Problem
The company operates in the food industry. Founded in the ‘60s, it has experienced fast growth over the last ten years and has become a leading player in its industry. Turnover amounts to several hundred million euro and the company has thousands of very diverse customers, ranging from large retail groups to market food stalls, including wholesalers, the HORECA sector and small shops. The increase in turnover and number of customers, combined with the general economic and financial crisis, has highlighted the need to improve credit management.
Solution
After a brief analysis, Contract Manager proposes sending in a credit manager to run a temporary management project in the credit area. The temporary manager presented the owners with a 5-point plan:
- To implement a dedicated software package, for the use of the whole commercial team, to share information in real time: from collection to credit limits, from supply blocks to outsourced activities.
- To provide the company with a clear, shared credit policy, essential to speed up credit management and deal with exceptions.
- To train staff and provide a new, service-oriented organization, while tightening control.
- To train both internal and external sales staff.
- To select providers of outsourced services to improve efficiency and cut costs.
All the above was underpinned by the credit policy, which clearly set out roles, rules, responsibilities and objectives.
They also seized the opportunity to restructure their external resources, such as commercial information, insurance and debt collection (both directly and through court action). These actions resulted in substantial savings, to the extent that they covered a good part of the cost of the project itself.
They needed to help the sales managers (generally rather conservative) to understand that concepts like good/bad payer, high/low risk are not perceptions but ratings based on measurable, objective parameters. They also needed to understand that sharing these measurements lays the foundations for further enquiry, and that they are not in themselves the end point. The owners and the CFO strongly backed the project and allowed it to be carried through to completion.
The new software breaks customers down by risk class. This in turn establishes different credit management procedures for each class. It goes beyond basic credit management and features the following modules.
Rating calculation, based on:
- in-house information: past company risk and average delays in payment
- outside information: data acquired online from a leading Italian provider
- commercial assessment: loyalty, outlook, reputation, replaceability
All parameters are weighted and may be changed at any time.
- credit limit calculation: this takes into account insurance cover, commercial intelligence and internal rating
- peripheral collection, with payment recorded via smartphone or tablet, with the possible addition of POS devices, payment management and automatic reconciliation with accounts
- interface with outsourced providers for debt collection (both direct and via court proceedings)
- automatic generation of alerts, via email and text messaging solely to concerned parties, of changes in credit limit, supply blocks, insolvency, etc.
The new software highlighted the need to transform the customer accounts department into a proper credit management unit. Activities were divided between a front office (credit control, internal and external relations management) and a back office (accounting, customer statements of account). A new resource was added, to handle litigation. Training on communication and credit management was organized for everyone working in credit. A new manager to run the new credit management area was hired from abroad.