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Get your IT house in order to stimulate credit decisions

Striking the right balance when extending credit is critical to business success. Fail to offer enough credit and you could be restricting sales and profit; offer too much and you could damage your cash flow and risk destabilising your finances.

One key to getting this balance right is having an effective system to create customer risk profiles. But to do this accurately, your IT house needs to be in good shape.

IT systems often bear the brunt as companies grow and evolve – particularly if a merger is involved. In fact, as a business expands, different departments within a company can end up operating with entirely different data systems, which makes it a challenge to create a single customer view. But the value of a well organised IT system is exponential.

Being able to access a comprehensive profile of each customer, recognise what they need from your business, how you can best offer your services and, crucially, how much credit to offer can lead to a significant increase in sales.

The benefits of customer scoring

One way you make better credit decisions is by implementing a customer scoring system to help you make better decisions. Some customers will be regular purchasers of your goods and services while others’ buying activity may be more sporadic. To ensure you’re directing resources in the right way, it’s useful to categorise your customers by segmenting your customer base. This way, you can attach suitable sales, marketing and finance procedures to each group to ensure you’re approaching these relationships in the most insightful way. For example, it makes sense to create more favourable terms and conditions for clients who account for a significant share of your turnover, compared to those who don’t.

Establishing an effective IT system

There are plenty of resources available to supplement your knowledge of clients and prospects so that you can make the best credit decisions. For example, the government-supported website Companies House provides access to director information and annual filings – helping you build up a picture of their financial health. You can also research their reputation within your supply chain. Sometimes this anecdotal evidence can provide more compelling insight into a company’s payment culture than the facts and figures. Do they pay suppliers on time? Do they pay the due amount in full? Are they a difficult client? And then there’s the Prompt Payment Code, established to undermine the late payment culture that can cause so many problems for SMEs. But once you have all this information, how can you best benefit from it?

The answer is by establishing an organised, accessible and uniform IT system to house your data. There’s a wide range of software available to help stimulate credit decisions. From predictive software to decision analytics, risk-assessing frameworks and loan origination software, there are numerous solutions available to help your business interpret data and make robust credit decisions.

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