Q&A with Forums International about credit management challenges today
Forums International have provided forums for a variety of sectors and territories since the 1990s. Now, in 2022, there are seven forums and we met with Jon Swan from Forums International to discuss the challenges credit managers face today.
Q: Hi Jon, could you tell us a little about your role at Forums International please?
A: I stepped into working with Forums International early last year when I left full-time employment, which had been in credit management since the 1980s. I’ve been a member of the forums for many years, probably every year since 1996. Initially joining when I was Credit Manager at Dell.
Q: The format for the forums changed a little during the pandemic lockdowns, but do you envision a return to in-person events, as opposed to virtual events now?
A: We’re actually planning to move back to our first face-to-face only meeting early next year. So there may not be a virtual option. The reason we’re doing that is because of feedback from members. It’s good for the credit professionals and our corporate partners to get back to networking which you cannot do as easily in a virtual environment. We’re also planning to host events across a wider range of venues, not just London-centric, to improve access for members across the breadth of the country.
Credit management challenges
Q: How is the world of credit management and credit professionals today?
A: Well, it’s a very different world to the one I would say only probably, five years ago. And certainly unrecognizable from the one 10-15 years ago. We’re seeing, challenges around recruitment, onboarding, and credit checking, as well as cash flow challenges as customer ask sellers for extended terms and payment plans.
Q: Could you go into a little more detail on each area, starting with the recruitment challenges credit professionals are facing?
A: Sure. The recruitment experts we’ve been talking to are saying if you went back three or four years, you’d have a job offer come up for a new position and you could have up to thirty to forty CVs that you could pass on to that that particular company. And now they’re scratching around trying to find one or two CVs that would suit the role. Qualified people were available and looking for work, but demand is currently outstripping supply.
The other thing is retention. How do you retain and nurture credit professionals in a market that has more openings than professionals to fill them? We’ve had quite a few discussions and workshops around retention of talent that have sparked healthy debate on this topic.
Q: You also mentioned onboarding and checking creditworthiness as a particular challenge. Could you expand a little on this point too, please?
A: This is really a topic that has only come to the fore in recent years, as businesses seek to find automated solutions to the manual process of onboarding new customers through the various admin stages, risk assessment, and credit checks as part of that process. Credit professionals are looking to shorten timeframes, reduce manual workload, and combat fraud.
There’s a fine balance between onboarding quickly and ensuring all the necessary checks and credit decisions are done to maintain compliance, prevent fraudulent applications, and reduce credit risk. Businesses are interested in solutions which can prevent fraud, but streamline and accelerate the onboarding process, particularly automation of aspects. In a competitive market, it’s essential to get new customers on board quickly as sales can be lost with a lengthy onboarding process, so anything that can be done to speed that up without increasing credit risk is important.
Q: You also mentioned cash flow challenges as customers ask for extended payment terms, is this something that has changed much in recent years?
A: There will always be a pressure on any credit professional, and this has not changed. But now, more and more businesses are concerned about the financial health of some of their customers. COVID grants, the COVID loans, are all now having to be repaid; so, will customers be able to pay on time, or will there be an increase in customers asking for extended terms or payment plans, or a rise in bad debt? Sadly, forecasting needs to take into account higher risks of delinquency and insolvency as financial support from the pandemic is coming to an end.
Solutions to credit management challenges
Q: Thanks Jon, that outlines some key challenges nicely. But what solutions to these do you see being applied successfully at the moment?
A: One thing we’ve noticed in the last couple of years is there has been more creative thinking in the products and financial services that that are on offer to the credit profession to try to help.
For example, take credit insurance. If I think back 10 or so years ago, it was pretty much nearly all of your insurance premium would be in a full turnover policy. You’d have a lot of your customers that they wouldn’t cover because they were too high a credit risk. So you were paying an awful lot of premium and there was very little flexibility around that. That was the policy. Take it or leave it.
But insurers are now coming up with some pretty neat ideas as to how they can actually accommodate the credit risk management requirements of business. So they don’t have to pay a premium on all their turnover. So for example, you’ve got products out there which will offer cover on specific customers, even if credit scoring shows they’re higher risk (where obviously the premium is higher). So there’s a bit of creative thinking in that sector.
We’re also seeing streamlining in cash allocation through cash collection modules, as businesses try to do more with smaller teams, they need this level of real-time support. Products have come out of the last two or three years and are continuing to evolve to meet these needs.
Recruitment challenges
Q: You mentioned the need to support recruitment challenges, are you seeing solutions that meet these needs well at present?
A: It is evolving, and I think it’s getting there. But to be honest with you, the recruitment people haven’t got a golden wand, they can’t solve all the problems, but all they can do is offer advice to companies, the dos and don’ts. For example, we hear stories of some companies so desperate to get good people, that they’re embellishing the job descriptions to attract a better quality of candidate. The candidate joins the company and a couple of months later, the candidate says, well, they don’t think the job fits the job description. There’s a difference here. You know, you’ve got me under false pretenses. It’s a stupid thing to do, but there are stories of companies doing that because they are really, really struggling to find good people.
Q: Given these resourcing challenges, do you see a shift towards greater use of managed services and outsourcing?
A: Yes, we see businesses where the credit control team get to a point with collections and they need third party involvement because the volume is just too significant for them to actually get a result. However, there’s an aversion to traditional BPO for credit management processes because of the perceived risks to cash flow and customer experience.
Q: That’s interesting. So there’s an objection to the risks from BPO but managed services are recognized by some businesses as a route to leverage external expertise and bandwidth on specific aspects of the credit and collections process?
A: Yes, it’s all down to trust and quality of service – we’re all familiar with the risks of outsourcing skilled work to less skilled operatives in low-cost countries or even centers in the UK.
Cash flow and longer payment terms
Q: Are you seeing many innovative solutions to help businesses support their customers’ demand for longer payment terms?
A: Businesses have been keen to improve liquidity over the last couple of years to strengthen their position and we’re seeing solutions evolving there, or people turning to common solutions to sort of bridge that gap.
A lot of it depends on the margin that the company makes on its products and services. The tighter the margin, they’ve got very little wriggle room to help their customers. So if you take the PC industry, you know desktops, laptops, margins can be as small as 1 to 2%. When you’ve got really tiny margins like that, you haven’t really got much scope to help people in terms of extended payment terms because the cost of this will eat up any margin.
In other sectors, such as publishing, with higher margins, the sellers can afford to offer longer payment terms and payment plans to customers, working with lenders to support late payments without hurting profitability too much.
In competitive markets, we’re seeing businesses try to adjust to the need for longer credit terms as part of a shift of emphasis from credit control to credit service. The collections process and payment terms can make a real difference to customer experience, which is important to reduce churn.
Q: So do you see many credit professionals working with invoice financing as a way of supporting longer payment terms?
A: Not really. I think this comes back to the point earlier about outsourcing and loss of control. While I’m sure there’s a place for invoice finance, or factoring, our audience doesn’t seem to be interested in this – mainly because it would break from their proven credit and collections processes, losing control over the customer relationship and the risks that go with that.
Supporting longer payment terms without losing control
Q: It sounds like the concerns about BPO and factoring are similar to the reasons our customers find Corcentric’s Managed AR offering so refreshing. Do you think there’s much awareness of this in your audience?
A: It’s not a solution that’s well known yet in the credit professionals community, so we don’t hear much discussion of this as a solution to these challenges. Most credit professionals would tend to accept that some subledgers may be more challenging than others, but that’s just part of the job and they need to focus more resources on these or accept collections delays from outstanding invoices.
I can see how Managed AR allows businesses to reduce these pains by leveraging a managed service, and receive guaranteed payment on time. With Corcentric underwriting the commitment to get paid for each invoice, this presents a far improved risk model for businesses. There’s perhaps a need to improve awareness that this is possible as an extension of a credit team’s existing processes – the white-glove approach – to prevent the loss of control and risks to customer experience that we discussed earlier.
I suppose there’s always going to be a bit of resistance to change and skepticism of any new way of solving problems, but that’s exactly why Forums International brings credit professionals together, to discuss the challenges they’re facing and how new ways of working can improve things. We look forward to welcoming you to present on a related topic soon.
If you want to find out more about how Corcentric Managed AR can fix DSO at as little as 15 days, without negatively impacting customer experience, and without the need for capital investment, then get in touch today, or download our white paper on How Managed Accounts Receivable Unlocks Working Capital.