From local to global, from cash up front to credit, from risks to opportunities. This summarises the history of credit management in a nutshell. What is striking is the growing role of data towards modern day credit management.
In the past, people would go door-to-door to find out whether individuals were being sensible with their money. In modern day circumstances, this is hard to imagine, but at the time it was quite normal and even a matter of course.
Companies conducted business based on references and recommendations from affiliates based on their own dealings with these companies. There was therefore little or no need for in-depth knowledge about your (future) trading partner. Most deals were paid in cash. Things occasionally went wrong and bad payers would sometimes literally be roughed up and that was that. Someone’s creditworthiness was investigated only for major transactions. It was the banks in particular that tended to make use of this type of service provider.
Things are quite different today. Globalisation has meant that no boundaries exist when it comes to doing business abroad. Credit has become increasingly established in the business world. There is therefore a strong need for information about creditworthiness. Fortunately this has gone hand in hand with more extensive availability of data. In the past, we looked for data only when strictly necessary. Today, information is permanently and unrestrictedly accessible. It enables us to make quicker decisions. Over the years, data has also become more measurable. At the time, we used personal, highly subjective insights as a basis for our decisions. We can no longer afford this liberty.
Data is of course not an aim in itself. Information is a means with which we can for instance score customers for creditworthiness or potential for growth. The point is therefore to search for the data and then interpret it correctly. In the past, and still prominent today,we use data too often to substantiate our suspicion that there is a problem. A customer fails to pay, and then suppliers will investigate whether something is amiss. In many cases, this is quite natural.
Today you can also use data to detect opportunities and threats and use them as a basis for tomorrow’s decisions. You can safely assume that in the next few years all kinds of connections will become evident. Take, for instance, customer payment behaviour. There is a good chance that speed of delivery and complaints handling have a considerable impact on payment behaviour. The problem is that today we are not yet able to establish this link with 100% certainty.
Another example is that we are increasingly able to accurately assess the likelihood that a start-up will grow into a healthy company on the basis of available data. This offers unprecedented business opportunities.
In the future, credit management will increasingly focus on studying such likely connections.
Suppliers of external data are also preparing for the future. Not so long ago they still confined themselves to providing ’flat data’. Today, however, they will present you with ready-to-use conclusions. Their advice is also less stringent than before. In the past, the advice was often that one could feel confident of start doing business with Company A or to stay well away from Company B. Now there is more nuance. Working with A or B? Yes, but under specific conditions. The conditions will differ from one customer to another.
Finally, many credit managers assume that in the coming years they will be sharing all this data with the rest of the organisation. That is only logical because the data at present spread out across the company. Rest assured, that financial information will also be useful to other departments. For instance, using financial data we can evaluate the likelihood of commercial success of prospects and existing customers. The colleagues in marketing and sales will also be grateful to the credit manager.