Tech_Analytics_Risk_Brief-Rethinking_Risk_Aug13.pdf

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CommerCial information SolutionS
Rethinking Risk
5 Barriers To Effective
B2B Credit Risk
Management – And
How To Transcend Them
A sale isn’t complete when the customer says
“yes” to an offer, but rather when both sides have
agreed upon how the product or service will be
paid for and under what terms.
During a sale, the ability to extend the right amount of credit at the right time can
make all the difference in the world. Similarly, the knowledge of when to restrict credit
can prevent unnecessary expenses in collections and write-offs. That’s why credit risk
management should be seen as one of the unheralded drivers of B2B success and as a
fundamental aspect of revenue enhancement and cost containment.
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Barrier #1:
Organizational Structure
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Barrier #2:
Workflow And Process
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Barrier #3:
Response Time
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Barrier #4:
Decision Analytics
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Barrier #5:
Technology
more
Excellence at credit risk management conveys benefits throughout an organization, including:
§
Sales:
Enhanced revenue growth and cross-sell opportunities from faster decision-
making and higher customer satisfaction.
§
Operations:
Lower costs for collections, with minimized returns and restocking charges.
§
Marketing:
Improved campaign ROI from more precise targeting of
credit-qualified prospects.
§
Finance:
Reduced financial risk, shorter collection cycles, improved cash flow metrics,
and better forecasting of available cash.
Fortunately, it’s entirely within the capability of a business to improve its B2B credit risk
management practices.
To achieve effective B2B credit risk management, businesses need to improve in five areas:
organizational structure, workflow/process, response time, decision analytics, and technology
architecture.
These barriers to effectiveness – and the recommended methods for transcending these
barriers – are described on the following pages.
Fortunately, it’s entirely
within the capability of
a business to improve
its B2B credit risk
management practices.
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Rethinking Risk: 5 Barriers To Effective B2B Credit Risk Management – And How To Transcend Them
Barrier #1:
Organizational Structure
A common barrier to B2B credit risk management is when the credit and collections
departments are walled off in a separate silo from other functions in the business, such
as sales, fulfillment, and customer service. In such organizations, credit decisions are an
afterthought, incentives operate without regard to credit risk, and opportunities are left
on the table.
Connecting credit and collections to sales, marketing, and customer service functions
can be easily accomplished and provide an abundance of benefits. By enabling
real-time collaboration, employees across departments can gain improved visibility
into the customer relationship across all interactions. Marketing can refine their
targets, salespeople and customer service agents can provide the appropriate level
of responsiveness, and collections agents can better understand the history of the
customer relationship.
Connecting credit
and collections to
sales, marketing, and
customer service
functions can be easily
accomplished and
provide an abundance
of benefits.
Barrier #2:
Workflow And Process
Companies often use inefficient and outdated methods for assessing the risk of extending
credit to a customer. This might involve web searches, telephone calls to references, and
even faxes from a variety of disparate sources. Such ad-hoc processes are very time
consuming, prone to error, and subject to wide variations in how credit policy is applied.
By automating risk assessment, companies reduce the risk of error, standardize upon a set of
consistent practices, and enable tremendous improvements in the flow of information. Behind
the scenes, the finance department can receive email alerts based on material changes in
customer risk, along with improved reports that show credit trends and combined credit risk
across an entire organization.
By automating
risk assessment,
companies reduce
the risk of error and
enable tremendous
improvements in the
flow of information.
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Rethinking Risk: 5 Barriers To Effective B2B Credit Risk Management – And How To Transcend Them
Barrier #3:
Response Time
Companies using outdated or manual approaches may eventually arrive at the correct credit
decision, but it’s often too late to make the optimum use of that information. That’s to say,
it’s hard to make use of a favorable credit decision that’s delivered two days after the sale
and upsell opportunities may be missed. Similarly, a credit decline that happens after the fact
provides little leeway for the salesperson to guide a customer into a more appropriate offer.
The speed advantages of automation include online credit applications with e-signature
capabilities, standardized credit scoring rules, and real-time decisions provided back to the
customer at the point of contact. By reducing the time between credit request and decision, a
business and its customers can both benefit.
By reducing the
time between credit
request and decision,
a business and its
customers can
both benefit.
Barrier #4:
Decision Analytics
For any given B2B company, the complexity of the credit decision depends on the
management quality of the business, the nature of the customer relationship, the financial
exposure associated with the request, and the current state of the market. Without the right
decision analytics, credit decisions can be bad for business. For example, high-volume
businesses may be tempted to take risky shortcuts to enable transactions to close, while
companies selling high-ticket services may rely too heavily upon manual, ad-hoc processes
prone to error.
Automation of credit risk management enables the use of high-accuracy decision
frameworks that can be scaled and customized as needed, either in terms of loan volume
or in deal complexity. Most relevant internal or external data sources can be brought into
the decision-making process, with decision frameworks encompassing any number of
parameters to generate credit decisions that are consistent across all channels.
For a high-volume, low-ticket business, simple decision rules using just a handful of variables
may suffice. On the other end of the scale is the provision of a complex service involving
Automation of credit
risk management
enables the use of
high-accuracy decision
frameworks that can be
scaled and customized
as needed.
4
Rethinking Risk: 5 Barriers To Effective B2B Credit Risk Management – And How To Transcend Them
multiple geographies and business units, and in this more advanced scenario, a company
may wish to deploy a comprehensive decision framework based on dozens of scorecards
measuring various aspects of a potential customer’s business.
Automation of credit decision frameworks and analytics also enables real-time monitoring for
fraud and complete auditing for compliance purposes.
Barrier #5:
Technology
Not long ago, credit risk management was an Excel spreadsheet in the CFO’s office.
Fortunately, the B2B marketplace has come a long way since then. Nevertheless, the
technologies that replaced spreadsheets have begun to show their age, and many B2B
companies currently struggle with technology solutions for credit risk management. These
legacy solutions tend to have unwieldy approaches to data management with manual
processes for updating data; they lack access to visual tools for exploring, analyzing, and
interpreting data; they involve high IT support costs due to the need to install periodic
patches and updates; and they’re hobbled by inflexible deployment options.
The modern alternative is to extend the use of credit risk management across the enterprise
through a cloud-based technology platform. Cloud-based solutions offer the benefits of
reliability, availability, and scalability, backed by ISO certification and high levels of security.
From a cost perspective, the cloud option allows IT departments to reduce capital expenses
associated with IT and data infrastructure, while reducing integration costs and eliminating
upgrade costs. Furthermore, cloud-based solutions are architected with multiple endpoints
in mind, including office PCs, laptops, tablets, and mobile devices, extending the benefits of
mobility to anyone in an organization calling upon the credit risk management function.
Cloud-based solutions
offer the benefits of
reliability, availability,
and scalability, backed
by ISO certification and
high levels of security.
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Rethinking Risk: 5 Barriers To Effective B2B Credit Risk Management – And How To Transcend Them

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