How do you measure the performance of credit management within your organisation?
There are different ways which each have their benefits and drawbacks. Two popular methods are benchmarking and gap analysis. Read on to find out more about benchmarking and for pointers about gap analysis and more inspiration to improve your credit management.
What is benchmarking?
Benchmarking can take many forms, but essentially involves gathering and analysing data that allows you to compare performance between one function or organisation and another. Implementing a strong benchmarking process means adhering to a simple set of principles. There are different ways of going about this. Internal benchmarking involves comparing your own credit management function to another in the same industry. Functional benchmarking compares internal functions such as credit management with peers in other firms across any industry, while competitive benchmarking involves directly studying competitors.
How can you benefit?
Developing a full understanding of performance is crucial in any function. Benchmarking is an integral part of this process – through comprehensive and effective data analysis, it enables credit management teams to spot their own strengths and weaknesses and use that information to implement better processes and policies. In turn, that can improve efficiency and save valuable time and resources for the team, cutting unnecessary or duplicate work and enabling more informed decision-making.
What’s more, because it provides rich data that can be used to track and monitor progress in the future, it enables fair evaluation of individuals within the team and the group as a whole. Since it can also direct the focus of employee training and support, it can even have a positive effect on working relationships and employee engagement overall.
Where to start?
Different benchmarking methods all adhere to the same basic principles and it is important to take a methodical, realistic and practical approach to the process. The starting point should always be to look at your organisation’s business objectives. Then consider where credit management fits in and where it can help to achieve those goals. That will give an idea of what needs to be measured through benchmarking.
The next step is to establish targets. That in itself can be a difficult and lengthy task, but it involves developing simple, specific and measurable goals that can form part of a long term strategy for monitoring progress. Then, you can begin collecting information that can be used to get a sense of how your credit management function is progressing towards these aims.
There are any number of ways available to collect the data for meaningful benchmarking activity. Choosing which organisations to benchmark against can be difficult, but it is often easiest to see which firms are renowned for their effective credit management, or those which are demonstrating better operational efficiency. It could also be determined by which organisations are open to the idea of sharing information, or whether reverse engineering from publicly available information will be required.
Within your organisation, the best way to gather internal information is through comprehensive data capture. That doesn’t have to be limited to credit management data, either. Integrated credit management supported by the right software platform can allow companies to bring together rich information from across the organisation, providing valuable insight that gives a much fuller idea of performance.
The value of your data
Having the data in front of you isn’t enough. Credit management teams need to be able to analyse and interpret that information to get a genuine sense of where they are compared to where they need to be. Analytics tools can be invaluable in this respect, but the key is to ensure that decision-makers are presented with a clear view of relative performance overall.
After determining where the pain points and strengths lie for credit management functions, it is important to act on them. Take steps to learn from best practice elsewhere and incorporate this into updated processes and procedures – and most importantly, implement a continuous process of evaluation that will allow you to see how your credit management team is progressing towards its targets. That will enable further improvements and more effective management in the future.
Your next step to tangible results
Once you have effective benchmarks and monitoring processes in places, the benefits for credit management functions can be huge. Not only can they highlight areas where performance is currently weaker than expected, but by providing an insight into how other firms operate they can even provide inspiration to adopt new best practices.
By boosting efficiency and improving outcomes, businesses can save huge amounts of time and resources that would otherwise have been spent on ineffective processes and potential financial loss. Taking stock of where you want to go, how to get there and how to make sure it’s happening effectively is the best way to guarantee stability and agility for credit management teams.
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