Credit management consists of granting credit to your clients, extending a payment plan, payment recovery, and ensuring both the customer and company comply with the predetermined credit policy.
Ideally, credit management would be; extending payment terms to clients where they would adhere to the terms and conditions and make payments according to the provided plan. We, however, live far from a utopia; in our world, there is a wide array of customers; ranging from low-risk to those that are unrecoverable. This is one of the many reasons a business should have a carefully curated credit management program in place.
A robust credit management strategy prognosticates any avertible business risk. It helps in the identification of prospects or potential defaulters. To minimize adverse impacts on a company’s bottom line; credit risk management is crucial.
5 Things To Keep In Mind Before Creating A Credit Management Strategy;
- Credit Checks Should Be Performed On A Regular Basis:
Credit checks are an absolutely essential first step in your accounts receivables management strategy. They are time-consuming and take your team’s effort, the good news is you can now automate your AR processes. Use AI and segment your potential clients based on the results of the analysis; this way you can tailor a customized approach for each segment of clients based on their category. With credit checks, payment history, and credit scores, you can also get insight into how financially stable your customer is; allowing you to make informed decisions.
- Training is Key:
To avoid wasting time and adversely affecting your cash flow, it is crucial that your team that is responsible for the job have the required skills. In this day and age, where life is so fast-paced; it is always necessary to refresh your team’s skills and keep them updated with the latest industry practices. At the end of the day, training will be reflected in your overall profits.
- Identify Defaulters:
It is safe to say that one of the accounts receivable best practices is the identification of a customer’s ability to pay. This can be determined using data analytics by analyzing a customer’s previous records, poor credit scores, etc. Once you identify a customer with a potential to deviate from payment plans; take immediate action in cases like these, to put more stringent terms in place. This is crucial for the reduction of any risks to the company’s cash flow. You can also decide not to work with such customers. All decisions should be made with the end goal in mind i.e. the uninterrupted flow of cash.
- Outsource The Process:
Account receivable management is a tedious task that consumes a lot of time and energy. When you outsource to a firm with a good accounts receivable management process in place, it helps you in two ways. Firstly, you are taking a big task off the calendar for your employees who can then shift their focus to more core activities. Secondly, a BPO that is specialized in accounts receivable management is also an expert in credit risk management strategies, they will do the work for you more efficiently and give better results in a shorter time.
- Electronically Generated Invoices:
When you start generating and issuing electronic invoices; you are reducing processing time considerably. Invoices will be where they are supposed to be faster because you’re avoiding printing, posting, and processing hard copies. This will also streamline your procedure and make it simpler. For instance, you can schedule invoices in advance to be sent out to avoid delays.
Know When To Seek Professional Help
Business intelligence experts state that more than half of all bankruptcies are majorly due to poor credit management. If account receivables are not properly managed, even profitable companies can struggle. The right move for any company, whether big, small, or medium is to outsource their account receivable management process to a BPO. These companies use the best credit risk management strategies because they specialize in that area. Do not outsource blindly; do your research and ask yourself these questions before choosing a BPO that will help with all your company’s cash flow.