Companies use DueDil to run comprehensive credit checks on new customers and suppliers, and monitor counterparties periodically for important changes that may result in late or non-payment. The DueDil API can also be used for automating KYC and AML checks during the onboarding process.
Read on to find out more about credit management, or click here to learn about the DueDil API.
What is credit management?
Credit management, also known as credit control, is the process a business undertakes to manage payments coming into the business and to ensure that customer invoices are paid on time. Effective credit management reduces the number of late payments made whilst also ensuring that good relationships with clients are maintained.
Importance of credit management
Efficient credit management processes are essential for maintaining a company’s financial or liquidity position. Poor credit management can be hugely damaging to businesses. In fact, over half of business bankruptcies are caused by poor credit management.
However, good credit management is about much more than just making sure your customers can pay their dues - it requires a careful assessment process to determine whether to work with a customer by checking their credit rating, and identifying any potential reasons why they may not be able to pay on time.
While a business may be making a good number of sales, poor cash flow can result in struggles that might lead to the inability to pay employee wages, suppliers and general operational costs.
Credit management process
Credit management is an ongoing process which comprises of a number of steps.
One of the most important steps in the customer management process is screening potential customers to establish whether you should avoid working with them, and determine which customers you should pay particular attention to and monitor more closely.
Monitoring your customers for new credit risks should be an ongoing process. Keeping track of any changes to your customers’ credit rating will enable you to act fast and detect late payments in advance.
Effective credit management also involves ensuring that your Days Sales Outstanding (DSO) is kept low to prevent any bad debts from spiralling. Ways to reduce your DSO include prompt invoicing and introducing new incentives to encourage customers to pay swiftly.
Arguably, the most challenging aspect of credit management is maintaining positive customer relations, especially if a customer has a history of late payment. Credit managers will need to have a clear strategy in place for dealing with customers who fail to pay on time and be prepared to take the appropriate actions to recover the payment, or write the debt off altogether.
Considerations to take into account when determining your credit management strategy include:
- What will your invoicing strategy be?
- How is your invoice laid out?
- How will your invoices be sent out?
- When will you send a follow-up reminder?
- How long do you wait before contacting a debt collection agency?
- At what stage do you begin legal proceedings against the customer?
Benefits of credit management
Effective credit management is hugely beneficial to businesses as it can help to significantly improve cash flow by reducing the number of late payments and optimising DSO rates.
This frees up more cash that can be used towards larger investments and acquisition opportunities. Having a strong credit management strategy also ensures that your business can pay its own outgoings on time and protect their own credit rating and reputation.
How DueDil can help
DueDil provides an end-to-end solution that works across your credit decisioning process that allows you to price risk effectively, approve more new customers and be alerted of new risks. Businesses that use DueDil for credit risk are able to dramatically streamline their data collection and credit approval process, increasing efficiency and improving the customer experience.
The DueDil API provides comprehensive firmographic information on your customers including ownership, parent companies, UBOs and country of parents which can be used for AML and KYC checks during the onboarding process of new customers.