The Future of Credit Management!

This article appears in our Q1 2022 issue of Finance Transformation Magazine. To download the issue, click here

Philip King, the UK's foremost Strategic Leader in Credit Management talks to Martin Kirby,
Head of Credit Risk & Collections at Business Stream about the Future of Credit Management.

Philip, with over 40 years' experience in Credit Management, is a former CEO of the Chartered Institute of Credit Management (CICM) and UK Small Business Commissioner. He is passionate about cashflow, credit management and helping small businesses.

Earlier this month he caught up with Martin Kirby, whose career has spanned multiple senior level Order to Cash positions at Kier Group, Adecco, Hays and Bupa to name but a few.

Over coffee they reminisced about careers in Credit Management which have collectively spanned 80 years and talk inevitably turned to the future.

MK: In these unprecedented times, with the pandemic having caused major business disruption and still very much with us, Martin asked Philip what he thinks the Future of Credit Management holds.

PK: In my view, progress has fallen behind many other facets of life. While processes have been made more efficient and quicker through automation, the life-changing developments seen elsewhere haven't materialised in quite the same way.

Risk assessment has moved from Dun & Bradstreet registers to highly sophisticated credit risk reporting systems using algorithms to predict failure and linked to tools that allow sales to be maximized. Not before time since, above all else, the provision of credit is a sales tool - why else would anyone have ever said a customer could wait 30 days or more before paying!

Automation has allowed collection activity to be far more efficient and effective, and artificial intelligence and machine learning have introduced far more sophisticated ways of targeting Collections.

At its heart, effective Credit Management is all about the customer and the strength of that relationship. The mechanics will always involve an unpaid Invoice and a means of customer contact. Technology can greatly influence how efficient that contact is made but at its heart the relationship is king, and I don't see that fundamental principle changing.

Despite not being a Technology guru, I do however believe we will see more revolutionary and transformational changes.

I can see advancements in risk analysis delivering far greater predictability using the hugely increased information available, accessibility to open data, and analysis of behaviours and trends. More accessible data will provide the key to better decisions in granting credit and in Collection activity.

Some of this additional data will arise from commercially available sources.
Some will come because of developments in transparency requirements from government and, I hope, the sharing of quality data that will facilitate better decisions while not being to the detriment of confidentiality. Think how Open Banking is transforming finance systems.

MK: In my view the lesson of the last 18 months is the need for more immediate insight into Customer resilience. Customer data capture in real time, not 6-12 months old is the requirement going forward. In addition, I feel that Sector analysis has never been more important.

Real time decisioning is demanded to ensure the appropriate risk is undertaken. In fact, the Pandemic is thus acting as a catalyst for the faster adoption of new techniques and the future may be with us faster than we think.

I agree that Open Banking is transformational, but my concern is what is the uptake in a B2B environment and consequently how can we drive adoption to reap the benefits it offers?

PK: Fair challenges Martin and one to debate in the Webinar to follow. I do believe if we look at Collections, an area that traditionally lagged in automation terms, efficiencies are being driven forward at pace by the adoption of artificial intelligence and machine learning. In future, activity will be able to be targeted, driven by the analysis of trends in payment behaviours.

These will determine the timing and methods of contact that offer the greatest chance of success. Advancements in communication methods will provide new and innovative ways of interacting with customers.

The days of Collection letters and dunning cycles will be superseded. Think how Amazon uses its data to personalise its marketing, and similar data manipulation could personalise contact with customers about unpaid invoices.

Robotics will allow many routine clerical tasks to be undertaken without the need for human intervention or involvement and this will free time for staff members to undertake more productive activity. Think how automated cash allocation tools have revolutionised previous methodologies.

MK: I totally agree, advancement in communication methods is moving at pace. However, this technology is today relatively expensive, and many older organisations may find it difficult to leverage with their existing systems.

However, I also feel that traditional dunning techniques and letters will have a place for many years. Whilst the delivery mechanism may change and move more electronic, companies will feel safe in the knowledge of a default process tried and tested. This process is useful when compiling litigation requests, for example.

I think the big challenge for the Technology Industry is to incorporate cutting edge capabilities into their standard ERP solutions and that they are not always a bolt on, driving additional cost, complexity and system proliferation.

PK: Yes, I agree Martin, the relative cost of all Technologies will be a critical factor in developments and successful adoption over the next 10 years. There will be continuing progress across all relevant areas, and these will make for a very different credit management environment from the one we saw 40 years ago and the one we see now.

But, and it's a big but, I believe as I said earlier that the fundamental principles have not changed and will continue unchanged. Just as people buy from people, not from organisations as such, so people pay people. We do business with individuals and are more likely to buy when we trust them, and we are similarly more likely to pay and be paid if there is a positive relationship.

One of my mantras about risk assessment has always been that, particularly where significant amounts of credit are involved, it's important to have looked the customer in the eye and seen their operation firsthand. Communication, not technology, is the prerequisite for good business relationships.

These qualities and relationships have always been required, they were needed in 1979, they're essential now, and they'll be just as important in 5, 10 or 50 years' time.

In my view, Credit management is fundamentally based on communication skills and that will never change.