The challenges credit managers face today are not merely hurdles to overcome; they serve as catalysts for transformation. As businesses navigate unprecedented economic shifts, changing payment behavior and global uncertainties, the B2B credit industry finds itself at a pivotal crossroads. From technological advancements to the redefinition of risk assessment, these challenges are propelling the industry towards innovation and resilience, paving the way for a dynamic and adaptive future.
Challenges have morphed over time, with each era presenting its own unique set of obstacles. Past challenges often centered around traditional credit risk assessments and manual processes, which were gradually overcome through the integration of technology and data analytics. However, the challenges faced today bear distinct characteristics, marked by the rapid pace of technological advancements, interconnected global economies and an ever-shifting business environment. Tomorrow’s challenges in the credit industry are poised to be equally transformative.
By the numbers: NACM’s recent eNews poll showed 54% of credit professionals said the most challenging aspect of credit management in today’s business environment is balancing risk and opportunity, followed by technology adaptation (15%), fraud prevention (10%) and staffing (7%).
Let’s look at the top four challenges in today’s state of credit and collections along with some solutions:
1. Balancing Risk and Opportunity
Balancing risk and opportunity is an essential skill for all credit professionals to master, especially in today’s economic state. The credit manager’s role in assessing risk is a major function in keeping businesses afloat. “The debt burden that many of these companies are carrying is nothing like we’ve ever seen as credit professionals before,” said Lee Tompkins, RGCP , director of credit and collections at MPW Industrial Services, Inc. (Hebron, OH). “It’s a huge challenge and requires being in concert with leadership and the sales organization to take our sales blinders off and focus on that risk which is linked to profitability.”
Monitoring both micro- and macro-economic activities is a great way to be proactive in understanding the state of financial risk of any country in which you are doing business. Consistent communication with all other functions in your company is another solution to help with balancing risk and opportunity—and being able to assess risk comes from knowledge in all aspects of the business, not strictly from a financial standpoint.
With total bankruptcy filings up 18% year-over-year in 2023, it seems to be one of the biggest challenges in balancing risk and opportunity for credit professionals dealing with customers headed into insolvency. “Bankruptcy is an unexpected challenge we’re facing this year already,” said Martine Dyer, CCE, CCRA, credit and collections manager at Restaurant Equipment Service Group (Addison, IL). “I’m starting to see bigger companies file for bankruptcy when it was never on our radar. People tend to release orders based on how big or notorious the name of a company is and it’s more of a sales-based release rather than a risk-based release. Big name corporations are not necessarily an indication of whether they are more likely to pay or not.”
It’s important to remember that the investigation of your customers is never-ending. Though you may gain an opportunity by working with a new customer, credit managers must consistently check creditworthiness of existing customers.
2. Technology Adaptation
It’s no secret that both automation and artificial intelligence functions have exponentially progressed within the last few years. Integrating new technology into your credit department tools and systems can be challenging for many reasons. An example is ensuring compliance with legal and data privacy regulations or implementation issues.
“The push to embrace new technology to make the credit department more efficient is constant,” said George Demakis, credit manager at Scafco Corporation (Spokane, WA). “We need to be smart about the process because adopting a new technology too soon or too quickly might be detrimental to the department. Picking the right vendor and not being pressured into the wrong decision or too rapidly is the most significant challenge.”
Automation helps simplify processes and offers credit managers a glimpse into the risk of a customer, but implementing any sort of new system can also be time-consuming. “We’ve addressed any potential challenges in technology by integrating credit into a larger organizational framework that deals with all aspects of the order-to-cash process,” said Andreas Schmitt, director group credit management at Rational AG (Landsberg Am Lech, Germany), “Creating a specialized team for systems and projects in credit management is how we try to keep pace with technological progress.”
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3. Fraud Prevention
Credit fraud is one of the fastest growing challenges for businesses today. 2023 witnessed a rise in various forms of fraud, signaling a pressing challenge for businesses engaged in commerce. These trends have not only put credit managers on high alert but have also underscored the importance of new and robust security measures to safeguard sensitive financial information. Technological advancements in the past decade have made fraud a much easier crime to commit in the credit industry, especially through email phishing, forged digital documents, identity theft and more. U.S. companies lose 5% of their revenue to fraud each year, according to the ACFE report.
As fraudsters become more creative with their tactics, the potential for larger losses increases. “Once you have an effective fraud prevention strategy in place, it’s more about monitoring than active fraud prevention,” Demakis said. “There are several tools out there with technology that can scan reports for any attempt of cyber-related fraud.”
4. Staffing
Most businesses today continue to face staffing challenges due to their retention strategies and hiring practices—specifically with hiring qualified candidates for the job. It’s important in today’s work environment to drill down on best hiring practices and become attuned to the needs and demands of those you hire so that they can perform their duties successfully.
“COVID-19 reshaped the entire way we all think about the office and work,” said Tompkins. “Consistency of quality candidates for my team is very challenging. The pool of eligible employees to fill vacancies on my team has been lacking for about two years now. So, if you want talent, you are going to have to pay a premium for it.”
The bottom line: Challenges in the credit and collections industry will always exist, but how credit managers adapt can make an impactful difference on how to successfully overcome each one.
