Weaknesses in Processes and Tools
Scarlett notes that in many companies, credit management and collection processes lack structure and rigor, leading to delays and inefficiencies. She highlights a recurring issue: insufficient anticipation, which hampers progress in this area.There is a severe lack of anticipation that forces credit management professionals to act reactively and repressively, damaging the reputation of the field. It reflects a lack of long-term vision.
she explains. Scarlett provides examples, such as improving client risk controls at account opening, and recommends integrating these controls into the commercial offer phase so sales teams can adjust proposals to account for client risk.
This lack of structured processes is often compounded by outdated tools, typically Excel spreadsheets, which are difficult to update and limited in tracking and analytical functionalities. Even in large corporations, Scarlett frequently observes incomplete client records and aged account balances generated monthly—or at best bi-weekly—methods that slow down collections, extend payment delays, and obscure account management.
The Ongoing Challenge of Client Data Quality
One of the critical challenges in modern credit management is maintaining high-quality client data. Scarlett emphasizes the importance of complete and accurate client records to contact the right stakeholders at the right time. Effective collection requires immediate access to all actors involved in the ‘Procure to Pay’ cycle. Yet poor information in client files often hinders recovery efforts.
Without quick access to key client contacts, collections can become inefficient, leading to mounting payment delays. Scarlett also underscores the importance of standardizing client information, such as SIRET numbers and contact details, to eliminate confusion in account management.
An Underdeveloped Credit Policy
Scarlett observes that many French companies lack a clear and formalized credit policy. This absence often results in inconsistent management of payment terms, billing schedules, and collection practices. She argues that a well-defined credit policy is essential to enforce payment deadlines, achieve an optimal DSO (Days Sales Outstanding), and minimize client delays. An integrated credit policy, aligned with the commercial strategy in terms of client profile, revenue objectives, and margin levels, can significantly optimize working capital requirements.
For maximum effectiveness, the credit policy should be included in general sales conditions. Credit managers must educate and train sales teams to adopt and defend payment terms with clients.
The credit decision integrating the delivery conditions of terms of payment conditions is in accordance with the credit policy, it must be a decision of the company. A frequently encountered error is the substitution of the credit insurer's decisions for the credit policy. Credit insurance is a great tool for assessing the risk of non-payment and guaranteeing customer outstandings but in no case should it replace credit decisions which remain those of the company.
By formalizing a robust and transparent credit policy, companies can reduce client receivables and foster more balanced client relationships.
A Lack of Performance Indicators
Finally, Scarlett highlights the absence of effective performance indicators in many organizations, which hampers the ability to monitor and continuously improve credit management. The DSO is often calculated imprecisely, failing to account for various receivable phases (e.g., billing delays, contractual terms, overdue periods). In some companies, key metrics such as dispute rates, amounts tied up in doubtful accounts, or the cost of managing invoice copies aren’t even measured. This is a major oversight.
Without these indicators, it becomes challenging to prioritize cash inflows or evaluate the effectiveness of initiatives. Scarlett recommends establishing a reporting framework with the most relevant metrics tailored to the company’s goals, such as receivables performance, dispute frequency, or resolution speed. In the era of electronic invoicing, these indicators should be generated directly from management tools or integrated into solutions like Power BI to facilitate cross-functional collaboration among stakeholders.
Conclusion: Building Strong Foundations to Overcome Challenges
This third episode underscores the need to revamp processes, improve client data quality, formalize credit policies, and implement reliable performance indicators. These structural improvements enable companies to anticipate risks, reduce payment delays, and professionalize their practices. For Scarlett, organizational rigor and resource optimization are the keys to addressing current challenges and establishing effective, sustainable credit management.
Stay tuned! In the next episode, Scarlett will share concrete examples of successful consulting projects that transformed company practices and unlocked significant liquidity.