Reducing risk in the order-to-cash process
When the coronavirus pandemic began, the initial response from CEOs and CFOs was one all about survival. The focus was on freeing up cash and resources just to stay in business. The consequent liquidity crisis caused huge disruption to economic activities with many businesses rushing towards cash just to keep operating.
Fortunately, the world has since moved on, but many businesses are still facing challenges. For instance, the recent Visma | Onguard Fintech Barometer report showed that 28% of businesses said the biggest challenge they faced in improving credit management was the lack of having the right risk information.
This is a legitimate concern as risk management is one of the most crucial stages of the order-to-cash process. This is where implementing an effective risk management strategy from the very beginning will enable businesses to check a potential or existing customer’s credit rating in advance and continuously monitor it. These checks can go a long way in reducing the chances of having a costly surprise at a later stage.
The order-to-cash process is made up of a series of stages. It starts from the moment a customer places an order and ends when the invoice is paid and settled. Reducing risk throughout the process with an efficient and effective end-to-end strategy can help future-proof a company’s financial success. As well as creating stronger customer relationships.
Having credit insurance in place can provide peace of mind by minimising the risks of your order-to-cash process, whilst also supporting the growth of your business.
Despite careful credit checking, invariably things can go wrong from time to time. Credit insurance can at least cover part of an outstanding amount. This can be helpful in avoiding financial problems, mitigating against risks and covering payments should a customer default.
It is worth bearing in mind that if you decide to take out credit insurance there are several rules. This can vary, such as credit limits for each customer. The more customers you have the harder it will be to track everyone. This could lead to some higher-risk customers going undetected before they max out their limit.
An alternative to taking out credit insurance, is to put a lump sum of money aside to cover missed payments. Some organisations opt for this because they are worried that they may not be able to claim on their insurance for non-payment. Nevertheless, we still consider insurance to be essential and recommend it even if your business has alternatives in place.
Make dunning strategy a priority
Having a clear, considered and effective dunning strategy, also known as a collection management strategy, can go a long way in minimising the risk to your order-to-cash flow. Careful credit management and an established dunning process is central to the overall process. It helps in reducing the chances of late payments and mitigating against financial shortfalls by feeding insights and information on customers’ payment patterns and risk factors into the order-to-cash chain. This strategy splits into three stages: structured dunning, dispute management and internal collaboration, and external collaboration. Here are some useful tips on creating a dunning strategy.
It pays to invest in risk-reducing technology
While there now appears to be light at the end of the pandemic tunnel, there is still uncertainty about the future credit landscape. Fortunately, there are new tools and solutions to cover every situation. And when it comes to mitigating risk, it’s worth thinking about credit insurance once more.
PolicyManager, is our credit insurance management tool which we created in collaboration with risk management and insurance specialist Aon. It automates and optimises managing customer credit insurance, cutting down administrative errors where there is a large number of customers and streamlines the process
When integrated with CreditManager, PolicyManager provides real-time insight into potential non-payment and write-off risks, as well as providing detailed information into credit insurance capacity. It warns credit managers of emerging default risks and allows them to put into place more effective mitigation. By processing daily data updates from the credit insurer, PolicyManager can automatically update a business’s credit insurance data and transmit the information to CreditManager through web-based services. It breaks all the information down into a clear, simplified summary of the current insurance cover on outstanding payments. Providing credit managers with the information they need upfront.
The latest technological solutions will go a long way in reducing the risk of non-payments. This is achieved by continuously monitoring customers behaviour and patterns, backed up with credit checks, along with modifying dunning processes when required. By optimising your order-to-cash process, your business will be in a much more secure position now and in the future.