How Well Do You Know Your Clients?
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Iulie 2010 |
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HORVATH & PARTNERS MANAGEMENT CONSULTING S.R.L. |
Adresa
Strada Cretei, Nr. 12
014154 Bucureşti, Sector 1
Telefon
+40-31-620.18.88
Fax
+40-31-620.18.89
Website
www.horvath-partners.ro
Why is client scoring and collection management beneficial for liquidity protection
The concept of commercial risk refers to risk generated by the lack of financial liquidity due to the debtor's delayed payment of obligations.
Liquidity protection represents an actual area of interest for a large number of companies. The best strategic approach indicates the need to align elements such as: solvency check, customer or collection management, in order to ensure the functionality of business processes.
Generally speaking, accepting a late payment period, for example by granting payment terms of 7, 15 or 30 days, is the same as offering a retail credit to the client. Any bill given out with payment term and not cashed in by the time of delivery of merchandise / service is the beginning of a credit process.
We strictly refer to the customer – supplier relationship in an industry other than a financial institution. We do not refer to the relationship financial institution – customer, where the assessment of creditworthiness is a standard concept.
The right attitude towards risk management is asking following questions: How much is sales force aware of this subject? What conditions are credit checks and credit authorization based on? How well do we know the customers to whom we deliver without cashing in immediately?
One of the reasons why some companies cannot pay their debts on time is because they have problems with collecting debts from their own customers. The law in Romania puts the lender in an unfavorable position towards his debtor because of the poor and insufficient sanctions.
In Romania, the number of companies which truly evaluate their potential business partners and their creditworthiness is lower that statistics suggest. Their statements are misleading because a part of respondents declare their wishful-thinking.
The following graphic lists a set of reasons valid for all companies that do not perform an evaluation, as argued previously.
Horvath & Partners study regarding the Commercial Risk in Romanian companies reveals that the relation between accounting and sales departments can be strongly improved.
Romanian companies have to change their attitude towards risk management in order to reduce their commercial risk. These changes can be reflected in improved receivables management and evaluation of clients. This evaluation should be performed in terms of both financial and non financial aspects, at the beginning and also during the business relationship, regardless of company size.
The improvements should reflect the involvement of sales departments in debt recovery; moreover, the sales force must fully understand the consequences of poor claims management. The right evaluation of a client is supported by the right knowledge on payment history and financial indicators from the balance sheet and profit and loss statement.
A comparison between Romania and other countries, shows that the probability of a Romanian company not being able to pay its debts is considerably high.
There are certain areas that can be optimized in this regard: creditworthiness check, order taking and account receivables process.
Debt management performed under clear and well established rules.
