In the last few years, the world economy went through some heavy storms impacting how Credit Management and Collection Departments within companies will and should act. In fact, we noticed that companies tend to pay their invoices later and later which can pose significant challenges for companies in the business-to-business (B2B) environment, impacting both their financial stability and operational efficiency. These challenges stem from a combination of macro and microeconomic factors, making it a multifaceted issue.
Late payments: a complex interplay of macro and microeconomic factors
At the macroeconomic level, inflation, economic downturns, fluctuations in market conditions, for instance, rising interest rates, as well as legislative/compliancy changes can contribute to delayed payments. During periods of economic instability like we are facing right now, businesses may experience cash flow constraints, leading to delays in settling invoices. Additionally, changes in government regulations or tax and compliancy policies can affect payment terms and processing times, further worsening the problem.
On a microeconomic level, individual customer circumstances and internal company factors can also play a role in late payments. Customers may face their own financial difficulties, such as cash flow shortages or liquidity issues, which can result in delayed payments to suppliers. Moreover, inefficiencies in a company’s billing and collections processes, inadequate credit management practices, or ineffective communication with customers can contribute to payment delays.
The consequences of late payments for companies can be significant and far-reaching
- Firstly, delayed cash inflows can disrupt a company’s cash flow cycle, affecting its ability to meet financial obligations, invest in growth opportunities, and cover operational expenses.
- This can lead to liquidity problems and strain relationships with suppliers, creditors, and other stakeholders.
- Secondly, late payments can impact a company’s financial health and creditworthiness, potentially leading to increased borrowing costs, reduced access to financing, and damage to its credit rating.
- This can hinder future business opportunities and limit the company’s ability to expand or invest in innovation.
- Furthermore, late payments can disrupt supply chains and operational processes, causing delays in production, inventory shortages, and decreased customer satisfaction.
- This can ultimately harm a company’s reputation and competitiveness in the market, as customers may look for more reliable suppliers who can deliver on time.
“Late payments present significant challenges for companies in the B2B environment, stemming from a complex interplay of macro and microeconomic factors.”
In conclusion, addressing these challenges requires proactive credit management strategies, effective communication with customers, and continuous improvement of billing and collections processes to ensure timely payment and maintain financial stability. And this is exactly where AiVidens will come to the rescue of Finance teams.
How to effectively address these challenges?
- Finance Departments must maintain a keen awareness of both current and forthcoming context to pre-empt potential liquidity issues.
- Credit Managers, ultimately, seek to optimize their company’s Working Capital by maximizing cash collection management.
“Working Capital serves as the vital life force that sustains the organization’s operations. Without it, the company risks operating inefficiently and facing potential cessation over time.”
The adage ‘mens sana in corpore sano’, translating to ‘a healthy mind in a healthy body’, aptly underscores the need for a sophisticated intelligent pro-active approach (i.e. smart cockpit) that considers various dimensions and variables to steer the organization (your body) effectively. It’s imperative that this vital lifeblood operates with heightened efficiency and effectiveness, without depleting valuable resources or incurring unnecessary overheads that may impede progress and make you much more vulnerable to inner and outer forces, as previously highlighted.
To set up this essential context, comprehensive data—specifically customer data from diverse sources—is paramount.
Providing the Finance Department with a complete, real-time Payer360 view across the entire lifecycle of customers’ financial interactions with the brand is essential.
- This holistic view enables organizations to enhance Customer Lifetime Value of these customers (i.e. through more effective cash collection) as well as improving the customer experience with your brand.
- In addition to this, this will strongly enforce collaboration between the finance, marketing, sales and customer service teams. Sales is one thing, getting paid for the placed orders is something else. A sales order without a payment is a free gift.
This critical data, which will create your Payer360 view, may originate from various sources, including ERP environments, credit insurance/rating agencies, CRM systems, payment behavioural data, and external business feeds. The primary goal is to construct a unified Payment Profile of your customers, continuously updated throughout the payment relationship with your brand(s).
This will finally result into Payment Behaviour Profiles and Risk Types, along with other harmonized key performance indicators (fi DSO, average payment date,…), empowering decision-makers to navigate the organization effectively.
How can Aividens help you meet these challenges?
AiVidens can serve as the Cockpit for this endeavour, acting as a single version of truth powered by an innovative engine that aggregates data from internal and external sources.
By unifying this data into a comprehensive Payment Profile, AiVidens provides embedded calculations and AI-powered insights.
The platform’s autonomy as a Smart Layer on top of different data sources, ensures versatility, avoiding vertical software architecture lock-ins and thus simplifying integration efforts and focused innovation.
Moreover, broad accessibility to these insights fosters the democratization of data, benefiting stakeholders beyond Finance, such as Sales Departments seeking real-time financial context.
For larger enterprises, it’s essential that these insights be fully customizable to accommodate organizational nuances (for instance Business Lines, Countries, Teams, Projects,…). Integration with relevant financial activities, such as Cash Forecasting Management and Credit Limit Management, ensures seamless alignment with the Finance Department’s duties and responsibilities related to Credit Management.
All these insights can be ‘activated’ and ‘monetized’ across various communication channels, responsibilities, and stakeholders.
“We emphasized the significance of having comprehensive ‘payment profiles’ and the importance of democratizing these insights to a broader range of individuals and systems.“
Let’s examine some stakeholders who could benefit from the AI-powered insights provided by the ideal platform
Cash Managers can enhance cash forecasting with payment predictions and integrate payment behaviour into cash planning. This leads to higher cash forecasting accuracy and predictability. Furthermore, all collection efforts will be directly reflected in the cash forecast, fostering collaboration between collection teams and cash managers.
Credit/Collection Managers gain a complete overview and understanding of their debt portfolio risk, enabling them to assess payment behaviour and risk variations effectively.
Collector Analysts can achieve more with less thanks to a significantly improved and convenient User Experience. All information will be centralized for decision-making, and daily collector activity lists will be prioritized through AI-powered analysis, allowing them to focus on actions with the most significant (cash collection) business impact in function of your collection strategy. Credit Collection is sometimes seen as a ‘CRM for Finance’. It is important to fuel and complement this CRM with on-time AI-driven Insights leading to Smart Collection lists with drill-down capabilities to all the respective transactions that occurred and will occur.
While our focus at AiVidens primarily lies on finance users, other stakeholders like Sales or Service Managers can access specific KPIs. This access facilitates better customer interactions, keep insights continuously updated, and even enables decentralized collections. Additionally, it streamlines payment term negotiations and reduces the burden on finance departments to respond to numerous payment status requests from other teams. Moreover, these insights help Sales focus on customers aligned with the company’ financial goals.
What you need to remember from this article
1) In recent years, the global economy has weathered significant challenges, impacting Credit Management and Collection Departments in companies. Late payments have become increasingly common, posing substantial challenges for B2B enterprises, affecting financial stability and operational efficiency.
2) These challenges stem from a complex interplay of macroeconomic factors such as inflation, economic downturns, and regulatory changes, as well as microeconomic factors including individual customer circumstances and internal company inefficiencies.
3) Late payments can disrupt cash flow cycles, impact financial health and creditworthiness, and disrupt supply chains, ultimately affecting a company’s reputation and competitiveness.
4) Addressing these challenges requires proactive credit management strategies, effective communication with customers, and continuous improvement of billing and collections processes. AiVidens offers a comprehensive AI-Powered solution, providing actionable insights and facilitating collaboration across departments to optimize cash collection and ensure financial stability.
5) Successful projects hinge on the ‘3Ps’: the right Credit Management Platform, the right People (CxO Credit Management Vision + internal Finance Team and external Partners), as well as the right Processes (more data-driven processes). Failure of any of these Ps can lead to project failure. In this article, we’ve focused specifically on the Platform dimension of successful Credit Management projects and what the ideal Platform should offer to innovative finance organizations. While the other 2 Ps are equally important, they will always rely on the right Platform foundation in all cases.
We hope this article provides insights to evaluate your current Credit Management and Cash Collection architecture and processes, empowering your finance teams with continuously updated – AI powered – actionable insights to optimize the vital lifeblood, your Working Capital, of your company.
We all want you to succeed to do more with less, meaning do more (cash collection) with less (hassle) powered by an innovative FinTecture.
