Why Now is a Crucial Time to Focus On Your Credit Management Strategy

Nicole Dwyer

Accurately assessing the creditworthiness of your customers impacts your ability to collect funds and therefore directly impacts cash flow.

While a customer’s credit rating is one metric and often the only metric used to assess creditworthiness, proper analysis of customer data can provide important insights into who is actually a great, average or poor customer. 

And great customers pay their invoices on time.

Today, 93% of businesses are dealing with late payments and these late payments cause a snowball effect in the business. According to a recent survey by Melio, 40% of businesses experiencing late payments defer hiring new employees, 39% avoid purchasing new inventory and 36% cut the hours for current employees. Ouch. 

Assessing your credit management strategy now can help you avoid that snowball effect as we move forward into another uncertain and turbulent year.

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Time is money. Today, 93% of businesses are paid late.

Static and Reactive Doesn't Cut It 

Organizations typically review customers' credit ratings from partner agencies. Time permitting, they may also review payment history. And they also establish a cadence to review the account every so often, unless there is a problem.

Since pricing, terms and credit limits are all set at this early stage of the credit-to-cash cycle, not analyzing the complete spectrum of available customer intelligence could lead you to miss out on big revenue opportunities, while giving favorable terms and discounts to wrong customers.

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For big revenue opportunities, businesses must truly understand customer creditworthiness

 

Greg Wineberg, Senior Product Director at YayPay by Quadient, notes:

“Managing credit risk effectively means not only extending credit to the right customers — the ones who are growing their own business as well as yours — but it also helps you provide a positive experience to those customers you value the most. And right now, in a market where it’s so easy for customers to switch to competitors, securing customer loyalty is critical to business success.” 

Greg Wineberg, Senior Product Director, YayPay

Here are four key components of an effective credit management strategy that will help you proactively navigate your customers’ needs and expectations.

Know Your Customer

Like any good relationship, how much you know about your partner matters. Especially when it comes to managing money. When a customer is asking for a new line of credit or an extension of a current line, it helps to have more than just their most recent Dun & Bradstreet credit score on hand. With YayPay’s new Advanced Credit module, announced just last month, you have access to more than metrics you have access to information. The Advanced Credit module pulls in data from agencies such as Dun & Bradstreet and Creditsafe, then combines it with YayPay’s detailed payor history. What you get is a unique scorecard for that customer that provides more detailed and accurate information about whether or not your customer is a credit risk.

Smart Decisions + Smart Interactions = Happy Customers

In addition to valuable and actionable information, the new Advanced Credit module gives your AR team additional ways to deepen the relationship with your customers and improve customer loyalty. 

Those detailed customer scorecards mean you have flexibility in how you work with your customers. You understand their business, their payment history, and you know how much flexibility you have in your credit policies to help your customers meet their needs.

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A virtuous circle. Meeting your customers' needs helps you mitigate credit risk.

 

Wineberg explains that:

“This ability to offer a customized plan helps you mitigate risk to your business while still providing valued customers with the opportunity to expand their business with you as a reliable and trusted partner.”

The Need for Speed

All customers like a fast and efficient interaction. They’re busy running their businesses and any time spent not driving revenue is time that’s costing them money. The Advanced Credit module enables a smoother onboarding process that allows all relevant account documentation to be stored in one place at the time of record creation. It’s then easily accessible as well as centrally located for future reference.

As Wineberg points out:

“The AR process is often one of the earliest touchpoints a new customer has with your brand. Ensuring that the process is friction-free means gaining the trust of your customer, which is the cornerstone for building loyalty.”

Total Transparency

One of the key benefits of YayPay’s smart AR platform is that it provides both you and your customer with access to account information, and ensures that everyone is looking at the same, up-to-date data. With YayPay Advanced Credit, everyone in the business who works with that customer is able to leverage the information in their interactions. 

Finance teams are able to set automated reminders or triggers when certain events occur. For example, if a customer consistently demonstrates good payment behavior, teams can easily track this trend and make an informed decision to refresh credit scores. This might lead to updated limits or payment terms. With real-time credit management, companies can stay close to customers and increase transparency in their relationships. Similarly, if a customer starts to pay late, this can be addressed quickly and payment plans can be amended accordingly. 

Sales can see which of your customers are the best candidates for credit extensions or special financing opportunities. Customer support can see, and explain, why some customers may be turned down for credit or offered a different plan than the one they applied for. Finance teams have more confidence in their forecasting projections because that data is based on the creditworthiness and payor history of your customers.

Taking a thoughtful and proactive approach to your credit management strategy now can save you time, money and customer relationships as the late payments metric continues to grow. Understanding your customers’ needs and their business goals, and then having the flexibility to provide credit options that protect both of you, shows that you’re invested in your partnership with them. And that investment will pay dividends in customer loyalty - and in reducing the amount of late payments that may be impacting your business today.

 

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Nicole Dwyer
About the Author

Nicole Dwyer is Chief Product Officer for YayPay, bringing more than 10 years’ experience in accounts payable and receivable technology to ensure YayPay continues to meet the needs of its customers. Having spent her entire career in commercial payments, Nicole understands high- and low-value payment systems, the complexities of how businesses pay and get paid, and has worked with distributed teams spanning the globe. She is a graduate of Worcester Polytechnic Institute. Residing in New Hampshire with her husband, daughter, and son, they spend their time outdoors and creating new adventures.

Read more articles by Nicole Dwyer

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