Credit management is of fundamental importance to every entrepreneur for the financial and patrimonial health of the company and for customer relations.

The economic crisis that the country is going through often brings companies, with the aim of improving their economic and financial indicators, to a pressing recovery of efficiency and effectiveness.

Hence the growing demand for services from specialized external companies, such as EUROCREDIT BUSINESS INFORMATION, which can guarantee immediate and sustainable benefits over time. The prosecution of these benefits places companies before choices that are not always immediate. Companies are faced with the trade off of contingent solutions, which favor the immediate result and structural solutions, which ensure greater sustainability of the results obtained and a change management oriented towards organizational improvement and change.

Contrary to what we may superficially believe, cost is not a discriminating variable between the two approaches, but is simply a function of the level of depth and size of the requested intervention.
One of the choices that companies are often called upon to make, with regards to externally entrusted services, concerns the management of commercial credit and the relationship with customers as regards administrative and accounting aspects.

It is worth remembering that the management and control of commercial credit have a fundamental influence in the life of the company and in its relations with its main asset (customers) at least for the following aspects:

▪ commercial, as the corporate image perceived by the market is also measured by the degree of satisfaction of its customers with reference to administrative management. Credit recovery must be inserted within a fluid process of managing the relationship with the customer;
▪ economic, since the non-collection of the credit would necessarily entail the cancellation of the economic benefit of the business activities, with possible fiscal consequences in the cases in which, by way of example, there were no conditions for the deductibility of the loss suffered;
▪ financial, since the collection of trade receivables is the main source of liquidity of the company, closely linked to its core business. Failure to comply with the times and methods of the expected cash flow can result in undermining, in the most deteriorated situations, business continuity;
▪ accounting, since the trade receivables must be recorded in the financial statements at their presumed realizable value, therefore the scarce knowledge of the customers and / or the relative credits invalidates the soundness of the estimate of their recoverability and slows down the corporate reactions to the situations of danger.

The negative elements that disadvantage internal credit control are mainly attributable to the following factors:

▪ consider that the failure to collect the credits is the sole responsibility of the credit manager. In reality, the assumptions of the impassibility in the times and in the foreseen modalities are realized from the sale (presence of a contract or order signed by the customer, defined payment terms, recourse to secure means of payment, blocking orders exceeding the credit granted, clarity in commercial relations, transparency in commercial policies, etc.), through invoicing (correct, timely, supported by certain and detailed elements, etc.) and treasury (timely registration of collections, correct and timely allocation of collections to the customer and in the alternative to the correct open items, etc.). All the functions mentioned should be sensitized and supported with adequate tools (and controls) to ensure the smooth collection of the commercial credit by the corporate structure assigned to it;
▪ privilege or consider exclusively the economic aspect of the sale compared to the financial one. In reality, to guarantee business continuity it is not enough to realize turnover and therefore profits, but these must be sustainable for the company and must regularly materialize in cash flows;
▪ a portfolio made up of a large number of customers to whom they have medium-small credits on average. Situation often accompanied by a strong IT connotation of the active cycle, including reminder and credit recovery activities. In such circumstances, control cannot be based on traditional approaches (analysis of individual customers / credits), but rather on compliance with clear and detailed procedures (whether automated or not) and adequate control processes;
▪ decentralized management of receipts, entrusted to a large number of branches or to sales points outside the company. In such situations, credit management times are extended and the activity (of solicitation, credit recovery, dispute resolution, etc.) of credit management is multiplied, having as intermediaries, in addition to final customers, also the intermediaries that manage the complex and sometimes dispersive company receipts and structures.


The risks or negative factors of internal credit management can be limited, or at least monitored, even by resorting to an “outsourcing” of the credit management process and / or drawing on experience and knowledge external to the company


First of all, we still want to clarify that credit management is not the only credit recovery activity, but a broader intervention, which ideally starts with the definition of sales policies and commercial strategies. The outsourcing of debt collection is often dictated by the impossibility (or lack of will, essentially for reasons of cost) of the company to equip itself with a dedicated internal structure; but brings with it the negative factors mentioned, without having the possibility of limiting its effects. In fact, the debt collection outsourcer:
▪ it generally depends on the credit manager and therefore cannot intervene on the upstream activities (sales, invoicing) or downstream (collections, accounting), to provide the procedural and organizational corrections that facilitate the eventual recovery of the credit;
▪ has little information on the nature and formation of the credit to be recovered and on the debtor customer, losing efficiency and effectiveness in the recovery activity;
▪ it “clashes” with other corporate functions carrying different objectives (typically the sales area), rather than being supportive;
▪ has considerable difficulty in monitoring its performance and even worse in effectively organizing its activities, not having timely and ample visibility on receipts; the latter activity is managed by the treasury and therefore not necessarily sensitive to the needs of the credit manager and his outsourcer.

Only through a complete analysis of the «active cycle» and inserting an external partner able to support this vision of the entire process, can the limits expressed be exceeded. This does not necessarily mean outsourcing the entire credit area and giving total management autonomy to the outsourcer, but it wants to emphasize the importance of actively involving and therefore empowering and managing the outsourcer in the functions related to the credit area (sales, billing, collections, first and foremost) and depending on the complexity of the process and the needs identified they will also have to change the characteristics of the outsourcer itself, from a simple supplier of specific activities to business partners in the broader outsourcing and value added outsourcing.

Therefore different ways of collaboration with the outsourcer are identified, first of all reports:
▪ for an indefinite period, with the assignment of ordinary credit management;
▪ for a fixed term, for example for the reconciliation and recovery of particular types of credit (eg overdue, disputed, etc.), or boasted towards groups or particular types of customers, or again, during checks and «cleaning» accounting, introduction of new accounting systems, management and reporting, extraordinary transactions, etc.

The main benefits that an outsourcing brings in its most complete meaning can be seen in:
▪ collection orientation from the moment of sale.
The external partner operates as a cross-company function, putting in place those activities and controls that can minimize the risk of insolvency, acting on the entire active cycle of the company. The intervention of an authoritative external partner mitigates the corporate tendency to privilege the economic aspect of the sale (turnover) over the financial one (monetary flows). The company often discovers the presence of non-performing loans when it has already expired for some time and / or the documentation proving the sale that generated it is no longer recoverable.
The lack of a correct business process, compromising the timeliness and consistency of the interventions, undermines the recoverability of the credit itself.
▪ coordination of company functions.
The outsourcer facilitates communication and coordination between the various existing corporate functions within the so-called active cycle. The outsourcer, placing himself
outside the company structure, it reduces the existing gap between the various company functions and therefore limits the slowing down (or block) of inter-departmental activities such as credit recovery, an activity that requires:
1. availability of contracts and orders (sales);
2. availability of copy of invoices (invoicing);
3. an overview of the overall accounting situation (accounts receivable and possibly suppliers);
4. an analysis of the dispute history (administrative back office);
5. verification of receipts received (treasury), allocated to the customer (customer accounting) or not (general accounting – transitory collections);
The outsourcer can and must also take on the role of “independent” consultant since he is not tied to the logic of “business convenience”;
▪ contribution of skills and methodologies.
The outsourcer improves efficiency, thanks to the contribution of:
1. knowledge and experience,
2. consolidated methodologies and tools geared to specific activities.
At the same time, the outsourcer increases the skills of internal company resources;
▪ variable cost.
The cost of the services offered may be linked to performance or volumes. The intervention can be scheduled according to the seasonality and / or other needs of the business and the life cycle of the company. In fact, a dedicated internal structure may involve:
1. fixed costs (rigidity of the income statement): information systems, human resources, training and updating;
2. absence of a rewarded system to incentivize performance on the recovered (less effectiveness);
▪ does not affect the relationship with the debtor.
Credit recovery and management are carried out by an external company. Two advantages are obtained:
1. the company minimizes the risk of cracking relationships (commercial or otherwise) with its customers
2. debtors (in particular, the «historical» clients of the company) cannot use commercial levers or obtain informal agreements contrary to company policies;
▪ improves internal company procedures.
The outsourcer’s intervention may be an opportunity to improve corporate administrative procedures. Thanks to the experience gained (best practices) and the knowledge acquired through credit management, the outsourcer is able to highlight areas of risk that are not monitored or procedural shortcomings of the company’s active cycle.

A complete outsourcing management usually involves 5 phases.

Start up
The start up of the service has a very different duration and impact, depending on the complexity of the intervention.
The planned activities are usually the following:
• definition and sharing of objectives, responsibilities and tasks. Identification of the resources to be assigned to the project.
Generally, it takes the form of meetings in which the company exposes the existing macro problems and the objectives it intends to pursue with the support of the external partner.
The latter illustrates his own methodologies and a first planning of the activities to be undertaken.
• acquisition of relevant information on company processes, examining written procedures or, in the absence, directly mapping the activities carried out by the company within the entire active cycle. This activity has a dual purpose:
– lets you know the company and therefore better organize the activity;
– provides initial evidence of procedural shortcomings and inefficiencies that have impacted and negatively impact credit recovery.
• collection, standardization and analysis of data (personal data, accounting positions, supporting documentation, etc.)
• definition of the scope of intervention: which customers / credits; sharing of the times and specific activities of the project
• creation of tools (applications, such as multi-user relational databases) specifically for:

– the current management of the activity: tracking of contacts made to and received from customers, reconciliation of account balances, storage of relevant documents, scheduling of telephone reminders and sending reminder letters, etc.
– periodic reporting (usually weekly) to highlight the performance of the recovered, the progress of the assignments, the estimate of the recoverability of the receivables not yet collected, aging by invoice, by customer, by agent, by geographical area, etc.
– the exchange of documents and information among the resources dedicated to the project
– automation of time consuming activities (standard requests, aging calculations, etc.)
– the main company procedures.
It is for example to avoid the practice of managing credit and in particular its recovery through the use of spreadsheets, a practice that leads to dispersion of data and deficiencies in the reliability, organic and timeliness of information.

The planned activities can be:
• periodic customer payments: preparation of account statements and letters to be sent for confirmation of the balance or for reminders of open expired items
or as a remainder for expiring lots;
• reconciliation of company balances with replies received from customers. From the reconciliation can take place activities of accounting settlement, management of disputes, allocation of registered collections, but not allocated to customers (accounting «parked» in the transitory accounts), etc.
An adequate process of reconciliation and periodic confirmation (for example on a statistical basis) of positions vis-à-vis customers is a truly effective antidote against the slowdown in the collection process and the deterioration of accounting positions. These activities can be supported by adequate IT tools that minimize the exchange of “cards” and the timing of communication and interchange.

The planned activities are:
• telephone / written reminders up to collection. From the contacts with the customers transaction agreements or repayment plans can arise, from which the activity of finalizing them
• monitoring and accounting of collections. Constant pressure on debtors to meet deadlines and commitments.
The duration of this phase depends on:
• type of assignment: temporary or permanent
• scope of the intervention: which and how many activities are foreseen

Credits that are difficult to recover are managed (customer not traceable or subject to bankruptcy proceedings; absence of documentation proving the sales agreement; other)
A first action to be carried out is the evaluation of the opportunity to continue the recovery of the credit, considering the amount of the credit itself, the costs to be incurred, the probability of recovery, etc.
Therefore, once the recovery has been chosen, the methods and times of the actions, including legal ones, to be undertaken, such as:

• tracing activity of the debtor customer (if any);
• inspection visits;
• legal warning;
• injunction;
• precept (request for attachment);
• etc.

At the end of the activity a re-engineering of the credit management may be necessary.
By virtue of the activity carried out and the “consulting” abilities of the external partner, the following procedures can be improved, depending on the shortcomings found:

• customer assignment: collection and analysis of customer data, credit allocation and update, exposure monitoring, order blocking / release;
• customer scoring: calculation and analysis methods;
• definition, management and filing of contracts (contracts / sales orders) aimed at minimizing the risk of non-recoverability of the credit;
• back office for the management of administrative disputes;
• aging: calculation, reporting, analysis;
• remaind / credit request due and expired: which customers / credits, which methods and times;
• credit recovery: how and when;
• analysis of the recoverability of the credit (provision for bad debts);
• organizational review in terms of segregation of roles and definition of responsibilities;
• reporting and data analysis in general, with the introduction of new IT tools to support the entire activity and management.

It is in this phase that the greater added value of the process and the ability of the business partner to support the company in the process of continuous improvement and the ability of the company to be receptive and change-oriented must emerge. It is in fact essential to remember that the company must remain the main repository of knowledge and must remain the manager of the process, the role of the external partner is only to put the company in a position to achieve the best results and to place the company in the condition to operate at its best.

Outsourcing therefore emerges as one of the managerial tools, of a tactical and strategic nature, which have experienced a great expansion over the last decade and which in its evolution proposes new solutions and opportunities. A tool able to manage the increasing uncertainty (in terms of volumes and activities and organizational complexity) of companies. Entrusting parts of the Credit Management to the outside allows the company to use a service with high quality standards (because it is provided by specialists) and at competitive and above all flexible costs.

The relationship with the outsourcer can therefore evolve towards different operational models that we try to summarize below:

• Global outsourcing: the client and the partner reach a collaboration for the total credit management or when the client decides to extend the outsourcer’s initial activity by granting all the credit-related processes.
• Partial Outsourcing: the customer selects key processes to be outsourced. In this case the outsourcer concentrates its specific skills allowing the customer a high level of service on specific objectives.
• Insourcing: expression used to define the return of the outsourced activity within the company functions. There may be the possibility, for example due to a temporary necessity, that the client should re-evaluate the opportunity to maintain that service outside. The customer internalizes what the outsourcer did, at this stage the client has the opportunity to “incorporate” the know-how of specialists, the outsourcer’s credit management methodology.

The BPO (Business Process Outsourcing) of Credit Management is therefore a valid tool for developing and controlling cash flow strategies.

Outsourcing certain activities means increasing efficiency and not just reducing costs (both operational and related to the adaptation of equipment and technologies necessary for support activities).

To date, the outsourcing of Credit Management activities is presented as one of the most and most easily pursued possibilities for companies seeking to achieve better liquidity, operational efficiency and better allocation of resources.

For more information call EUROCREDIT BUSINESS INFORMATION at +39 02 36707160 or fill out the contact form that you find by clicking here