By Michael Feldwick, Head of UK and Ireland, Tinubu Square
The most recent ICM UK Credit Managers’ Index for Q2 2014 showed once again that credit managers’ confidence in the economic outlook continues to improve with the headline index at 59.2 – more than 10 points up on the low of September 2012 – and continuing the upward trajectory of the last six months. With 60% stating that they expect cash flow to improve in the second half of 2014, this is great news, but are finance departments in a position to capitalize on the growth opportunities?
Until recently there was a perception companies were holding onto their pennies and any improvements to internal corporate systems were marginal at best. But increasingly, businesses are feeling more confident about their exposure to risk, and are now questioning the efficacy of systems based on multiple mixed ledgers, often geographically dispersed, and wondering how they can grow without exposing themselves to disproportionate credit risk?
This is exactly the moment at which decisions have to start being based on detailed intelligence about the financial health and credit worthiness of customers which can best be delivered through technology solutions. If credit managers are considering, as the ICM Index suggests, a review of their processes, they might want to think about the advantages of having real-time access to data, knowing what the outstanding risks are, what the total customer debt amounts to, and which customers represent the biggest threat in terms of recovering the debt.
The financial health of a customer last month will not help with assessing the security of their debts right now, but timely data lets managers understand their exposure instantly, so they can adjust credit limits until the financial position improves. It also means that risk can be managed according to a company’s own appetite.
A fifth of the respondents to the ICM survey said that they had already, or were planning, to invest in technology to benchmark and track performance in order to improve risk management and just over 11% said that they recognised the need to improve the connection between back office financial and front-line systems. This kind of investment also means that everyone from the back-office to CRM systems works with the same information—from lead generation, to closing a sale, to follow up throughout the entire order-to-payment cycle. Information and analysis is an essential part of making financial management a success.
Access to intelligence makes it much easier for companies to assess whether high-risk customers should be on the prospect list and focus sales efforts on the strongest, high value opportunities that will deliver fast, full revenue recognition. Sales team will be tangibly more productive and the company will be focused on maximising profitable sales.
Companies can also use trade credit insight to improve their own business opportunities. Apart from enabling decisions to be made about which customers to trade with or extend credit to, this data can be leveraged to guarantee bank credit and reduce borrowing costs.
And for those looking to expand into new markets, such as Asia, South America and Russia, the exposure to risk is increased, so it is even more important to determine the credit risk of potential buyers operating in these areas based on “on the ground” intelligence. This is easy to do, but the technology solution you use must be able to synthesize daily intelligence from global sources, and not just local.