Let’s start with the basics: what is credit management?
In a nutshell: it’s the entire set of actions that a company puts in place in the area of corporate credit management, and everything related to it, across the board.
In concrete terms, we’re talking about activities such as credit quality assessment, debt collection, stopping the statute of limitations (to ensure the collectability of receivables), document analysis and reconstruction (from which the recovery process must start), and monitoring of returns and collections.
And, of course, the list is not exhaustive. All of these credit management processes have never been as much of a focus for companies as they are today. Why? There are many reasons.
But they can be summed up in two pivotal points:
- The current large volume of outstanding debts and receivables to be recovered, the size of which depends on the Industry, is seeing a very dangerous and generally upward trend. In this regard, it is enough to consider this data, which emerged in UNIREC’s 12th Report on Credit Protection Services published in May 2022 (the report can be consulted in full here): in 2021 alone, UNIREC member companies handled about 40.1 million Third Party practices. Compared to 2020, this is an increase of more than 9%. Receivables entrusted for recovery to UNIREC member firms increased in 2021 compared to the previous year (+5.2%), reaching just under €106 billion.
- At the intersection of credit management issues with those of customer churn (i.e., when companies abandon a company) is another very hot topic, which now also affects sectors that were historically more sheltered. Just think, to take one example out of all, of the Utilities and Energy sector, with liberalizations that have and are still taking place.
The problems of churn and those of defaults are distinct, to be sure, but often they end up intertwined, triggering a further dangerous downward spiral.
To conclude this introduction, consider this very telling figure, which constitutes another very specific warning: according to estimates, about one in five bankruptcies in the small and medium-sized business sector occur because of an excessive volume of outstanding receivables and non-payments.
Thus, the urgency and centrality of the issue of credit management is evident. At this point, therefore, it’s crucial to ask the main question: how do we optimize these procedures? The answers are many and varied. But there is a lowest common denominator, and it is called “digitization.”
The credit management opportunities offered by digitization
Optimizing one’s credit management processes is, first and foremost, about having a clear and comprehensive picture of the state of your company’s finances. And it goes without saying how critical this is.
But there is more. Good credit management protects cash flow and improves the availability of liquidity…with all that this entails in terms of operations, future investments, and trust from stakeholders, employees, suppliers, and investors.
Not only that: the right strategies improve the effectiveness of credit recovery processes without negatively impacting the company’s image and retention rates.
But you can also – and should – work on prevention: a good credit management strategy is not limited to acting on delays and defaults, but aims to make sure that they don’t occur in the first place, and better protecting even the most slippery touchpoints in the relationship between company and customer, before problems arise.
Now, you can see that all of this involves a significant expenditure of resources, time, and personnel. And that’s where digital comes in.
By digitizing credit management processes, companies can achieve savings and an even more definite increase in effectiveness. But “digitizing” risks turning into a slogan that can mean everything and nothing.
Instead, there is a need to chart a very clear, concrete, and operational course. And there is one thing that companies can use to orient themselves: Big Data. The starting point of this path is document dematerialization. The point of arrival is personalization.
And we will focus on these two intimately related aspects in the next two sections of this post.
The starting point: document dematerialization
In its simplest form, dematerialization is the process of converting paper documents into digital documents. Be careful, however: this transformation process must ensure the preservation of legal and evidentiary value of documents.
This is a key point when it comes to credit management. So, dematerialization goes beyond simple digitization, and this difference also implies delicate legal aspects.
The benefits of switching to digital documents are intuitive and even obvious: financial savings, time savings, and increased efficiency. First, storing a huge amount of paper takes up a lot of space, which in turn translates into costs for management and sometimes for personnel.
Then there is the efficiency aspect in terms of research time. For example, think about how complicated and even difficult it can be to search for even just a few, perhaps very specific, data points within a single paper document! All of this has a major negative impact when it comes to managing debt collection files.
By moving to a fully digital filing system, on the other hand, you can make effective, targeted, and almost instantaneous searches, all in just a few clicks. And that’s not all. Through dematerialization, the risks of loss, attrition, and compilation errors are drastically reduced—all very important points when it comes to credit management.
And then there is the issue of sharing (of entire documents, or specific parts): in a fully digital ecosystem, all of this is all done easily and immediately think about how slow and complex these steps are when done in analog mode. So far, we have looked at some very intuitive advantages. But they are not the only ones, and far from it. A digital archive—dematerialized in a smart, strategic, and judicious way—can be exploited on many levels, with a depth that was unthinkable before.
In short, it turns into a valuable source of data about a company’s customers and the interactions between them and the company.
Again: all of this is essential when it comes to optimizing credit management. But we need to go a step further: collecting the largest amount of data isn’t enough. You must make sure that this data is interconnected, that they talk to each other. Intelligent, comprehensive, and functional interpretation of the large amount of information collected enables, among other things, a better understanding of your customer base.
This is the real breakthrough from which credit management must start!
From this knowledge, in fact, you can divide your audience into specific targets, into segments and clusters, all the way up to personalization. Doing so, you can revolutionize their credit management processes, making them more and more focused and less cold and bureaucratic.
But we are missing the last step: the step of personalization which can revolutionize credit management processes at all levels.
The end point: personalized communication
Credit management is made more effective through digitization. In turn, digitization is primarily about data.
Ultimately, this data must be transformed into new ways of dealing with your customers. Because credit management also comes through a new, closer type of communication. So what should companies do?
- Design targeted and tailored communications, in all Customer Service processes…and even more so in those dealing with payments;
- Try to anticipate defaults, through predictive analytics systems based on the collection of data from each individual customer. And thus try to prevent them by closely guarding slippery touchpoints with tailored communications.
All of this can be done by embracing personalization.
In concrete terms: it involves starting with the data collected in your CRM systems.
And, based on this information, you can restructure and update all of your lines of communication, to move from one-to-many to one-to-one. All in a perfectly automated way.
That is exactly what Doxee is all about. First, with its Document Dematerialization and Paperless Experience systems, and then with Interactive Experience products, which revolutionize communications. Here are two examples:
- The Doxee Pvideos: personalized, interactive videos built based on the characteristics of individual recipients. They are the perfect tool to enhance the dialog between company and customer. In fact, in this case, personalization is integrated with the media of video, by far the most effective among digital media. Very important: calls to actions can be included in the videos related to managing outstanding debts, which can thus be resolved in just a few clicks.
- The Doxee Pweb: personalized microsites, designed based on the characteristics of the individual users to whom they are targeted. It’s a real revolution in the digital Customer Journey, and offers several possibilities for implementation…and among them, again, that of digital payments: very direct and smart.
The greatest amount of data, to be able to effectively communicate with individuals: the breakthrough in credit management is all here.
