Well-known phenomenon
Credit management software is now a well-established phenomenon in the financial world. 'I think it has been around for about 20 years in the Netherlands. Almost all companies and entrepreneurs will have heard of it, but by no means everyone works with it yet.' Speaking is Hans-Peter Vloemans, commercial director of CreditDevice, which itself builds software and offers total solutions for credit management. By starting with this in 2008, the company, founded in 2001, was responding to developments in the financial market.
Game
'In the past, debtor management was often put there added a little within a company. There was little attention and little tooling for it. People in finance kept an Excel file and sometimes called debtors,' Hans-Peter knows from his own experience. 'With that said, I have to say that payment morale used to be different. Nowadays, many companies play the game of having as much working capital as possible. What matters is that your DSO (Days Sales Outstanding, the number of days that invoices are outstanding on average, ed.) is as low as possible. There are two sides to the game around working capital optimisation. On the one hand, paying your creditors and, on the other, getting your debtors paid. You pay your creditors as late as possible and try to get your debtors in as soon as possible. To get your debtors paid on time, credit management software is almost indispensable.'
Next-level debtor management
Credit management is next level debtor management. Credit management software provides insight into customers' payment behaviour, allowing companies to make choices in advance, take targeted actions and mitigate risks. In recent years, a lot of 'standard' debtor management software also came on the market, which can be linked to the accounting package. 'That software tracks invoices automatically. Sends a reminder on day 31, a payment link on day 45 and a collection order on day 60. Nothing wrong with that, but certainly for credit-insured companies with hundreds of debtors, credit management software is more useful. 'The more debtors, the more useful,' says Hans-Peter.
Segmentation
This is partly because credit management software allows you to segment debtors. You need a different approach for each type of debtor if you want to do it right. A one-man business where you have a few hundred euros outstanding, you approach differently from, say, Unilever with tons outstanding. You prefer not to spend too much time and energy on that sole trader; that only costs money. Unilever prefers to call you every week to check whether the PO numbers are correct and everything else is clear. If you find out on day 30 that something is not right, you can start all over again and wait even longer for your money. Governments and foundations speak to you differently. And there is also a difference between domestic and foreign debtors. You really don't need to send a reminder to Italian debtors after 30 days; on average, payments there take 100 days.
Additional working capital
Good credit management is good for cash flow, according to Hans-Peter. He gives the example of a company with an annual turnover of 40 million euros. 'If that company has to wait an average of 60 days for its money, this means they are missing money for one sixth of the year. So that's 6.5 million euros you're pre-financing as a company. If you can reduce those 60 days to 40, you create 2 million euros of extra working capital. Money you can't easily get at a bank, or at a high interest rate. On the other hand, you save on labour as a company; it can easily save 30 to 50 per cent FTE. By letting software do the repetitive work, you can deploy your people more usefully.'
Credit information and credit insurance
Credit management software can also be expanded with the credit information module and the PolisManager module. These allow a quick check of the creditworthiness of prospects and customers. Via the PolisManager, companies can easily manage their credit insurance policy. Within this tool, all relevant information from credit insurance companies Atradius, Coface and Euler Hermes comes together. 'Thanks to the link with your credit insurer and your own debtor data, you know at any time how things stand with, for example, your self-assessment. You also see whether you have coverage based on positive payment experiences. As a result, your company is always guaranteed up-to-date credit limits,' explains Hans-Peter. 'We also make it clear where the dangers are within your portfolio. If you exceed your limit with customers, you will be warned. We also have a notification system that tells you when to report your outstanding invoices or submit them for collection. That way, you avoid loss of cover.'
Relevant data
'Both from the PolisManager and the credit management software, you can send relevant data to stakeholders,' Hans-Peter concludes. 'This way, the CFO gets the full overview, but the business unit manager only his data. In short: credit management software can really make companies' work easier on a lot of fronts.'
We thank Hans-Peter Vloemans for this interesting interview. If you have any questions about (developments within) credit management(software)? We are happy to help.
