4 ways to elevate the role of the credit and collections professional during COVID-19

by Art Hernandez; Vice President, Strategy; Billtrust
The following article originally appeared in the June 2020 issue of ICTF Magazine

Picture yourself 12 months from now. Looking back, what did you do professionally during the pandemic to put you in a position of resilience and success? Helping you elevate your role as credit and collections professionals is my passion. And during a crisis like this, your decisions take on an even greater importance. So, it’s time to shine and demonstrate your value!

Here are a few ways that you can continue to raise your profile, help generate much-needed revenue and make sure your buyers keep paying you. Because, in the end, we all want to protect our companies from losses and come out of the pandemic stronger than ever!

That’s how your sales people think of themselves. So why not us? What we do is really human-centric and customer-centric, so I always make the comparison of a credit and collections professional to that of a salesperson in that you really need to manage your accounts. And part of that means getting the right account coverage for what we, as a supplier, want to be able to accomplish -- which is even more of a challenge if most of us are working from home. What’s the right ratio of collections team members and credit team members to the number of customers that we have? How do we segment customers? Are they a mom-and-pop shop? Are they mid-market? Are they an enterprise? Each one of those answers determines what kind of a relationship that we build, much like in sales. A lot of companies are only staffed at 50% to manage their receivables, so how are you going to build a system to more efficiently manage your customers when we’re working remotely? Can automation help? 

Credit decisions become very reactive if we don’t understand our overall risk profile and tolerance. Instead of having someone in sales saying, ‘credit isn’t allowing me to do this,’ or ‘I’m just going to take on the risk anyway in spite of what credit says,’ my vision is that the credit professional should be providing this information well ahead of time, knowing what’s going to happen three or six months from now, and indicating what should be considered. Then, it becomes more of a discussion on a business strategy level between sales and revenue and FP&As and the credit professional.

If I walked into a hundred different B2B corporations and asked credit managers to tell me about their risk distribution profile aligning to their strategic objectives, fewer than 20 of those people will say, ‘Oh, I’m glad you asked that question. Let me pull it up for you.’ There’s an opportunity for credit pros at B2B supplier organizations to really be aware of that risk on a strategic level. Many times, we think about risk on an individual decisioning level, but many credit thought leaders really understand how much risk they need to take on to achieve certain growth levels. Let’s say we want to grow organically 10% year over year. How do we support that top-line growth? And as a risk professional, how many high-risk prospects are we willing to take on in order to support that growth? 

There are two things that I think about in the customer life cycle, once we’ve made a decision to shift a business entity from a prospect relationship to a customer relationship. One is financial strength or business viability, and two is payment behavior. I always tie it back to the idea that the role of the credit and collections professional is revenue creation and revenue assurance. And payment behavior looks to drive how we follow up with customers on their existing open invoices. 

Payment behavior assessment should be done at high frequency, quarterly at minimum. In my view, it should be monthly. This really drives ensuring a supplier is getting paid for goods and services that have been delivered. What do we know about their strength as a business entity, and how much business are they looking to source from us? Are we comfortable with that with respect to how much of a credit line we extend to them? These financial viability indicators and scoring are done on a yearly or every two years basis. If a customer has an issue with the goods and services we provide, we’ll fix the issue. If there are no issues, then you’re going to pay us based on our agreement. If invoices are not getting paid, that’s an indication that either we’re not meeting their needs, or is there something more nefarious going on in the background, and we want to uncover that sooner than later. From a payment behavior standpoint, that’s just a natural consequence of the relationship. Is there a way that I can follow up with all the customers that are exhibiting bad behavior? No, and that’s where technology can help.

A user can be alerted if a customer is, for example, approaching 80% of their credit limit, but we certainly don’t want to be stopping an order if it doesn’t need to be stopped. If somebody is approaching an 80% credit limit, let’s take a look at them and determine if the prescription is to have a conversation with this customer and pay down their existing open receivables so it opens up the credit line, or do I know that this particular customer is on an upward trajectory because they’re a solid financial risk. One path we should consider is opening up their credit line so that we can process more orders.

At a high level, artificial intelligence (machine learning) has an unparalleled ability to digest large sets of complex data to pinpoint the factors that denote risk. By applying those factors to equations and models, AI is able to objectively predict the level of risk involved in a given lending situation in ways that human-based models and processing power cannot.

But I’m also keenly interested in how the credit professional makes a decision. Do they just want to auto-approve and facilitate the ordering process, or do they use an exceptions process because the decision is in a gray area, and they need an analyst’s skill set to really take a look at it apart from the machine decision.

And while AI has also been lauded for its ability to extract human bias from the credit equation, historically, human discretion and the bias that comes with it has permeated lending. Great credit professionals often use human discretion to gain a competitive advantage by taking on more risk that leads to greater rewards and strengthening customer relationships. The technology itself isn’t the end game, though. It's knowing what to do, and the technology is the enabler to do that. When a practitioner has selected a good technology, it’s an enabler for them to be able to accelerate their careers and their position within their organization and drive effectiveness and efficiency within their world.