Professional Documents
Culture Documents
Credit and Collection
Credit and Collection
Case Analysis:
Reacting
to what appeared to be a very poor customer base credit scenario
resulted directly in several impacts on our operations:
What in
fact turned out to be an excessive number of orders were being placed on ‘credit
hold’. This reaction had a negative effect of requiring our collectors to spend
an excessive amount of time on reviewing and releasing orders, and therefore
resulted in less time for value-added activities. They were primarily spending
time on the phone contacting customers for payment. About 98% of held orders had
to be released manually, resulting in execution delays and increased processing
costs.
Generally,
this describes a pretty standard methodology that is widely used in the credit
and collection business, but it did not seem to be generating sufficiently
accurate results for us. Therefore, the operation was becoming afflicted with
bottlenecks, and was increasingly stressed, as I have described above.
The team felt that the poor predictive quality we were experiencing with
respect to accounts’ changing credit condition probably resulted primarily from
a lack of accurate and timely input data. The underlying strategy then in place
was, reasonably enough, quite conservative; but in practice, it was generally
tending to assign far too many customers to an inappropriately high-risk status,
with the consequences I have outlined. One of the causes of this unsatisfactory
situation was the basing of the analysis of some accounts on the ‘ship-to’
location, rather than focusing on the actual legal entity that truly reflected
the risk. This approach will almost always lead to an underestimation of an
account’s credit status.