The financial management of a company is undoubtedly one of the key factors in its success, but also in its long-term survival. Companies are well aware of this, and since the 90s, the concept of credit management has been growing steadily in France. But what exactly is credit management? What is a credit manager?
How can you optimize your receivables management? We explain everything you need to know about credit management.
What is credit management?
Originating in the United States, credit management is a financial management technique designed to establish a process for managing customer receivables.
It is based on actual or potential business volume, an analysis of customer creditworthiness and the allocation of a score based on various internal or external criteria.
The aim is twofold. On the one hand, to reduce payment times to improve cash flow, and on the other, to drastically limit non-payment.
Would you like to discover the best practices of the “Cash Culture”? Discover in our white paper how to explore a new approach to “cash culture” in which your Credit Manager and your customers become real players in your company’s performance.
Why credit management?
By setting up a comprehensive customer receivables management process, credit management enables you to anticipate late payments and any unpaid invoices, as well as better manage the collection of your company’s receivables.
Credit management makes it possible to establish a collection policy tailored to each customer’s profile. The same applies to the procedure for managing unpaid invoices.
In this way, you can control your outstanding receivables while maintaining excellent customer relations.
What’s more, by reducing payment deadlines and delays, there are fewer offsets. As a result, credit management reduces the company’s working capital requirements. It also reduces the need for external financing, since the company has sufficient cash to self-finance some of its investments.
Credit management is therefore an invaluable tool for ensuring the long-term viability of your business, thanks to a healthy cash position.
In short, the advantages of credit management are :
- control outstanding receivables;
- reducing payment times;
- limiting late payments and unpaid bills;
- reducing WCR ;
- reducing costs linked to external financing and collection procedures.
Who handles credit management?
In principle, credit management is handled by a dedicated person within the company, the credit manager.
This specialist works closely with the CFO and sales teams. The credit manager also liaises with the department that handles payment-related litigation and disputes.
The credit manager’s job involves determining a customer’s creditworthiness, assigning a score according to the risks he or she may represent, and assisting sales staff in choosing the type of contract to offer, particularly with regard to financial terms.
It is therefore involved in all phases of the order-to-cash cycle and customer relations. He or she is present from prospecting through to sales proposals and the management of unpaid invoices.
As a result, the credit manager has solid skills in financial management, accounting and risk analysis. They must also have good interpersonal skills.
He or she acts as a “business partner” to general management, and through internal and external interactions, will play a key role in business relations.
What role does the CFO play in credit management?
Credit managers and CFOs have complementary roles in credit management.
The CFO is the driving force behind the company’s cash culture. He or she will therefore give the credit manager the broad guidelines to follow. For example, the CFO will set targets for DSO, late payments and non-payment rates. It is then up to the credit manager to carry out the operational tasks required to achieve these targets.
Consequently, the CFO’s role is to manage the credit manager, who in turn must secure cash flow by acting upstream via the collection policy, and optimize debt recovery where necessary.
And for more information, you can read the article associated with this topic, which was discussed during a 26-minute TV set at the last FORUMDIMO TV: What role does the administrative and financial department play in credit management?
How to optimize credit management?
To optimize your credit management, there are three main levers at your disposal:
- employee training ;
- customer satisfaction ;
- the adoption of a credit management tool.
Optimize your credit management by discovering our solution.
Credit management: employee training
Whether it’s a question of commercial relations or debt collection, people are at the heart of the credit management process. Employee training is therefore essential.
Salespeople must be able to negotiate the best possible financial terms for the company. To do this, they must have in-depth knowledge of prospects and customers, as well as of the various payment methods and tools available to them.
For their part, the collection team in charge of customer reminders must strike the right balance between collection and maintaining customer relations. It is therefore essential to provide support to employees, enabling them to enhance their skills in telephone negotiation and dispute management.
Credit management training for employees must also include optimization and organization.
Finally, credit management also concerns managers. They are the ones who steer their teams’ activities and monitor their performance indicators. They therefore need to understand the challenges of credit management, as well as the levers of performance to best support their employees.
Customer satisfaction
Over 50% of late payments are due to customer dissatisfaction or dispute. Consequently, late payments are far from being solely justified by financial difficulties experienced by the customer.
It is therefore entirely possible to act on customer service quality and customer satisfaction in general to optimize credit management.
Customer satisfaction is not only a commercial issue, but also a financial one.
Credit management: choosing the right tool
In addition, to optimize your credit management, you can use a tool that will monitor and automate the process of payment and collection of customer receivables.
The choice of a credit management tool depends mainly on the company’s structure, the size and composition of its customer portfolio, and the volume of contracts to be managed.
For example, a tool like CashOnTime is based on the scripting of the debt collection process through the creation of workflows. This makes it possible to manage receivables more efficiently, detect potential disputes quickly and prioritize actions.
Discover our credit management solution through a demo.
What are the KPIs to track in credit management?
In order to assess the performance of your credit management strategy, it is strongly recommended that you monitor specific KPIs (key performance indicators).
They enable you to monitor the achievement of objectives, and provide significant insight into the company’s financial health, particularly in terms of cash flow. By analyzing them, you can identify areas for improvement and make strategic decisions.
Among the main KPIs to be monitored in credit management, we can cite :
- Days Sales Outstanding (DSO), i.e. average payment time;
- Working capital requirement (WCR) ;
- Delay rate ;
- the rate of unpaid invoices.
Your credit manager needs to have access to this data in order to develop and fine-tune the company’s collection policy. So make sure that your credit management tool enables you to extract this information easily, for example in a dashboard.
