Although the fundamentals for qualitative credit management are well known by most finance professionals, it appears that those are not always applied correctly. In particular when we talk about the terms and conditions. Ask employees in finance and sales the following question: Under what general conditions does your company offer its services and goods? Answering this question is often not as easy as it seems.
Its content however is crucial. These conditions determine the obligations between the company and its customers. Very important here is the transparency and applicability of the general terms and conditions. Companies sometimes copy these from the internet or from a competitor. As a result, they run the risk of applying conditions that do not even apply to them, but which can make recoveries considerably more difficult in the event of a possible legal process.
Managing debtors properly is essential to the smooth running of a business and clear payment terms are a basic requirement. But how can you as a company ensure efficient and innovative credit management?
1. Customization is key
A classic debtor process looks like this: After a first and a second reminder, a registered letter follows. If this is not answered, legal action will follow. Too often we see shortcomings in this process. In many situations, both parties end with a bitter aftertaste: everyone loses.
One solution is to implement more customization in the future. An innovative and efficient credit management is aimed at the specific profile of the customer:
What is possible for my customer? What is feasible? How does my customer feel about this?
When attention is paid to these matters, the customer will not only be more inclined to adhere to the agreement, he will also exercise greater loyalty with a possible next order.
2. Data and artificial intelligence
It is important to no longer see credit management as an end-process. Credit management is something that should start when you have the first conversation with the customer about a possible order. Artificial intelligence and various digital data sources can ensure that we as a company make safer choices when accepting a new customer. Knowledge of the client's liquidity, stock rotation and turnover - among other things - ensures that we can make an estimate of the quality of the new relationship right from the first contact.
How great is the potential for a sustainable customer relationship? Should I use a commercial approach with the customer?
These questions can be answered in a second with artificial intelligence and should enable the company to make a better decision. Not only can it affect the pricing and margin of the contract, but also the degree of confidence we can offer in terms of payment terms, etc.
Equality before the law
In the meantime, there have been various changes in legislation regarding the debtor process. In the past, it was mainly the B2C process that was regulated with all kinds of restrictions in order to protect the consumer as much as possible. Now we see that the legislator considers it important to apply many of these measures in B2B. This is a necessity due to digitization and globalization. In a competitive environment, that increasingly revolves around speed, all periods and commas are no longer properly analyzed. This could create unforeseen risks with regard to companies. With the new measures, the legislator hopes to protect its economy.
The time where we could copy paste from the internet or competitors is clearly over. Focus your credit management specifically on the customers of the company and use data and artificial intelligence to make better decisions. As a company, you ensure more efficient and future proof credit management, which also ensures stability and a good relationship between both parties in the long term.
Author: Laurenz
Laurenz has been working at Hyphen as a finance project consultant since 2020. As a Business and Financial Controller he has experience in various financial areas such as reporting, budgeting, controlling, accounting and credit management.
