3 Tips for Faster Credit Reviews and Credit Scoring

Credit management is an important business function in any organization, whether it is a small business catering regionally or a large enterprise spread across the globe, as it is one of the key drivers of B2B success and a fundamental aspect of revenue enhancement and risk containment.

Not long ago, credit risk management was done on an excel spreadsheet. Technology has come a long way since then, and businesses are now looking at automation technology to constantly improve credit risk management, not just for better financial yields but also to facilitate compliance with corporate governance rules.

This ebook explores the evolution of the credit management function and the role of technology. It discusses three ways to strike a balance between fast response times and effective credit risk management to achieve a higher overall portfolio performance rate.

Traditionally, credit management was considered a back-office function limited to assessing the customers’ creditworthiness on spreadsheets and putting customers on a “stop credit” list without consultation. In essence, it was a transactional overhead, which was perceived by the sales team as an obstacle rather than an enabler of business growth.

However, over the last few years, businesses have started looking at credit management in a more strategic light. We see a shift from the traditional role to one focused on consulting, financial services, and business development. It is evolving into a data-driven function supported by artificial intelligence (AI), robotic process automation (RPA), advanced scoring models, and automated workflows that automate most manual tasks. The aggregation and analysis of credit data, collaboration with business teams, reference calls, emails, and never-ending follow-ups are all being replaced by automation and workflow systems.

The role of a credit manager is no longer limited to assigning credit limits to customers using excel formulas and mentally processing credit decisions based on intuition or experience. Greater business value and insight are now being sought from credit managers, and they are evolving into advisors for both finance and sales departments.

In addition to risk containment and the enterprise-wide implementation of credit policies, the credit management team is now being entrusted with P&L analysis and working capital optimization, thus becoming responsible for tasks that were previously performed by financial analysts.

Another area where credit managers are contributing more strategically is commercial opportunity analysis and business development. Credit managers are sitting on a lot of information via credit bureaus, trade groups, public financials, and internal data including insights from sales, marketing, and operations. This information could be used to drive customer-specific insights and identify those customers who should be developed over the long term and can help sales focus on creditworthy and profitable prospective customers.

The latest trends and management expectations require credit departments to think not only in terms of risk optimization but also in terms of business opportunities to transform from being just another overhead to a valuable bottom-line facilitator.

There are three important components of the credit review process where technology plays a critical role in making the process faster and more efficient. Businesses gain an edge by leveraging technology to automate tasks involved in these components and save time and resources for more insight-driven, strategically important functions in credit management.

Credit Data and Decision Inputs

The credit management department fulfills its primary objective of business risk diminishment through credit investigations and audits. This process requires detailed data points from multiple sources that facilitate sound credit dissection and insightful credit reviews. The two types of credit data involved are:

• External Data – Credit analysts spend a significant amount of time gathering backup data from credit reports from rating agencies, credit bureaus and trade groups, public financials, income statements, balance sheets, key financial ratios, and insurance details. This might involve web searches, telephone calls to references, and even faxes or emails from disparate sources. Such processes can be very time- consuming, prone to error, and subject to wide variations in how the credit policy is applied. Businesses could plug this time and productivity drain with the help of technology by automating data aggregation and gaining real-time access to relevant customer information. It provides a one-stop-shop of research-ready information to the credit analyst, thereby saving time for insightful analysis instead of the low-value tasks of data scavenging and compilation. With access to critical data in real-time, it is much easier to track exposure to risk, accrued provisions, and cash flow, not just on a daily basis, but hourly, be informed if a customer’s financial situation deteriorates, and put in place measures to limit the financial impact.
• Internal Data – Customer-specific information available from internal business teams such as past orders and payment behavior forms an important component of credit score evaluation and credit reviews. With an automated credit risk management system in place, the analysts gain access to all of the relevant internal data in a standardized format and in one place. It saves them the time lost in cherry-picking information from multiple systems and sources and allows them to focus on the research and analysis functions of credit review.

Stakeholder Collaboration

Credit reviews require frequent collaboration with both finance and non-finance stakeholders for credit information and to gain approval and management sign-offs on credit decisions and recommendations. This process involves the exchange of sensitive information back and forth between departments and is thus prone to potential breakdowns due to correspondence issues such as lost documents, missing information, missed emails and phone calls, and misinterpreted details. This results in undue delays and lapses.
Credit management automation technology provides users with workflows that eliminate the time-consuming and distracting work of manual collaboration with business teams. The workflow manages the process flow of stakeholder collaboration, notifies them of the open action items, and provides all of the supporting documents required to process the request.
Nothing kills morale in a credit team like constant re-work. Hierarchical workflows enable credit analysts to obtain sign-offs from the right authority at the right time based on the dollar value or impact of the credit decision, thereby eliminating the time lost in re-initiating the approval process.

Credit Decisioning

It cannot be stressed enough how important the accuracy and quality of credit decisions are for determining optimum risk exposure levels and transitioning from a back-office function to a strategic driver of business growth. Companies stuck with inefficient and outdated methods for assessing the risk of extending credit to a customer are unable to transcend the quagmire of low-value, transactional tasks involved in the process. In the absence of a standardized system, credit policies vary across the organization and credit teams lose a majority of their productivity to re-work and processing ad-hoc requests. Consequently, little focus is given to delivering data-driven, insightful credit decisions. Teams struggle to meet their routine targets for processing new credit applications and conducting periodic reviews, let alone assume a more strategic, business growth-oriented role in the scheme of things.
Automation of credit risk management enables the use of consistent decision frameworks that can be scaled and customized as needed. Most relevant internal or external data sources can be brought into the decision-making process, with decision frameworks that encompass your parameters to generate credit decisions that are consistent across all channels and drive maximum results for your business. Automation of credit decision frameworks and analytics also enables real-time monitoring for fraud and complete auditing for compliance purposes.

As outlined above, credit management is the lifeblood of all businesses. The function continues to increase in importance within a company’s management hierarchy. More and more companies are undertaking a value judgment by comparing the potential risk of non-payment (client insolvency) versus additional sales volume – an elusive balance that can be struck only through an efficient credit management system.

Innovative new technology solutions extend the use of credit risk management across the enterprise through a cloud-based technology platform. Cloud-based solutions offer the benefits of reliability, mobility, and scalability while eliminating IT, data infrastructure, and upgrade costs. These solutions enable dynamic credit management workflows and process improvements that result in not only lower risk, but improved response times reduced costs and better customer service.

With the help of technology, companies reduce the risk of error, standardize a set of consistent practices, and enable tremendous improvements in the flow of information. It makes credit functions more agile and streamlined, supports critical processes of credit scoring and credit reviews, and helps the business adopt a forward-looking, proactive approach to risk management.

HighRadius is a Fintech enterprise Software-as-a-Service (SaaS) company. The HighRadius™ Integrated Receivables platform optimizes cash flow through automation of receivables and payments processes across credit, collections, cash application, deductions, electronic billing and payment processing.

Powered by Rivana™ Artificial Intelligence Engine and Freda™ Virtual Assistant for Credit-to-Cash, HighRadius Integrated Receivables enables teams to leverage machine learning for accurate decision making and future outcomes. The radiusOne™ B2B payment network allows suppliers to digitally connect with buyers, closing the loop from supplier receivable processes to buyer payable processes.

HighRadius solutions have a proven track record of optimizing cash flow, reducing days sales outstanding (DSO) and bad debt, and increasing operational efficiency so that companies may achieve strong ROI in just a few months. To learn more, please visit https://www.highradius.com/.

HighRadius’ Integrated Receivables Platform

Integrated Receivables is a solution to optimize accounts receivable operations by integrating all receivable and payment modules to work into a unified business process. At the core of The Integrated Receivables platform are solutions for credit, collections, deductions, cash application, electronic billing, and payment processing – covering the entire gamut from credit-to-cash.

The HighRadius™ Integrated Receivables platform stands out by enabling every credit and A/R operation to execute real-time from a unified platform with an end goal of lower DSO, reduced bad-debt, and faster dispute resolution while and improving efficiency and accuracy for, accuracy for cash application, billing, and payment processing.

HighRadius™ Integrated Receivables leverages Rivana™ Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes. The Integrated Receivables platform also enables suppliers to digitally connect with buyers via the radiusOne™ network, closing the loop from the supplier Accounts /Receivable process to the buyer Accounts Payable process.