Before the CFO rings twice … Credit Management for the 21st century – Episode I

Suppose you are sitting in your office late in the afternoon – the CFO calls you because he has just heard a massive profit warning on n-tv at the airport from one of your biggest customers. He wants to know from you what the consequences are?

Was sind nun Ihre Optionen? Sie könnten ihm zum Beispiel anbieten, ein PDF mit allen ausstehenden Rechnungen, Kreditlimit, Risikoprofil, bisherigem Zahlungsverhalten und einer auf den Neuigkeiten erfolgten Neubewertung zu senden. Resultat: Ihr Feierabend ist im Eimer und einmal mehr fühlen Sie sich als Feuerwehr des Unternehmens.

The alternative

But suppose the CFO called you because you had already sent him a risk assessment of the customer in question, which already included the downgrading of the profit? Your evening would be saved and instead of firefighting you might have images of Greek heroic sagas or the latest Marvel films in your head.

Which brings us to the subject. Because the difference between the scenarios described above is based on four fundamental misconceptions about credit management that are still valid in most companies:

1. Credit Management is a passive “management function” instead of an active “early warning function”.
In times of global networking, global retail chains and an ever-increasing flood of information per customer or supplier, it is still assumed that the processes and systems that have worked in recent years will continue to function.
The business case is wrong because (see point 1) credit management is seen as a reporting function. However, successful companies use the information from their credit management to actively support sales (e.g. by deriving ideal customer characteristics or dynamically adjusting credit limits). Or, for example, there are also companies which, thanks to their proactive credit management, were able to agree payment plans with key customers in the early days of Corona, so that they can now sail through the crisis much more calmly in terms of cash flow.
And – last but not least – the “final boss”, so to speak, of misunderstandings that companies still assume that automation & innovation in credit management is purely an IT project.

The consequences

These misconceptions don’t only lead to the fact that in the above-mentioned scenario, in the vast majority of companies the “end of the day in a bucket” case will always occur, but above all that you as the person responsible for credit or risk will still have to deal with ERP systems that are inefficient for the function of credit management, which don’t interlock at the important interfaces and therefore can’t holistically combine the various risk-relevant information.

Corona, at the very latest, is another example of how fatal a mainly manual approach can be – after all, businesses have ceased to be national and are now global. Internationally operating companies urgently need a global understanding of their customers – but without a global real-time view of opportunities and risks, this information cannot be mapped.

This means that in order to really advance your credit management and make scenario number 2 a reality in your company, you need a clear cost/benefit argumentation regarding the hurdles “attention of senior management” and “ERP coexistence/integration”.

In Episode II of our series „Before the CFO rings twice …“ you can find out how you can build this up for your company.