The O2C cycle is often riddled with manual steps that can cause a lot of friction in between- and frustration for both the business and customers. This dramatically affects your receivables collection and, eventually, the health of your cash flow.
In our recently concluded webinar, “The 10 Gifts of Accelerated Cash Flow”, we invited Amanda Lee, Founder and Receivables Management Advisor at The Retriever, to speak with Arjun (AJ) Singh, Co-Founder and CEO ezyCollect, to discuss how you can take advantage of a streamlined and optimised O2C process through accounts receivable automation, creating a seamless cycle that not only ensures you get payments efficiently but also improve your relationship with customers. Here are the key takeaways from the session.
3 critical areas of focus in the O2C cycle for accelerated cash flow
1. Best practice credit approval
Extending trade credit is something that many businesses do manually, and this can cause a lot of issues that can lead to bad debts – affecting your cash flow in the long run. Adapting an automated and data-driven process delivers efficiencies that are beneficial for both you and your customers.
First of which is a more reliable credit check. Unlike manual application processes that primarily rely on trade references given by the customer, an online credit application system integrates credit risk scores from trade reporting agencies so you can get data-driven insights and make better decisions before onboarding customers and extending credit. Having this data at your fingertips gives you that professional knowledge without much effort, and you’ll be able to manage risk right from day one, making that goal of accelerated cash flow much easier.
Another benefit of online credit applications is a better onboarding experience. First impressions last, as the adage goes, and that couldn’t be farther from the truth in business relationships. Onboarding customers in a disorganised, time-consuming process that are prone to error reflects an unprofessional image on your part – inadvertently sending the message to your customers that they can cut corners as you do. By digitising a credit application, you create a streamlined and automated process that not only benefits your operational efficiency but also means you mean business, and customers need to be in that same level of credibility too.
2. Humanised automation
Humanised automation seems contradictory, but part of reducing your overdue accounts hinges on this balancing act of human connection and automation. Automation creates communication efficiencies in accounts receivables, paving the way for a more personal approach to customers that need it the most.
With an automated communication workflow, you don’t have to physically communicate with everyone, but you’ll be able to focus on customers that need more. An AR automation platform tells you who those customers are through consolidated credit and risk data, providing you with that opportunity to connect and build relationships. To truly understand why your customers’ payment behaviour changed, there has to be human interaction involved. You can work with them to resolve blockers preventing them from paying you on time. It’s about continuing that cycle to sell, and having a receivables ledger that’s 100% collected each month and clear, persistent, and personalised communication with your customers is going to help you achieve that.
3. Frictionless payments
Getting your payment on time is the goal of an optimised O2C process. It is crucial then to make this part of the O2C cycle as pain-free as possible, allowing your customers to pay at a time convenient to them through various payment methods that they can choose from.
An online payment platform is designed to do just that, not only as a portal where customers can pay you but also includes their statements, so they no longer need to contact you, especially when making the payment after office hours – all the information they need is readily available to them. By creating convenient pathways for payment, you can get paid easily and quickly.
The gifts of accelerated cash flow
As we’ve learned thus far, an accelerated cash flow is very much possible thanks to accounts receivable automation. While an improved cash flow is the end goal of automation, optimising the O2C process also comes with its benefits.
1. Greater business intelligence
AR automation gives you access to data and gives you the insights to make better decisions that can affect the health of your business.
2. Business continuity and data integrity
AR automation resolves cash flow issues, as we now know. With an improved cash flow, you’ll be able to run and grow your business the way you want to.
3. Sharpen your focus
Automation gets all the repetitive tasks done, so you can hone in on strategy-related tasks that further your business.
4. Shore up customer trust
Automation ensures consistency in processes and clears communication pathways – both of which allow you to build trust with your customers and, in turn, foster customer loyalty and growth.
5. Customer Perception
Digital, automated processes are now the norm and what your customers expect. Adapting automation in your business creates a professional image and aids in brand equity.
6. Lowered DSO
Automation streamlines your O2C cycle, removing any friction between processes so you can get paid promptly.
7. Error reduction
AR automation minimises the need for manual entries, reducing errors. Its capability to integrate with your ERP also means there’s no double-handling of data that can lead to more problems in your accounting.
8. Time savings
Leveraging an account receivable platform removes the need for manual processes, saving your staff tons of time. The amount of time saved can then be used to focus on more high-value work that can grow the business.
9. Gain real-time visibility
With an AR automation platform, you can get a live view of credit risk scores to be confident in making decisions based on current and accurate data.
10. Enhance efficiency across the business
While AR automation improves the collections processes of your receivables, this also translates into improvements across business functions and teams.
Offering credit to your customers is an effective way of encouraging them to spend more on buying your products or services. In some industries such as wholesale, trade, or distribution – credit might be a requirement for doing business. Extending credit to your B2B customers could also help your business gain a distinct competitive advantage in your market.
While providing credit is good for your business growth, it exposes you to the risks of late payment and at times, non-payment. While this significantly impacts your short-term cash flow, it can also hurt your bottom-line and business growth in the long run. While some business owners may think they are not offering credit, they may already be doing so by sending an invoice after the goods or services are provided to the customers.
Balancing the risks of cash flow reduction and increased sales is the key to robust credit management.
The key risks of poor credit management include:
Reduced cash flow: The increase in payment times could impact cash flow and the ability to buy replacement products or raw materials from suppliers is impacted. Many businesses look into debtor finance to manage this risk.
Low-profit margin: Credit sales and poor credit risk management can also impact profit margins.
Growing debts: Reduced cash flow increases the burden of debts that pose a major risk for the business. Large single transactions are more prone to debt risks – it makes it imperative that your business enforces a consistent accounts receivables process – ideally through automation.
If you offer any other invoice terms not based on cash on delivery, it creates a risk that the customers may fail to pay on time or fail to pay altogether. For instance, if you offer 30-day terms, it translates to credit of 30 days. If that timeframe extends to 45 days or 90 days, the credit gets further extended and increases non-payment risk.
However, with some customers who have a strong and long history of making full payments on time, the credit risk may not be significant. Despite this, there is a risk, even if slight, that your next invoice may not get paid due to a change in the customer’s circumstances or other factors (You can track these in real-time with Credit Insights from ezyCollect). Although these external factors may not be under customer’s control, the outcome is that their inability to pay on time affects your cash flow and eventually, your bottom line.
The first step towards effective credit risk management is understanding your business’s overall credit risk. This helps businesses reduce losses and build up capital reserves. It is crucial to implement a smart, integrated, and informed credit risk management strategy.
The key elements of an effective credit management strategy:
Create a credit policy
The first step is to develop a strong credit policy that outlines your:
Objectives: Describe the purpose of the credit policy that can include the definition of businesses and customers that you plan to extend credit to as well as the terms. Determine how much credit you can safely extend and under what circumstances the credit will be offered. Determine the level of risk that your business can tolerate before setting down the terms.
Credit approval process: List the steps on transacting with new debtors such as assessing creditworthiness.
Credit limits: Define the elements that contribute to the credit limit of each customer. For instance, all new customers can qualify for a specific limit until the determined number of invoices are paid by them on time. You can also set the limits based on the customer’s risk rating.
Poor ratings will mean you can avoid extending credit or tailor your credit terms to the credit risk associated with any business. A customer or business that meets your defined criteria can be moved on to the next stage of entering into a contract.
From individuals, you will need to collect their contact and identification details, a signature that confirms they have read and accepted your terms, and approval to perform a credit check on them as required.
From businesses, you will need to get a minimum of three credit references, comprehensive information on the partners, owners, directors, and signature of credit applicant on the form to indicate they understand and accept your terms. Use an online credit application process to give your customers a great experience and get integrated customer late payment risk scores and payment failure scores
Run Company Credit Score Checks with ezyCollect using the ABN –
As conditions and circumstances can change at any time without warning, it is vital that you monitor your debtors constantly. While obtaining your customers’ approval for performing a credit check periodically, determine from time to time whether they still qualify for credit. If their rating has declined, implement your credit risk management action plan as determined in the first step.
Streamlined invoicing
Manual processes of issuing invoices are not only outdated but can lead to delays from your end, which translates to further delays in payment. At the same time, you can streamline the credit application form on your website by leveraging state-of-the-art credit application systems. This will help set the right tone for the interaction with your customers while minimizing delays in sending invoices. Update your bookkeeping system to ensure you have real-time information on each of your debtors and their payment schedule.
Customer relationship management
Utilize a feature-rich CRM (Customer relationship management) tool to get timely alerts and payment reminders while ensuring seamless communication with your debtors.
Insurance
Trade credit insurance protects account receivables and helps cut the risk of non-payment. You can protect your cash flow as the insurance covers up to 90% of the amount due. However, there are limitations to using credit insurance – because it’s a bit like locking the stable after the horse has bolted. A better approach would be to use credit scores and trade insights when you onboard a new customer.
Building trust is the most critical factor when extending credit to another business or customer. While it is always a great idea to start with ‘cash sales’ with a new customer, you can navigate towards credit offerings when the customer has built a strong payment history and inspires the desired level of trust.
Businesses who extend credit to their customers face the risks of non-payment or delayed payment that impacts their cash flow and business growth.
To mitigate such risks, businesses need a robust credit risk management policy. The key elements that the credit policy needs to include are:
A comprehensive understanding of the customers’ risk profiles – Verify the legitimacy of businesses by checking their ACN or ABN numbers apart from obtaining details such as place of business, contact details and credit references. For individuals, assess their credit score, history of payments with other creditors, contact details, address and litigation history, if any.
The business’s risk tolerance levels – Evaluating the business’s risk appetite is vital to determining what constitutes a safe credit risk. One way to assess your current credit risk is to calculate the daily sales outstanding (DSO) and receivables turnover ratio. While a low DSO indicates your outstanding payment collection is quick and effective, a high score indicates payment delay. A high score on the receivables ratio also shows that your business has a healthy system of payment collection.
Clearly worded and carefully crafted credit terms and conditions – To minimize credit risk, crafting the terms and conditions, as well as wording it clearly, are crucial. Include relevant details such as the credit check process, references, penalties for late payment, disclaimers, terms for terminating the contract and time frame.
Effective customer relationship management – A streamlined customer relationship management (CRM) software tool can help you communicate seamlessly with your customers while enhancing their experience. With timely reminders, you can ensure there are no late or missed payments.
Ongoing monitoring and risk assessment – After you extend credit, best practices in monitoring and payment management can help minimise risks of delayed payment or non-payment. Ensure ongoing monitoring of your debtor’s credit rating and risk while ensuring a fine-tuned process of overdue payment collection. Terminate the contract with your debtor when your risk reassessment process shows there is a decline in debtor’s credit rating or that there are adverse events such as court ruling.
A strong credit application process is the key to minimising your risks
While these factors play a crucial role in minimising your risks, the key element in the credit risk management process relates to the credit application system. A recent survey indicates that a key source of information for a majority of credit managers across businesses is the credit application form. The credit application helps credit managers and businesses make an informed decision on extending credit to the right customers.
Creating a comprehensive credit application form that captures crucial information, such as:
The full name of customers or business entities
Business structure such as company, sole trader, partnership
Details of directors, owners and partners of the business
ABN or ACN of businesses
Postal address
Email address
Telephone numbers and place of business
A minimum of three references and their contact details
A signature to confirm the debtors have read and understood credit terms and conditions
Customer approval for conducting a credit check
While these details help you assess the ability of customers to meet their credit payment obligations, the credit terms and conditions set out in the application form help to
obtain credit reports as per the Privacy Act of 1988
ensure the debtors understand and accept the terms of credit
How smart is your current credit application process?
If your business is utilising paper/pdf/email-based credit applications, they could be impacting your business profit and growth in a significant way.
The impact on your business is three-fold:
Poor customer experience – Filling the paper-based or PDF-based credit application form each time the customer applies for credit is not only time-consuming but can be a frustrating experience. Apart from filling in contact details, debtors have to fill in many fields in the form including references, their contact details, and for businesses, ABN, ACN, and business structure details. Customers who are looking for a quick process to complete a purchase are faced with longer times for filling and submitting the form, which in turn means they need to wait longer for credit approval. Eventually, the delay reflects on your sales while the poor experience in filling manual forms can make your customers turn to your competitors who have a simplified system.
Prone to errors – Illegible handwriting or unintentional errors while writing on paper or PDF credit applications can lead to more errors in reading and transcribing the data into your systems. It is quite common for a debtor to write the business name or ACN / ABN incorrectly. Clearly, the impact of having the wrong address, company/business number and contact details will enhance the credit risk as there may be no means of contacting your customer in case of delayed payment.
Relies on data and references provided by the customer – Manual credit application forms are not just time-consuming but can be misleading, leading to your business extending credit to unsuitable customers. With the paper-based credit application system, you are essentially relying on the information and references that your customer provides. No customer would want to paint themselves in poor light when it comes to references, and negative information is likely to get hidden from your view.
Manual credit application processes increase the chances of errors and impact your decision-making significantly. They lead to longer processing times which means your sales might be impacted – and they rely on your customers providing trade references, which may not give you a completely unbiased view of your potential risk with the new customer.
The solution: Switch to a Digital Credit Application
When your current paper-based credit application process is hurting your business, it is time to switch over to a smart online credit application system from ezyCollect.
ezyCollect’s automated credit management system optimises efficiency and accuracy to ensure you make the right credit decisions every time. The process ticks the right boxes in terms of credit reporting apart from enhancing customer experience. Our online credit application leverages real-time data from the market, customers’ historical transactions, and payment track records to make smart and accurate predictions on late payment and non-payment.
The state-of-the-art online application process is quick, seamless and accurate. This helps minimise errors and eliminates the delays in turnaround time associated with manual processes.
With ezyCollect, you can empower more new customers to make their credit application online. By eliminating the laborious manual and administration data entry, the application turnaround time is reduced, which shortens your sales cycle.
Switch to a smart online credit application system
Here are the key benefits of switching over to ezyCollect’s smart Credit Application system:
Easy to use – The online form for credit applications is easy to use, doing away with the time and effort needed to install and master complex software. The application form can be fully customized to match your company’s color scheme & branding. Your customer can access the online form with a simple click on the link provided on your website.
Get real-time updates on business credit scores – Get a clear view of your customers’ payment habits and the most accurate prediction about their ability to make timely payments. ezyCollect provides a Failure Risk Score and Late Payment Risk Score based on a partnership with illion, one of the world’s leading credit reporting brands – which gives us an extensive database of payment information and other variables such as payment history, court actions, financial statements, payment defaults, company age and business structure. This helps you get a complete picture of the credit risk associated with any potential customer – so you can negotiate the terms to suit. Eg: Credit Scores using ezyCollect’s ABN
These comprehensive credit scores help you identify the customers who may pose a risk to your business in terms of credit payment.
Option to request a comprehensive credit report – ezyCollect facilitates informed decision making whether it is for low, medium or high-risk credit decisions with insightful reports. Leverage the option to request a comprehensive credit report that offers everything you need right from payment predictors, risk scores, identification details to financial stability predictors. The comprehensive credit report includes the business’s credit history, long-term operations, stability and profitability, which removes guess-work from your credit decisions.
Perform credit checks on your existing as well as new customers with ezyCollect’s comprehensive credit report. Gain valuable insights on a company’s credit risk thanks to the access we have to exclusive and shared data sources.
Complete audit history showing all steps in the credit application process – Get access to real-time ASIC data that enables you to confirm the existence of a business entity and its operational status. Make the best decision with historical data on previous company names, addresses and directors that allows tracking of the entity’s previous structure and financial history. With automated assistance for completing the online application, the time for credit can be reduced drastically, that translates to seamless customer experience and more sales.
ezyCollect empowers businesses by maximising their competitive advantage with real-time and updated information on customers and accurate prediction on credit risk. By using our online automated credit application process, you can realise exceptional business benefits that include onboarding new customers in quick time, improving customer satisfaction and outperforming your competitors. With all the information you need available at your fingertips, you can optimise decision making, avoid bad debts while ensuring your cash flow is healthy.
Switch to ezyCollect credit applications to make the credit application process easy, engaging and hassle-free for your customers.
