How to minimise risk in your order-to-cash process
The order-to-cash process involves a series of stages, starting with a customer’s purchase and ending with the payment and processing of the invoice. Efficient and effective order-to-cash is vital in ensuring a company’s success as well as fostering strong customer relationships. The process starts with risk management, which is one of the most important stages of the process, as effective risk management reduces the likelihood of non-payment. You are less likely to face unpleasant surprises towards the end of the process by checking a (potential) customer’s credit rating in advance and continuously monitoring it. In this blog, we look at how to reduce risk in your order-to-cash process, from taking out insurance policies to implementing new technology. Here are our top three tips to minimise risk in your organisation’s order-to-cash process.
Take out credit insurance
Credit insurance is a must. It helps to cover risks and to avoid financial problems as it protects against potential non-payment. If, despite careful credit checking, something goes wrong, the insurance covers (at least part of) the outstanding amount. If you decide to take out credit insurance, it is worth remembering that there are all kinds of rules. Each customer has their own credit limit. If you have hundreds of customers, it can be difficult to keep track. We’ll come back to this later!
While we believe credit insurance to be essential, there is an alternative method. Our recent insurance industry event revealed that some organisations choose to put a lump sum of money aside instead of taking out insurance. This is often due to concerns that in the eventuality of non-payment, they may not claim their insurance. These businesses then use the lump sum as a safety blanket to mitigate the risk of non-payment.
Improve your dunning strategy
Credit management is central to the order-to-cash process. Therefore, a well-thought-out, effective dunning strategy is vital for a number of reasons – not least of which is it helps to mitigate risk and reduce the number of late payments. You should break down your dunning strategy into three stages: structured dunning, dispute management and internal collaboration, and external collaboration. By using an established dunning process, you can feed information gained on customers’ payment habits, for example, into the order-to-cash chain. You can find out more about how to create an impactful dunning strategy here.
Implement technology to minimise risk
Nowadays, there are a variety of solutions you could implement to mitigate risk throughout the order-to-cash process. We will illustrate some of the solutions by going back to the topic of credit insurance. For example, our PolicyManager tool, created in collaboration with risk management and insurance specialist Aon, automates and optimises the management of customer credit insurance. It also provides detailed insight into credit insurance capacity. When integrated with CreditManager, it provides real-time insight into potential non-payment and write-off risks.
PolicyManager is fed with data by the credit insurer daily and automatically updates your credit insurance data. This data is transmitted to CreditManager through web-based services and presents a clear picture of the current insurance cover on outstanding payments. Integrating risk management solutions allow credit managers to be proactively informed of emerging default risks. They can manage risks more effectively as a result.
By running thorough credit rating checks, continuously monitoring changes, adjusting dunning procedures accordingly and implementing the right technology it is possible to minimise risk. This will have a significant impact on your order-to-cash process and the overall financial risk to your business.