Aluminium Today, September/October - As the global economy improves, the focus of suppliers is shifting from protecting their customer base to actively expanding it. But poor credit management practices continue to adversely endanger even the strongest companies. David Taylor, Chairman & CEO of OnGuard, looks at the challenges facing CFOs in understanding how credit risk affects the stability of their company, both now and in the future.
Although few will admit it, it is relatively common practice for companies to sustain their cash flow by withholding payment to their suppliers until they have invoiced their own customers and safely banked the money. Of course, everyone prioritises the payment of their own invoices before those of other companies. But the lengthy tailbacks between the issuing and payment of an invoice can severely restrict the supply of money – the lifeblood of every business. These delays have a knock-on impact all the way down the supply chain from supplier to customer and back again. Eventually, this stagnation filters down to the wider economy, just when it needs it least.
CFOs today know that they have to adopt a more cautious approach to risk, and be tougher on payment terms and conditions. But simply invoicing a client for a product or service is no longer a guarantee of the success of a business, nor indeed of payment. In the present economic climate, revenue only counts if it is cash in the bank. The key challenge facing these CFOs is to keep cash moving by bringing credit management into the heart of their business processes.
Credit management is changing. Sometimes perceived as a one-way street where the recalcitrant customer was chased for payment until it is either received or written off, a growing number of companies are now taking a highly positive, proactive approach to credit management. In fact, the credit management department is one with more touch-points – and more daily customer contact within an organisation than any other. This makes credit management particularly well placed to deliver a strong alignment between business process and the market, at the same time as reducing customer payment times and improving cash flow.