly to be found in the foundation of RegSol, the Central Solvency Register. This digital platform enables creditors, authorized agents, and interested parties to file their open receivables online, instead of going to court physically. It also enhances transparency, supplying stakeholders with fast and up-to-date information on a company’s situation, resulting in a better chance of
collecting (bad) debt.

Driving the focal shift

Although credit management went through major changes the past decade, several dimensions of the function are still underexposed. We expect them to mature rapidly in the years to come, contributing to the function’s evolution towards integrated credit management:

• The focal shift from credit control to the front-end of the O2C process will continue to develop. To enhance cash generation at the back-end of the process, consequently securing business continuity, customer risk assessments and credit approval have become more important than ever - initiating the sales process.
• There is a strong belief that the Credit department should expand its role as a custodian of the O2C policies and processes set out by the company. Although the credit department is not the owner of these processes and is certainly not responsible for carrying these processes, it mainly monitors and guards the entire O2C process.
• Under Covid 19, the prioritization of working capital puts sales departments under pressure as working capital KPIs are introduced. With few sales reps having a financial background, there is a big role to be played for the Credit department as a co-pilot for Sales. Common goals and objectives should be adopted in the organization’s policies.
• Finally, there is no escape from the advanced technologies that set the playing field today. While robotics is more visibly adopted nowadays, it remains unclear what the impact of AI and Blockchain will have on the Credit department as the technologies are still to prove their added value for day-to-day operations.

Digitization as a whole keeps organizations busy, unavoidably challenging credit departments and credit managers. While it is clear that low-value tasks and operational tasks should be automated, human interaction remains indispensable for the department, both internally and externally. Automated approval vs personal reviews? A bionic approach offers a plausible middle ground, combining the advantages of new credit tools with the indispensable human approach of the credit professional.

Needless to say that in today’s world, credit management will not return to the dungeons anytime soon. The relevance of (credit) risk, compliance, cooperation, and close monitoring of customers has never been higher, and companies finally seem to realize the department’s added value. Simultaneously credit managers evolve into multi-talented gymnasts with a broad skill set, ready to tackle the department's challenges.

Integrated credit management

By well defining the role of custodian and co-pilot in your credit & collection policy, you will be able to establish an integrated credit management, which will result in better and more effective results. However, intuition, empathy and building interpersonal relationships are human things that cannot be automated and will remain key skills for credit professionals.

In its role of custodian, credit management has to steer and coach people across the organization to ensure compliance with the set policies and procedures. ‘Credit management has to address certain anomalies and non-compliances in the OTC process chain which might occur,’ CFO Services’ expert manager Benjamin Celis says. ‘Take dispute/complaint management. As long as certain disputes are not properly handled by Sales or Customer Service, there will be no payment. Yet, all too often the handling of disputes or complaints has no priority, resulting in no or late payment, possible write-offs, frustrated customers, and the creation of a bad image of the company.’

As pressure on working capital increases, the Sales department is confronted with challenging working capital-related targets. No matter how proficient salespeople are at selling, they often lack the financial acumen to assess these targets correctly. As a co-pilot for Sales, Credit management can support them to achieve their targets by setting the right payment terms & methods, and credit limits, and by reducing risk.

Although the credit management function has evolved a lot in the past years, it still has a lot of challenges ahead as well.