Article
Written by Nick Brown
Posted on 09/03/2016

Where do you stand in the Credit Maturity Model?

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Progressing towards genuinely collaborative, responsive and predictive credit management means defining your current status and understanding where you need to go. For this you need a route map, and that’s why we have created the Credit Maturity Model. This structure identifies four key stages: Starting, Professionalisation, Preventative and Data-driven and charts a course from reactive debt management all the way to predictive decision making and big data manipulation. It’s only here that you get that priceless 360-degree customer picture. 

Our model is intended to be a source of motivation. It is designed to help you approach your customer file with far greater effectiveness, so that the phrase ‘the customer is king’ becomes a tangible, profitable reality in your enterprise and not just an ideal. 

Experience the journey: visit our download centre where you’ll find our revealing white paper: Credit Maturity Model. A roadmap to successful credit management. There’s also a helpful infographic: Credit Maturity Model. Four phases to optimal credit management.

Credit management as an add-on

Here at the starting stage our model defines credit management as an extra responsibility taken on by the accountant or general manager. It’s all about reactive fire fighting – chasing unpaid invoices, sending reminders and making those uncomfortable phone calls to serious offenders…

There’s no collaboration with other disciplines and no intelligence shared on customer or market. Credit management is a seriously underdeveloped function here.

Credit management gets departmental

Medium-sized companies have more customers, so tasks have to be departmentalised and better organised. At this professionalisation stage, debtor management goes it alone and becomes a separate entity within finance.

We’re still very much at the tail end of the sales process, with the key challenge being chasing customers who pay late or don’t pay at all. Importantly here, organisations do begin to use analysis. The debtor manager will not automatically grant extra credit, but will first check a customer’s payment record. Being SMEs, companies at this point don’t have the scale or muscle to combat large-scale customers who simply impose their own terms and conditions.

Credit management turns risk into opportunity

We’ve arrived at the point where organisations can progress and grow from controlling risk into capitalising on opportunity. Credit managers no longer spend their days chasing customers for payment. At the preventative stage the proven maxim ‘prevention is better than cure’ is applied. This means establishing a clear picture of who your customers are and turning risk assessment into a fruitful speciality.

Now the credit manager looks for patterns and trends using all available data on payment records, disputes and marketing response. Risk assessment also considers distinct sectors, regions and people – for example companies at stage three will only supply customers judged to be risky if they pay upfront.

It’s at this stage in our model that you see the vital influence of collaboration developing. The credit manager will be working with sales and marketing colleagues, building a decision-making structure that can help spot fresh opportunities in addition to assessing risk.

Autonomous objective credit management

Here, at the most mature stage in the model, data-driven credit management has become an independent department, consulting closely with finance, sales and marketing. The priority has conclusively shifted from solving debt issues and preventing payment problems to a wider business enhancement role. New technology is central to success and all practices orbit around a core of Customer Value Management [CVM].

CVM is driven by the continual monitoring of customer profiles. This demands structured and clearly mapped data relating to all customers and prospects, so businesses that have come this far will have a sophisticated, coordinated IT infrastructure.

Using CVM makes the whole sales process far more objective. A keen sales team can sometimes paint a rather rosy, subjective picture of the situation, while finance might be inclined to be over-cautious. Using automated, data-driven methods you can plot a balanced middle course. The credit manager can occupy a neutral coordinating position and ensure that all departments are facing the same way.

Size matters

It’s very clear that size has a big part to play in the Credit Maturity Model. Small companies are well placed to monitor and communicate with customers. What they’re less adept at is knowing exactly how much income these customers are generating.

Large enterprises are the exact opposite. They concentrate on processes and margin and lose touch with customers.

At both ends of the scale, businesses need to begin harnessing information, analysis models and data derived insights, whether through their own software solutions, or with proven pioneers such as Graydon. For every organisation there is a simple truth: the deeper and clearer your insights into the customer portfolio are, the healthier cash flow will be. 

Related topics

To read the whole story and explore this important topic further, visit our download centre where you’ll find our insightful whitepaper: Credit Maturity Model. A roadmap to successful credit management and a useful infographic: Credit Maturity Model. Four phases to optimal credit management.

Interested in more information regarding Credit Management? Download our e-book here!