How to minimise risk in the automotive order-to-cash process


Minimising risk in the automotive order-to-cash process

In the early years of the automotive sector, cars were luxury items that weren’t attainable for everyone. However, that has changed with assembly line production making more affordable cars available to the masses. Now, rather than cars being reserved for the elite, UK households have an average of 1.2 cars in their driveway. As the automotive industry has continued to evolve over the last century, consumers have been given a wider range of finance options for purchasing cars. Another thing that has changed in this time is the experience expected by customers. Customers now expect a convenient and personalised experience when dealing with businesses, and that’s no different when buying a car. As an organisation, once a customer has chosen their vehicle and decided how they want to finance it, whether that’s through a private or financial lease, for example, you still have few steps to go. After all, this is only the beginning of the order-to-cash process.

This process starts with one of the most important stages – risk management. This part is so important as effective risk management reduces the likelihood of non-payment. For the automotive sector, where high-value payments are often due every month, being able to assure those payments will be made is essential. So, through checking a potential customer’s credit rating ahead of the purchase and continuously monitoring it, you are less likely to be faced with unpleasant surprises further down the line. Here are some of the ways you can reduce risk in your automotive order-to-cash process:

Segment customers

One of the most effective ways to manage risk is through customer segmentation. Segmentation also helps optimise your order-to-cash process, which has a direct impact on your organisation’s cash flow. All data that you collect on a customer helps you create profiles, i.e. segments, of customer types. To make this simpler, it’s possible to feed this data into a solution which will automate the process and lets you easily create workflows for every segment. If you establish that certain customers pose a high risk when the economy is weak, you need to adopt a different approach than when dealing with low-risk customers. This in turn requires more frequent and urgent communication for high-risk customers than those with a low-risk profile. Segmentation ensures that you know exactly where each customer is in the process and promotes faster payment. It also allows you to better meet their needs, resulting in continued customer satisfaction, and a long-term relationship. You can discover more about how to segment your customers here.

Perfect your dunning strategy

A well-thought-out and effective dunning strategy is vital for a number of reasons – not least that it can help to mitigate risk and reduce the number of late payments. Your dunning strategy should be broken down into three stages: structured dunning, dispute management and internal collaboration, and external collaboration. By using an established dunning process, it is possible to feed information gained on customers’ payment habits into the order-to-cash chain.

Credit insurance policies

Taking out credit insurance helps to ensure risks are well covered and protects against potential non-payment. In times of economic uncertainty or recession, it’s not uncommon for people to struggle to meet the repayments on their vehicles. And this scenario can be very difficult to predict, even with careful credit checking. Fortunately, credit insurance would cover at least part of the outstanding amount if a customer fails to pay. However, despite its merits, credit insurance comes with all kinds of rules, so it’s not guaranteed you’ll receive a pay-out if your request falls outside of the terms and conditions. A credit limit is established for each customer. If you have hundreds of customers, it can be difficult to keep track.

Use technology

Implementing the right solutions can have a profound effect on your order-to-cash process and minimise the risk within it. For instance, our PolicyManager tool, created in collaboration with risk management and insurance specialist Aon, automates and optimises the management of customer credit insurance. It provides detailed insight into credit insurance capacity and if integrated with CreditManager, provides real-time insight into potential non-payment and write-off risks.

By adopting the right technology, improving your dunning strategy and making better use of data it is possible for automotive companies to minimise risk. This can be further mitigated by taking out credit insurance, which can help to give peace of mind for those situations beyond any control. Overall, this combination of actions will reduce the risk of late or non-payments, therefore, improving cashflow and minimising the financial risk to your organisation.

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