Strategic Credit Management: The way to positive cash flow

Relatively little has changed over the past 25 years in the credit management profession. Yes, we now send e-mails and text messages instead of faxes and letters. Moreover, we have "fancy" systems and AI. However, in essence, outstanding receivables have not declined structurally within organisations, said Meri Nasole, at the first Onguard University event.

Sandra Sarmpezi October 29, 2024
5 min read

Relatively little has changed over the past 25 years in the credit management profession. Yes, we now send e-mails and text messages instead of faxes and letters. Moreover, we have “fancy” systems and AI. However, in essence, outstanding receivables have not declined structurally within organisations, said Meri Nasole, at the first Onguard University event.

Initiated in October 2024, Onguard University is a series of events that gives the stage to a different
credit management expert every time. This is where they can share their insights for the future of
the sector while giving the chance to like-minded professionals to exchange ideas and knowledge
during an inspiring afternoon. For our first session on Thursday 17 October, we welcomed Meri
Nasole, Director/Owner of The SpanBroker as our guest speaker.

The position of the Credit Management department: Centralisation within the organisation

The current view regarding the positioning of the Credit Management department within organisations often focuses on calling or mooning and recording in systems. A turnover increase creates pressure on the Credit Management department. The consequence of increasing turnover is often that receivables rise along with it. This often indicates a structural ‘problem’, Meri notes.

Everything that goes wrong within the organisation eventually ends up in the Credit Management department (e.g. failing to pay an invoice). If the Credit Management department is used as an information provider and has a central and autonomous position within the organisation, it can solve all the problems that go wrong in the process.

“For repositioning and thus centralising the Credit Management department, stakeholder management is crucial. Providing support is feasible only if the organisation is well aware of what the Credit Management department deals with daily. And especially what the consequences of the actions within the organisation (within the different departments) are on the Credit Management department.”

Strategic credit management: Monitoring the Prospect-to-Cash process

“Within organisations, the Credit Management department is usually not used as an information provider. As a result, problems are not treated and solved structurally. ‘If you do what you always did, you get what you always got,‘ a quote by Albert Einstein says. If you want to change, you have to think differently. From our perception, there is one solution: strategic credit management.”

Strategic credit management, says Meri, is a way of making policy. This involves efficiently monitoring the whole Prospect-to-Cash (P2C) process and structurally capturing the problems and solving them. This way, you can guarantee positive cash flow. In doing so, of course, it is essential to accompany those responsibilities with policymaking.

‘Setting up policy implementation this way in an organisation can bring positive cash flow,’ Meri concludes.

Strategic Credit Management: Summary for driving positive cash flow

1. Redefine the positioning of the Credit Management department: Ensure that the Credit Management department has a central position within the organisation, so that it can interact with each department and share and discuss all information from the Credit Management department.

2. Stakeholder management: Ensure internal PR of the Credit Management department. Every step taken by the Credit Management department should be in consultation with the internal customer. The Credit Management department monitors, informs and then, after consultation, takes care of capture and implementation. Not only within the primary process, but also responsibility for payment. So the Credit Management department indicates what they see and what the solution is.

3. Prospect to Cash: The Credit Management department should be able to act from an autonomous position. Make the Credit Management department responsible for monitoring the overall P2C process and thus managing cash flow. They are the ones who monitor the entire P2C process and are responsible for any adjustments.

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What is the annual revenue of your organization?

What are your standard payment terms with customers?

How many FTEs are in your credit management department?

How many invoices does your organization send annually?

How many days on average do your customers pay past your payment terms?

Which system do you primarily use for accounts receivable management?

What percentage of your invoices is paid after the due date?

How does your reminder process for outstanding invoices work?

How quickly do you have insight into your total accounts receivable position?

How do you assess the credit risk of new customers prior to delivery?

How are payment agreements with customers recorded in your organization?

How do you forecast your expected cash flow for the next four to eight weeks?

What percentage of your annual revenue do you write off as bad debt on average?

How do you handle invoice disputes and payment discrepancies?

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