Credit departments play a substantial role in increasing revenue, by approving credit sales to higher risk customers in foreign and domestic markets. In addition to new geographic markets, this can include end-users vs distributors and/or retailers as well as entirely new customers. Of course, credit risk will need to be intensively managed for these customers. In traditional AR management strategies, the focus is on transaction processing, collections assertiveness, tight credit control, and reduced headcount.
However in today’s economy of lower revenue, extremely low interest rates, and management focus on the customer experience, requires a substantial change from traditional AR management. Transaction management now needs to transform into customer management, the solution here is strategic AR management. The following are five modern accounts receivable automation strategies for enterprises that can boost revenue and growth.
1. Driving Margin Growth
The credit department can also boost profit margins by prompt identification and vigorous collection of invalid deductions, and by quantifying the margin loss of self-inflicted deductions (e.g., mis-labelling of cartons which results in a fine from the customer), and by pushing for corrective actions to reduce them. In addition, the credit department can identify the high credit risk customers and advocate higher risk-adjusted prices (and margins) for these accounts.
Finally, by implementing automated, rapid, efficient dispute and deduction resolution processes, they can free up the sales team time from administrative & AR issues, thereby providing “free” additional sales reps.
2. Providing an Exceptional Customer Experience
The credit department can enhance their customers’ experience by accommodating their preference to pay via various electronic & mobile modalities, providing a high degree of self-service capability (24/7/365), and by rendering fast, professional “first call” solutions to queries and disputes.
3. Managing Credit Risk
Ultimately, it is the credit department that must manage the trade-off between incremental revenue and the company’s expressed risk tolerance, and establish the capability to sell profitably to high risk customers & markets. A good question to ask is: “is your bad debt too low?”
4. Generating Strong Cash Flow
Here again, it is the credit department that must generate a strong cash flow from AR consistent with the financial strength of the customer base and payment terms granted. They must ensure strong portfolio coverage of delinquent customers both to generate cash and to reduce credit risk.
5. Achieving Ultra Efficiency
With today’s AI powered technology specifically developed for credit departments, they are well positioned to deliver the ultra-efficiency demanded by the competitive global marketplace. A combination of artificial intelligence powered digital automation, robotic automation, best-of-breed applications, and re-designed processes & policies enable achievement of ultra-efficiency.
Watch a MasterClass video on AR management strategies
No matter what the economic conditions are, cash will always remain the king. However, strategic AR recognizes that the credit department must and can improve the other compelling priorities of revenue & margin growth and enhancement of the customer experience.