Digital Transformation » Technology » Credit Management » An ongoing struggle with credit management

Despite the imminence of Brexit, London is still the world’s top financial centre, according to the Z/Yen global financial centres index published late last year. The city also held onto its lead as the global capital of fintech, with the UK seen as a front-runner when it comes to deploying and developing new technology.

So why is it that UK businesses are behind the rest of Europe when it comes to adopting credit management software – and consequently are missing out on the benefits of transforming unpaid bills into working capital?

Late payment culture

All too often in the UK, late payments are seen as a problem for small businesses only.  Large corporates are cast as the villains, flexing their muscles by holding back the cash owed to smaller suppliers. Yet, YouGov research shows that 63% of UK medium-sized businesses receive late payments at least once a month, compared to 40% of small businesses. According to this study, the impact of late payments in this sector can lead to a reduction of innovation spend, the inability to pay salaries and ultimately, redundancies.

In reality, the problem is so widespread that the UK is said to have a ‘late payment culture’. In a further study conducted a few years ago, more than 62% invoices submitted by UK firms were paid late, compared with just 40% in other European countries. YouGov also reports that one in ten business owners believe that the problem has become worse since the Brexit vote, with the uncertainties making firms even more reluctant to part with their money.

As CEO of Onguard, an Amsterdam-based fintech specialising in streamlining the order to cash process, I’ve been observing the UK’s attitude to credit management for several years and am still puzzled by the situation.

After all, credit management software has been available for 25 to 30 years now, so this isn’t about risky early adoption. Besides, UK firms are often seen as the bridge between the US and mainland Europe, encouraging a forward-looking approach to software adoption.

However, I can vouch for the fact that the Benelux and Nordic countries are at the front here, closely followed by France and Germany, with the UK trailing behind. As a result, they are richer in capital and also save on staffing numbers in their finance department. One customer estimated that its credit management software saved it £5 million every year which enabled it to finance its mergers and acquisitions programme. Without this increase in working capital, it would have had to take on expensive equity or take out bank loans.

Picking a method

All too often, the problem lies with a reluctance to part with Microsoft Excel spreadsheets. Excel is a powerful spreadsheet program that allows users to work wonders with raw data. The issue with Excel is that it is often the wrong tool for the job that credit managers are trying to do.

After all, spreadsheets are ultimately designed for number crunching, not for storing masses of details about customers; their contact details; sales records; payment history and outstanding balances. It’s a problem that tends to get worse as the organisation grows.

Using Excel for tracking credit management when the business is small is certainly convenient and it may even work adequately for a little while. Typically, however, it will not take long for the spreadsheet to become weighed down by complexity and this can lead to it becoming slow with errors inevitably creeping into data and functions.

When businesses are in that expansion phase, spreadsheets can be a source of frustration and aggravation, often resulting in slow processes and mistakes as their capabilities are stretched almost to breaking point. Specialist software can help here allowing credit managers to maintain control and ensure even tedious tasks are completed efficiently and to a high standard.

When UK firms do use technology for credit management, it’s often part of a larger ‘one size fits all system’ from mainstream vendors such as Microsoft, SAP or Oracle. More specialised systems are more highly configurable enabling sophisticated data management and segmentation to prioritise and minimise risk. Segmentation is already strong in many B2C environments to define how statements and invoices are sent and the type of debtor a company is dealing with. For example, it can be unproductive to send an octogenarian a statement via social media, yet this route could be highly-effective when communicating with twenty-year-olds.

Likewise, segmentation used by B2B companies can help in selecting the most effective way of communicating with the late-paying company. It can also help pinpoint the types of companies most likely not to pay on time and divide non-payers into those having temporary cash-flow issues, the deliberate late-payers and the simply inefficient. With this in mind, account departments are aware of the risks and can focus resources on collecting these payments, rather than being heavy-handed with all debtors, including those who have always met the payment deadline before and are otherwise loyal and valued customers.

Most UK businesses are far from complacent about the future. Which makes their heel-dragging attitude to credit management software an even greater mystery. But for them, the good news is that there are opportunities for improvements to be made.

The right solution will help boost their financial security, consolidate their cash-flow, save time, help build better relationships with their customers and lay the foundations for their further growth.