Speeding up the Order-to-Cash Cycle with Automated Credit Management

According to industry research from PayStream Advisors, 39% of invoices in the United States are paid late, 17% of customers do not adhere to credit terms, 52% of businesses ask for extended payment terms, and the average DSO is more than double the average payment terms! Statistics like these are exactly why businesses are putting more and more focus on carefully managing customer credit, but that’s a time consuming process that often creates order-to-cash cycle bottlenecks.

Common Order-to-Cash Cycle Inefficiencies for Credit Managers

When your credit managers are taking their time to determine credit limits, set appropriate terms, and research information related to the sale, it takes that much longer to move the transaction along the cycle. While there is no doubt credit management is crucial inefficiency in your process is extending the cycle time and slowing cash flow. Here are some of the most common areas where slow-downs happen and how you can speed them up while also protecting your finances.

Managing Customer Credit Applications:

A credit application is critical to assessing and managing business risk but sending, receiving, and organizing important documents can be tough when you have so many applications to keep track of and an endless to-do list. With accounts receivable automation software you can utilize document management features that allow you to not only save and organize these applications, but also:

  • Save a custom template in the system for each customer to cut down on time spent creating and editing one.
  • Send it to customers and receive the completed document through encrypted emails or a secure customer portal.
  • Manage, store, and share other important documents such as invoices, proof of delivery, time sheets, and other documents.

You can also set up the software to notify you when it has been X days/months/years since a customer has filled out a credit application to make sure your company is always protected against credit risk.

Make sure you’re getting all of the information you need to make a smart decision, download this comprehensive credit application template, adapt it, and use it in your credit management department.

Dig deeper: How to Create A Customer Credit Application Form

Evaluating customer credit worthiness and setting terms

For many companies the easiest way to determine customer credit worthiness is to utilize the information on their credit applications, call trade references, and purchase credit information from companies such as Experian or D&B. but for most companies all of this information is stored in separate locations which makes researching customer credit worthiness time consuming, not to mention frustrating if you’re unable to quickly find what you’re looking for. By using A/R management software you can pull it all into one central location. You can even pull in external credit information from credit bureaus and each account will also be given a color code based on their risk levels.

Additionally, you can be more accurate in determine current customer credit limits and terms based on historical payment behaviors. Accounts receivable automation software provides you with all of the information you need to determine customer credit limits and terms and whether or not to adjust their limit/terms up or down based on payment history, statistics, and reported credit information.

Dig deeper: 8 Considerations for Determining Customer Credit Terms

Evaluating and lowering the cost of credit:

When customers pay beyond the credit terms, it’s costing you money and if you find a customer is costing you astronomically, you may decide not to extend them credit or to lower their limits. The cost of credit can be manually calculated or you can use an excel spreadsheet to do it, but that can be extremely tedious and time consuming; making it yet another activity holding up the order-to-cash process. You can automate this calculation as well with A/R management software so you can see which customers are costing you the most as soon as you log into the software.

Dig deeper: Cut Down on Time & Cost with Accounts Receivable Automation

Ongoing credit monitoring

A customer’s financial situation can and will change over time, that’s why frequent credit reviews on your current customers can drastically improve risk mitigation in your company and help you maximize the value of your relationships. You may have customers who are great and always pay their bills on time, but then they may begin to pay later, ask for more credit, break payment promises, dispute more things, etc. these are all signs that your customer may be having some financial troubles and are just not telling you. You may also have customers who were once financially unstable and chronically late to pay who have turned things around and are now paying on time- either way, you need to know. But do you have the data you need to monitor your customers? Probably. But what most companies lack is the ability to quickly gather that information and use it for fast and strategic decision making which can hold up the order-to-cash cycle.

Rather than the credit department taking the time to check up on a customer or scheduling credit reviews manually, wouldn’t it be easier if the system did it for you? With automation you can have all of the information you need at your fingertips, receive notifications for account credit reviews, keep track of credit scores, manage payment schedules, define custom credit scoring formulas, and more.

Dig deeper: Increase Working Capital With Smarter Customer Credit Monitoring

Traditional and manual techniques do not allow you to carry out your strategy consistently, efficiently, or effectively because you will end up spending far too much time dealing with data and not enough time acting on it and moving the transaction along the order-to-cash cycle.  Accounts receivable management software takes the challenge out of managing credit by giving you actionable data to help you minimize credit risk while also keeping the process moving so you can close deals, keep customers happy, and maintain healthy cash flow.

There are many other areas where you can improve your business credit management process with and without automation software, learn more in the white paper below!

order-to-cash cycle

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