Q&A 3 | How can i create an effective risk strategy within my order-to-cash process?

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In the third instalment of our Q&A series, Daniel van den Hoven, VP of Partners and Alliances, discusses how businesses can implement risk-reducing measures to boost the likelihood of timely payments during turbulent economic times.

Q: During this period of economic uncertainty, it’s crucial that our business minimises risk in order to reduce the likelihood of non-payment, but where do I start with creating an effective risk strategy within my order-to-cash process?

A: Risk management is one of the most important stages of the order-to-cash process. Implementing an effective risk management strategy right from the outset can allow businesses to check a (potential) customer’s credit rating in advance, continuously monitor it, and reduce the likelihood of a nasty non-payment surprise at a later date.

The order-to-cash process comprises a series of stages, starting with a customer’s purchase and ending with the payment and processing of the invoice. Reducing risk throughout with an efficient and effective end-to-end strategy can future-proof a company’s financial success, as well as create stronger customer relationships. From taking out insurance policies to implementing new technology, there are a number of safeguarding steps to take, and we’ve rounded up our top tips for a fruitful order-to-cash process to help.

Consider credit insurance

Before there’s ever an issue, protecting against potential non-payment can keep your finances – and your peace of mind – covered. Despite careful credit checking, things can go wrong, and credit insurance can cover at least part of the outstanding amount – helping to avoid financial problems, mitigating against risks and covering payments in the event that a customer defaults. However, if you do decide to take out credit insurance, bear in mind that there are a number of rules, such as credit limits for each customer. If you have hundreds of customers, it can be difficult to keep track of everyone’s status, and higher-risk customers may go undetected before maxing out their limit.

Instead of taking out insurance, another option is to put a lump sum of money aside to cover missed payments. Some organisations opt for this instead due to concerns that they may not be able to claim on their insurance in the eventuality of non-payment. However, having said that, we still consider insurance to be essential. As such, we would recommend considering it even if your business has other alternatives in place.

Prioritise your dunning strategy

A clear, considered and effective dunning strategy is essential when it comes to minimising risk in your order-to-cash flow. Careful credit management and an established dunning process is central to the overall process; reducing the likelihood 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. The strategy should be split into three stages: structured dunning, dispute management and internal collaboration, and external collaboration. We’ve put together some tips on how to create an effective dunning strategy here.

Invest in risk-reducing technology

In an ever-advancing technological world, there are new tools and solutions for every eventuality. When it comes to mitigating risk throughout the order-to-cash process, it’s worth considering credit insurance once again. PolicyManager, a tool created in collaboration with risk management and insurance specialist Aon, automates and optimises the management of customer credit insurance. It reduces the potential for administrative errors in managing a large consumer base and streamlines the process. When integrated with CreditManager, PolicyManager can provide real-time insight into potential non-payment and write-off risks, as well as providing detailed insight into credit insurance capacity.

Integrating risk management solutions can help credit managers be proactive rather than reactive; enabling them to get foresight on emerging default risks and allowing them to put more effective mitigation in place before it’s too late. By processing daily data updates from the credit insurer, PolicyManager can automatically update a business’s credit insurance data, transmit the information to CreditManager through web-based services and break 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.

Of course, all these mitigation strategies are underpinned by clear processes and proactive customer screening. By implementing upfront credit rating checks, continuously and carefully monitoring customer behaviours and payment patterns, modifying dunning processes as needed and capitalising on the latest and greatest technology it is possible to minimise non-payment risk. This will maximise the effectiveness of your order-to-cash process, and future-proofing your business’s financial footing.

Curious about how to minimise risk in your organisation?
Read our Factsheet on Risk Management

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