Those who don’t work in Credit Management have the perception that the credit control team spends all of its time chasing debt. However, this is not borne out by the results of the information gathered as part of the Credit Management Benchmark.
One Credit Manager interviewed during the process said that management in her company expects her team to be on the telephone calling customers from first thing in the morning to last thing in the evening and would be shocked if they discovered that so little time was actually spent chasing monies due.
Slow Paying Debtors (16%)
The 16% of time actually relates to chasing slow paying debtors, those that don’t pay their accounts when they fall due. You could argue that debtors should be prevented from getting into this situation in the first place, but that is not always realistic.
Let’s look behind some of the other figures above to see where time is being spent by credit management teams.
Production (5%)
This involves printing and posting invoices and while many businesses have separate Accounts Receivable and Credit Management teams, it sometimes falls to the Credit team to print and post (mail) invoices to customers, or even to manage the process of sending invoices by email to customers.
Compliance (24%)
This is a significant activity for credit teams, accounting for a quarter of all time spent. The key tasks in compliance are:
- Attaching backup documents to invoices, e.g. delivery notes, service tickets, contracts and other evidence to support invoices.
- Preparing custom reports, e.g. spend analysis by product line or customer location.
- Gathering ‘Retrospective Purchase Orders’, i.e. contacting customers after invoices have been raised to obtain purchase order numbers.
- Dispatching copies of invoices to customers, either because multiple recipients require them, or because customers claim that they never received them.
- Online invoice entry, i.e. many larger customers require invoices be input via online portals and they won’t accept invoices by email or in paper format.
Complying with customers’ invoicing requirements has become an increasingly important but time consuming activity over the years.
Reconciliation (27%)
The key reconciliation tasks are handling customer queries and managing the allocation of payments received.
On further examination, the second highest volume of queries received by credit management teams relates to requests for copies of invoices. This is because customers genuinely did not receive invoices or because they ‘claim’ not to have received them.
Account reconciliation is often complicated by misunderstandings or mis-communication between sales teams, customers, billing and credit teams. A frequent comment from credit teams is that sales agree pricing with customers but don’t advise the accounts team. As a result, customers are invoiced at incorrect pricing.
Complicated billing processes and more particularly, complicated refund/discount processes also lead to high levels of account reconciliation activity. This is often reflected in high credit note to invoice ratios, but not always. Misunderstandings about LTA’s (Long Term Agreements) where rebates are provided based on purchases are often a source for account reconciliation issues.
A lack of remittance advices is also the source of much activity trying to reconcile accounts. Naturally, most companies will allocate payments received against the oldest invoices, but customers on their systems may be allocating receipts against a different set of invoices. Without remittance advices, there is a lot of guesswork and engagement with customers to reconcile accounts.
Debtor Management (21%)
This is an area that should receive a greater allocation of time as it involves screening debtors (credit checking accounts) and proactively contacting customers in relation to their accounts.
In an ideal world, the credit team would screen all prospects and advise the sales team on the ones to avoid and the ones to concentrate sales efforts on. This would reduce much wasted time for sales teams and would help to build a relationship of trust between the sales and credit teams.
Proactive contact with customers is a customer service opportunity. Checking that account information is accurate and that invoices are correct affords an opportunity to engage in discussions with customers, either to reinforce good customer service or to uncover new sales opportunities.
As part of good customer service, identifying issues with products or services affords an opportunity to excel at resolving the issues, thus strengthening relationships with customers.
Conclusion
The way in which time is spent by credit teams may come as a surprise to some. The Credit Management Benchmark allows individual businesses to compare their performance against others that have participated in the process.
For example, you can compare how your credit team is allocating its resources against others in your country, industry or even business size. This affords you the opportunity to see what changes can be made, and to use the benchmark to measure the impact of those changes over time.
If you would like to see how your business compares to others, please take the Credit Management Benchmark.
All information is strictly confidential. The assessment phase takes about 15 minutes to complete, and you will receive a comprehensive report, tailored to your business within 3 business days.
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