blogs graydon 2015. the importance of data driven for b2b

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Blogs Graydon 2015. The importance of data driven for B2B.

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Index Credit information

Do late payments affect credit score? 5The changing capabilities of credit management 7Playing good cop, bad cop in Sales and Credit Management 9Becoming an ‘agile’ credit manager in an era of big data 114 skills your next credit recruits must have 135 steps to reaching credit maturity 15Stargazing: The Credit Manager of the Future 17Can bad debt be the good, the bad and the ugly? 19Will the construction industry lead the way in late payment reform? 21The modern-day credit manager 23Credit score systems across the world 25Embedding a culture of credit risk into your organization 27How to analyse Annual Accounts in 5 minutes? 29Spotting Trade Credit Fraud 31How Finance and Sales teams can work together to reduce DSO 33Individual Insolvency Register discloses bankruptcies 35How to determine the creditworthiness of your prospects 37The Future Credit Manager no longer has a financial profile 39Reduce your DSO and the impact to your business could be huge 42The impact of receiving an incorrect credit rating check 44What is working capital and its impact? 46The modern-day credit manager 48A Credit rating checklist for your customer 50What keeps a credit manager awake at night? 51What are your business data plans for 2016? 53How your business can benefit from predictive analystics 55See off your competition by becoming a data-driven ninja 57Personalisation in credit management just got serious 59Big Data to play a huge role for credit management in 2016 61Do you have a data strategy for your organisation? 63How to motivate your team to reduce DSO 65Moving towards proactive credit management 67

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Entrepeneurs

Why SMEs may have a business intelligence advantage 70Do not fall victim to Corporate Identity Fraud 72

Marketing information

How to use a company check to negotiate better deals 75

Risk & Compliance

Use a company director check to your advantage 78Know Your Customer (KYC) – the shifting landscape of this regulation 79Fraud prevention, starring big data analytics 82Implementing a due diligence process before the deal is closed 84Does your supplier check out? Due diligence within SCM 86Business interruption and supply chain rank highest on 88the 2015 Allianz Risk BarometerThe emerging trend of CEO fraud 90

Our bloggers 92

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Credit information.

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Do late payments affect credit score? Having a strong credit rating is important – not only for credit cards, loans and mortgages, but also for utilities bills, mobile phone contracts, bank accounts, car insurance and other credit agreements. Many people wonder, will late payments affect their credit score?

In one word, yes. Late payments can and do affect credit scores. Although you don’t have one universal credit score, credit lenders will analyse your past financial behaviour to predict your future behaviour. Using an algorithm to assess this, they’ll then allocate you a risk category and decide if you match their customer criteria.

If you’ve made late payments or missed them altogether, in the bank’s eyes this suggests you can’t be relied on to make stable and regular payments, and it may affect your application for future products.

The past 12 months are considered the most important, as the more recently you’ve missed a payment or paid it late, the more this impacts your credit score. Older late or missed payments are measured less seriously if you’ve since shown a pattern of good repayment behaviour.

Posted on 05/05/2015 by Alice Payne

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The importance of paying on timeIf you make a late repayment this doesn’t automatically discount you from receiving future credit, but it does mean that the most competitive mortgage, credit card and loan deals probably won’t be available to you. Kevin Mountford, head of banking at MoneySupermarket, explains:

“A late or missed payment on a credit card bill not only impacts your credit profile, but will also lead to the loss of promotional rates on the card, which can be a costly mistake.

“For example, missing your first payment on a 12-month, 0% credit card deal would cost an additional £300 in interest over the 12 months if you were moved on to an average credit card rate of 17.29% as a result. ”

How to rebuild your credit score after late paymentsIf you’ve had difficulty making your repayments on time and you now have a bad credit score, there are steps you can take to improve it.

Set up regular paymentsFirstly, set up direct debits for all your regular repayments. These should cover the minimum repayment fee. For your credit card or for any loans, you can then make additional payments manually to boost your profile. This will build up a history of regular payments as well as showing your ability to reduce the capital on your debt – which in turn will lower the monthly interest you pay.

Avoid credit card cash withdrawalsNever, ever, use your credit card to withdraw cash. Not only is this extremely costly with high repayment levels, it also indicates poor money management and will likely affect your credit score.

Show balanced activity on your credit cardThis may seem confusing at first, but to build up a good credit score you need to show signs of using your credit card…responsibly. If there isn’t much activity on your credit card, it’s hard for banks to assess your repayment behaviour. So if you’ve received a bad credit score you can rectify this by spending a relatively small amount each month on your credit card, for example £50, and then making sure you repay it in full and before the due date, so you don’t get charged interest. Even better, set up an automatic transfer from your debit account to your credit card to automatically clear your monthly spend.

What if your application for a credit card is declined?If your bad credit score means that you can’t take out a normal credit card, you can apply for a credit rebuild card. These usually have very high repayment terms if you don’t pay off your debt on time each month before you’re charged interest. But if you set up a direct debit to make sure this doesn’t happen, then the shocking 25-50 percent APRs shouldn’t affect you. However, as soon as you’ve built up a good credit score, switch to a credit card with better terms.

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The changing capabilities of credit management. In the past, credit management focussed primarily on mitigating risk, as credit managers assessed clients and business partners to ensure their financial reliability. But the role of credit management is evolving, and credit managers need to adapt in order to add greater business value and insight. Credit management was originally driven by a need for information about companies, to determine the viability of starting a business relationship. However, the depth of that company information has grown considerably over the years and, in addition to credit information, credit managers also need to incorporate market data and information about companies’ legal and regulatory compliance into their decision-making.

Growing appetiteThe importance of credit management is reflected by its demand. At Graydon alone, approximately 1,600,000 comprehensive credit reports are requested on an annual basis. In addition, a further 250,000 company profiles per month are scanned.

As the business landscape fluctuates and evolves, so do the companies that inhabit this landscape. Today, Graydon processes 40 million changes per year in its database – with approximately five mutations per company implemented each month. Credit managers – whether in-house or external – provide critical insight to make sure that businesses can implement financial and risk management accurately, and position the company for profit and growth.

Posted on 12/10/2015 by Alice Paine

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The wider scope of credit managementAs companies increasingly draw on big data and diverse information sources, credit managers must also learn to factor these into their decisions.

An effective credit manager adds business value by optimising the balance sheet. And so part of the credit manager’s role is to understand which loans offer the most value, and then to capitalise on them, while simultaneously protecting the company’s financial position.

The future of credit managementCredit managers must now think not only in terms of risks, but also in terms of opportunities. Indeed, the modern credit manager is increasingly heading towards a more predictive business operation: from preventing risks to spotting opportunities, identifying sales leads and predicting customer value.

This predictive approach should aim to achieve healthy business operations. To do this, the credit manager should consult with sales, marketing and finance to define the profile of their ideal customer, how much they can earn from these customers and what proposals they will make. To do this, they can draw on a range of tools, including: big data, analysis models, an effective IT structure and automated actions.

By drawing on relevant internal and external sources, credit managers can strengthen their position with insight-driven analysis. For example, customers could be allocated an individual score, which triggers automated actions in real-time. Customers or prospects with a good score are then approached proactively by marketing for retention, cross-sell and upsell. Customers or prospects with poor scores are not approached. They are also not offered adjusted terms of business – and may even have their contract ended.

While there is always a need for flexibility, the wealth of data now available means it’s easier than ever to construct insight-driven predictive modelling. With access to these resources, the modern credit manager can inject more value to businesses than ever before.

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Playing good cop, bad cop in Sales and Credit Management. In John Donne’s famous poem he states that ‘no man is an island’, however the profession most likely to accused of working in such a way, is that of sales. And what a missed opportunity this is, as by adopting this approach, salespeople and credit managers will continue to live on their own little islands, when they could be strongly improving the profitability of their businesses through ‘good cop, bad cop’ teamwork.

There are indeed many ways to bring these islands together. One of which is the use of overall Key Performance Indicators (KPIs) for the sales and financial departments. By way of example, it remains the case that very few salespeople receive their commission when the invoice is paid. In other words, their companies reward them for a deal before the company has earned a penny on the deal. In fact, they reward the salesperson before it is even clear whether the company will ever earn anything on the deal. It speaks for itself that, while the salesperson may benefit from this (temporarily), his or her company certainly does not.

And at a time when winning profitable customers is more of an issue than ever before, this method of working simply can’t be justified.

The need for overall KPIsWhy do companies allow themselves to lose out on vast sums of money by not encouraging co-operation between Finance and Sales? I can’t find a logical explanation for it, but what I do know is that the solution for the poor co-operation is not that complicated.

All too often, companies continue to work with KPIs at the departmental level. The Sales Department has to generate as much turnover as possible, while the Finance Department provides for the lowest possible Days Sales Outstanding (DSO). But there is no alignment whatsoever between the different departments, and therefore, between those different KPIs. That is a serious and, above all, a costly problem.

How do you implement such overall KPIs? It can be done fairly simply, for example, by giving Sales a KPI for DSO. The salespeople will then feel much more involved in the collection of unpaid invoices. At the same time, give Finance a KPI for turnover. In that way, you make them aware of the importance of new customers and teach them not to think solely in terms of risk, but also in terms of opportunities.

Posted on 07/10/2015 by Colin Sanders

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A new form of co-operationWorking with overall KPIs has many advantages. As a company, you will be able to optimise turnover and profit. Of course that is the most important thing, certainly in times when working capital and profitability are sacred concepts for companies. Overall KPIs will also lead to new and, above all, better ways for salespeople and credit managers to work together. They can now start to play a ‘good cop, bad cop’ game.

To give an example, imagine that Sales comes into contact with a potential new customer. What the salesperson does not know is that this customer is having financial problems. Without good co-operation between Sales and Finance, two things can happen. Either Sales contracts a deal for which, at best, the payment will arrive very late or at worst, will not arrive at all. Or the salesperson will become frustrated and make a wrong move with the potential customer because, without any explanation, he or she is restrained by the Finance Department, which has screened the potential customer and discovered the poor financial position. The company does not emerge as a winner in either situation.

What would happen if Sales and Finance tried a bit of the ‘good cop, bad cop’ game?Let’s revisit our example. Sales discusses the potential deal with Finance, in response to which Finance says that the financial picture of the company doesn’t look too good. The credit manager therefore says that it would be best if the deal was realised in part deliveries that had to be paid for within seven days. Sales can then go to the potential customer with the message: ‘The deal can go ahead, but our Finance Department does want to do it according to strict payment agreements. You know how it is: credit managers only care about money, but to make up for that, I can offer you a 10% discount.’

The credit manager defends the company, the salesperson ‘pleases’ the customerYes, the Finance Department will not perhaps be seen as very sympathetic, but it does protect the company’s financial interests, while Sales can tempt and ‘please’ the customer. The end result? A deal can be made that the salesperson, the credit manager and the customer are all happy with, the company wins a new profitable customer and Finance and Sales find out in very concrete terms what they can do for each other.

It is therefore hugely advisable, preferably yesterday, to put in place overall KPIs at the corporate level. By doing so, companies will succeed in bringing together the previously isolated islands and get all their departments on the same page and able to search fully for profitable customers.

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Becoming an ‘agile’ credit manager in an era of big data. Big data has changed the nature of business, providing unprecedented volumes of data and insight. Credit managers can use this to their advantage, but implementing an ‘agile’ IT approach can help significantly.

The importance of agilityWith the rise of big data, credit managers need to be more analytic and data-driven than ever, in order to adapt proactively to this changing environment. One way to support this is by adopting an ‘agile’ approach, which evolved from the ‘agile methodology’ pioneered by leading software engineers in the late 1980s and early 1990s.

This approach, and the subsequent Manifesto for Agile Software Development, emphasises the importance of implementing a dynamic, flexible way of working that ensures quick responses to change and continuous development.Indeed, some of the manifesto’s 12 founding principles are:

• [welcoming] changing requirements, even in late development• close, daily cooperation between business people and developers• sustainable development, able to maintain a constant pace• regular adaptation to changing circumstances.


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Underlying these are the importance of collaboration and communication, contending that ‘face-to-face conversation is the best form of communication’.

How does this apply to credit managers?While different disciplines have evolved the agile approach differently, it is typically characterised by development, teamwork, collaboration and ensuring processes are adaptable – at all stages of a project’s life cycle.

Big data offers considerable opportunities to help credit managers – whether that’s through creating a single customer view or understanding lending trends within the industry. But the key is employing an agile approach to IT systems so big data can be introduced and analysed simply and swiftly.

The modern day credit manager has a critical role in balancing a company’s finances, positioning it for profit and growth. The more insight a credit manager has access to, the better decisions they can make. Through adopting a progressive, agile approach to technology, internal systems and working culture, credit managers can ensure their operations remain progressive.

An agile approachBig data offers superb opportunities for companies to develop and grow their offering – both internally and externally – but it also presents challenges. Those organisations that utilise big data best are responsive – implementing agile development processes with ongoing integration, regular communication and swift feedback loops. In doing so, these companies are able to realise the value of their data more swiftly and extensively than through other methods. They can also save money by developing streamlined, flexible software platforms. What’s more, structuring teams so that they can reallocate priorities and respond to demand in an agile way ensures employees can be adaptive and best positioned to help the company progress.

An agile big data platform means being able to create dynamic views of data, stripping out complexity and allowing for flexible and novel data segmentation. For credit managers, this approach could be revelatory.

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4 skills your next credit recruits must have. As the credit management landscapes evolves, so to should the skills you look for when recruiting new credit professionals. Here are four traits and areas of expertise to prioritise when you are next looking to hire.

Willingness to collaborateThis is otherwise known as being a ‘team player’, which is probably one of the most overused recruitment clichés. However, it really is a vital skill for a credit professional as cross-department collaboration is growing in importance. The new approach to managing debtors and credit processes sees finance and sales teams cooperate closely during credit scoring, setting credit limits, and risk assessment. Focus on attracting candidates whose personality suits a collaborative working environment. Open mindedness, flexibility and a willingness to compromise are good places to start when building a target profile.

Posted on 23/12/2015 by Nick Driver

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More than minor financial knowledgeWhile every credit professional will develop some financial knowledge in their role, those with a deep understanding of annual reports and the meaning behind the numbers should be valued highly. This is because analytics is becoming more and more integral as part of the function. You can therefore drive competitive advantage by employing people that can decipher and draw solid conclusions from statements, rather than relying on speculation. Those with accounting qualifications and accreditation should be looked at closely to see how this background can crossover to the credit function specifically.

Obvious business acumenJust as important as having a knowledge of financial reports is the ability to demonstrate intelligent business acumen. Profit-driving credit management is no longer similar to an administrative task where the people responsible simply send invoices and chase late payments. Modern credit managers are proactive rather than reactive and work closely between departments. Understanding how the actions of these branches impacts the wider business is crucial. Knowing what causes yours and your customers’ market to rise and wane is also fundamental. Part of the reason why can be tied back to the last economic crisis. It caused businesses to become more risk-averse, which has had significant knock on effects for credit teams in particular. Having the business acumen to apply effective risk management is now central to making decisions that don’t prove costly.

An analytical mindDemonstrating an analytical mind should also be seen as a huge plus for candidates. The risk management element of credit management involves extensive research into the debtor firm, its senior members, and the industry. That means lots of data to organise and make decisions based on, which is typically much easier for the analytical thinkers among us. Here are some questions you can ask during an interview to test for analytical thinking. Demand for candidates who find that analysing data comes naturally looks set to increase as big data continues to grow rapidly. While businesses rely on advanced software to scrutinise vast data sets, it seems obvious that analytical thinkers are best placed to maximise the value of any insights that are drawn.

Recruiting right for your credit team relies on finding individuals with the required skill set and personality. The four elements above are a solid place to start, as they help you to build a team that is prepared to prosper as the credit management world develops.

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5 steps to reaching credit maturity. The credit management function has evolved in recent times as businesses strive to take more control of their accounts receivable. Today’s credit manager needs to be more analytical than before, using data to make predictions and decisions that pre-empt payment issues rather than reacting once they occur. Graydon’s Credit Maturity Model outlines the four stages of credit management. Here, we highlight some key actions from the model that you can take to reach credit maturity.

Know where you stand todayBefore moving forward you need to know where your business currently stands when it comes to credit management. Download Graydon’s Credit Maturity Model from our website and see the grid on page six. You can figure out what stage your business is at now and what it will take to reach the next.

Be more structuredOne fundamental way you can begin to work towards credit maturity is by putting more structured processes in place. This is a key part of the ‘professionalisation’ stage of the model. Start by making debtor management a separate responsibility within the finance team, and introduce simple analytics when making decisions on whether to grant credit. Make it a necessity to check the customer’s payment history or outstanding balance before a credit request is approved.


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Know the risksStage three - ‘preventive’ – is underpinned by a strong knowledge of your customers and the risk they pose. The credit manager’s task is to analyse customer data such as payment trends, complaints and marketing responses as well as the risks faced by the wider sector, regions, and relevant individuals. Talking to your customers isn’t enough. While they may claim to be in a strong position now, recent customer complaints could point towards a period of instability to come and difficulties paying invoices in the future. Similarly, a look at the market will let you spot downtrends the debtor firm may get caught up in. The point is to take a broad view of your customers and the macro environment so that you can make fully informed decisions that minimise risk and maximise cash flow.

Collaborate with other departmentsYour credit management team needs to collaborate closely with other departments for the above risk assessment to be completed properly. For example, finance and sales could work closely together to agree suitable credit limits for risk customers. The collaboration that preventive credit management encourages also helps separate departments to understand the challenges and inner workings of all others. With this knowledge they can work in better harmony, helping each other to reach goals.

Embrace Customer Value Management (CVM)‘Data-driven’ is the highest stage of credit maturity and one that large companies with many customers and high turnover typically strive to maintain. The goal is optimum profitability through fact-based predictions and heavy automation of actions. The credit manager essentially works between collaborating departments to make sure all processes relating to the function are running smoothly.

An investment of both time and money in Customer Value Management (CVM) technology is necessary to reach this stage. Implementing CVM starts by gathering and organising data on customers and prospects. External sources of information such as credit reports and sector analysis are also applied to support the profile your business builds. All of this data is then analysed before an automated score is produced. Leaving this up to CVM software removes any bias from the sales or finance teams, meaning that the final score is, in theory, more accurate. Any decisions based on it are therefore more likely to be the right ones.

Even some of the most organised businesses haven’t reached the peak of credit maturity. Doing so takes time, effort, and a commitment of capital. These are worthwhile resources to expend however, as the outcome could mean maximised turnover and protection from credit risk.

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Stargazing: The Credit Manager of the Future. There is a widespread stereotypical impression of the credit manager. First, they are seen as highly professional and painstaking in their work. However, they are also perceived as someone who is perhaps resistant to change and new technology, who invests little time and effort in training and professional development - a recipe for disaster. No credit manager can afford to be left behind by ignoring the need to evolve - and fast.

The need to adaptWe’ve decided to challenge this stereotype and paint a picture of a scintillating new breed of credit-management professional – the Credit Manager 2.0 – who is keenly aware of the need to be constantly adapting their skills and knowledge in the face of the volatile, uncertain, complex and ambiguous world that we all live and work in.That’s why we’ve carried out a major research project across more than 20,000 companies in the UK, the Netherlands and Belgium. And we’ve found that some aspects of the stereotype are still unnervingly accurate.

Sure, the new breed does exist – but a disturbingly high proportion of respondents still maintain that managing Days Sales Outstanding (DSO) by ensuring that invoices are paid on time will remain their overriding priority as they head for 2020.

Big Data – the game changerAnd even where there is an awareness of the growing need to look outside the organisation, using Big Data to gain an overview of competition and the market, this is only slowly gaining traction. Just 16 per cent of those in the UK and the Netherlands (even fewer in Belgium) said their primary interest was in customer and market insights that would enable them to improve their companies’ commercial opportunities.

This is not to say that a majority of today’s credit managers are without an appreciation of some of the ways in which the world is evolving. Close to three quarters agreed fully or partly that increasing volumes of Big Data will make it easier for future credit managers to predict a company’s financial health, for example.

Change is the only constantAs times change, credit managers are not responding to the urgent reality that modern credit management is increasingly being driven by an extremely fast-moving digitised environment in which change is the only constant. To consider just one factor, the very nature and structure of the organisations that credit managers need to consider as an everyday part of their job is changing beyond recognition.

Posted on 02/11/2015 by Anne Lukas

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A simple example is Airbnb. At the time of writing, Reuters has just announced that this phenomenal business is set in 2015 to double the number of nights booked to more than 80 million. But this is a company that actually possesses very little – the hard assets belong to the many thousands of ‘partners’ who own the properties in which the company trades. Consider Uber too – another organisation that possesses very little. Calculating such a company’s creditworthiness demands a completely new way of looking at things – and this is just one hint of the changes ahead as more companies adopt this model and others yet to be invented.

Future-proofing for successThe need for credit professionals to future-proof themselves is nothing new. But, due to the availability of data, the credit manager role will be almost unrecognisable. Undoubtedly acting more and more at the front of client processes, Credit Manager 2.0 will focus less on DSO and will be instrumental in helping the organisation identify and look after their ‘best customers’, thus maximising the opportunity to increase profit.

To survive in 2020, Credit Manager 2.0 must command the troops to lead them to the best customers. Data will be their best friend. In fact, data will provide the insights required to identify this panacea of the best customer.

But how to go about identifying and acquiring the new skills they need. The most important thing here is to emphasise the importance of lifelong learning – and above all, of keeping up with the many constantly evolving means of acquiring the knowledge they seek.

Learning to failTake for example the concept of ‘just-in-time’ learning. This provides an easily accessible learning environment that people can visit whenever and wherever they want via any smart device to grab the fragments of learning they require at the precise moment they need them. It’s a far more efficient, cheaper and less cumbersome option than traditional classroom teaching, meaning people are much more likely actually to use it.

And that’s fundamental – what’s really important is that people learn at all. To adapt a cliché, failing to learn is learning to fail. Things are moving too fast not to act right now – because all too soon it will be too late to catch up. Credit Managers please take note.

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Can bad debt be the good, the bad and the ugly? Investing in bad debt may seem fairly counterintuitive, but bad debt can be a good investment. In fact, it is a highly lucrative business.

Bad debt means debt that has been written off as uncollectible. For example, when a company or individual goes bankrupt and the lender decides it won’t be able to recoup its loan to the borrower, the lender typically writes off the loan as bad debt.However, by selling this debt to bad debt investors, albeit at a sum much lower than the face value of the loan, the lender can at least recover some of its losses. So why would anyone want to buy debt that’s already been classified as irretrievable? As the investment principle goes; the higher the risk, the higher the potential returns.

Personal debtOne of the most common types of personal bad debt is from credit card loans. To offset some of their loss, banks can sell this bad debt at a discounted price to debt buying agencies, who will then try and collect the debt for its full value, making a profit through the discounted purchase price. Or banks may simply use a debt collection agency to recover the loan, and pay the agency a fee or percentage of the debt.

Corporate debtThe lucrative opportunities offered by bad debt also extend into the corporate sphere, where a sector of the financial industry specialises in capitalising on bad debt. Distressed debt investment firms operate by purchasing sufficient quantities of debt to take control of a failing company – usually one that may be in or facing bankruptcy.


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Where’s the profit?As the primary stakeholder, the investor can then implement a recovery plan, either to extract the valuable parts of the company through total liquidation, or by restructuring the company and returning it to profitability. This may include layoffs, closures, selling non-core business areas and other streamlining measures.The investor can benefit in a number of ways. Firstly, it’s better to own debt than equity in a failing company because if the business is dissolved, the principle of absolute priority dictates that debt takes precedence over equity when divesting the company’s assets. Secondly, if the market panics upon learning that a company is facing bankruptcy, the company’s stock price may fall below its value, and a downward selling spiral will then continue to drive down the price. This creates opportunity for bad debt investors to buy low and benefit from future upsell, if they can return the company to health. So if the market overreacts, distressed debt investors can use their expertise to benefit from a considerable profit margin.

Resuscitating companiesDistressed debt firms have extensive knowledge and experience in guiding companies through bankruptcy and returning them to profitability. Their advice to management can be the difference between success and failure for those companies unused to navigating bankruptcy. Furthermore, as holders of these companies’ debt, they can alter the debt repayment terms to support the company through its resurrection. And if they invest in a number of distressed debt businesses, of which only a percentage will return to health, the sharp profit margin should be enough to generate lucrative returns while offsetting the losses from investment in unsalvageable companies.

Hedging riskIn addition to spreading investment across a number of distressed debt companies, these firms can also mitigate risk through joining forces with other firms, so no one firm is too exposed.

So bad debt can be good for business and not as risky as it would seem. But, as with any investment, due diligence is key.

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Will the construction industry lead the way in late payment reform? Late payment can have a heftier impact on SMEs than their larger counterparts, leading to cash-flow problems and additional costs, such as extending bank loans to cover temporary shortfalls. Can 2014’s late payment agreement in the construction industry pave the way for business-wide reform? Late payment can have a heftier impact on SMEs than their larger counterparts, leading to cash-flow problems and additional costs, such as extending bank loans to cover temporary shortfalls. Can 2014’s late payment agreement in the construction industry pave the way for business-wide reform?

Prompt Payment CodeIn 2008, the government implemented the Prompt Payment Code to help small and medium sized enterprises (SMEs) recoup £30.2 billion owed to them in outstanding payments by larger UK companies. However, a recent survey by the Institute of Directors (IoD) found that two-thirds of SMEs were still experiencing late payment.

A culture of late paymentFormer trade minister Lord Digby Jones says he has witnessed large companies delaying payment as part of their business strategy:

“I have sat in on board meetings of big companies who have said: ‘We are paying on 60 days, let’s see if we can push it out to 90’. I have said: ‘If you are going to do it please don’t do it to small businesses.’ It is really damaging.”


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Mike Cherry of the Federation of Small Business (FSB) explains the problem late payment creates across industries:

“We know around four in 10 businesses that are paid late will go on to pay their own suppliers late or struggle to pay their staff. It cannot be right that small businesses are in effect being asked to lend to their large customers. This can only have a negative impact on growth and investment.”

Fighting backThe construction sector was particularly affected by late payments , and its reliance on supply chains created further instability. Indeed, figures showed that only 5% of specialist contractors were receiving payment within 30 days.

However, a new construction payment charter unveiled by the government last year means that major contractors, clients and the government have committed to pay their suppliers within 30 days, from 2018. The deal, organised with the Construction Leadership Council, currently commits contractors and clients who sign up to pay their suppliers within 60 days. From June 2015 this will be reduced to 45 days and from January 2018 to 30 days.

Success or failure?While the late payment charter is certainly a step in the right direction for the construction sector, some within the industry are questioning its impact due to the low number of signatories. When it was launched, only nine companies signed up to the agreement and questions have subsequently been asked about how it will be policed and enforced.

Without further supportive legislation, the measures may not go far enough in implementing a systemic change in the culture of late payments. Fair payment should be a contractual obligation rather than an optional agreement.

Business-wide changesLate payment is a problem that extends across all sectors within business. While the changes implemented in the construction sector are certainly an improvement, it remains to be seen over the long-term how much it affects the cash-flow of SMEs. Persuasive results would support current calls for business-wide changes to the culture of late payment, with accompanying government legislation.

However, a recent survey by campaign group Streetwise Subbie found that, of 216 specialist contractors, 95% were still being paid later than 30 days on publicly funded projects, while less than 9% were being paid within the 30-day window on private sector projects. It seems that while the construction industry’s late payment charter has proved a positive example in instigating payment reform, the results will need to be more compelling for a business-wide case.

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The modern-day credit manager. Credit managers play a critical role in keeping their company’s finances well-balanced and positioned for growth. The modern-day credit manager controls their company’s credit policies, establishes optimum levels of risk and decides how much credit to extend to customers – as well as the terms of payments.

Credit risk managementManaging credit risk effectively will ensure that a company has healthy cash flow and working capital, a good Days Sales Outstanding ratio and a supportive credit strategy to boost sales. Rather than preventing sales, credit risk management is about encouraging the right sales to make sure the company receives payment on time. It can then reinvest this money in inventory and meet operational costs, like wages.

Credit managers are responsible for making sure that the credit risk policy isn’t too restrictive and encourages sales and growth. Indeed, one of the most challenging areas of credit management is considering a customer from both a sales perspective and a risk perspective – and finding a way to harmonise both views. By approaching credit management with an integrated view of the customer, the company’s sales, marketing, risk and finance targets remain aligned.


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Credit management objectivesOne of the key goals of the modern credit manager is to reduce bad debt and minimise the losses that stem from this. They also need to reduce the company’s capital tied up in debt and improve its liquidity.

To manage credit effectively, it helps to have a dynamic approach to monitoring creditworthiness. This means being proactive in responding to changes to a client’s circumstances and financial behaviour – whether that means creating more favourable terms for clients whose creditworthiness has improved or responding swiftly to situations where credit risk has increased.

Early warning systemsAs businesses benefit more and more from emerging technology, a number of companies are investing in credit software solutions that provide early warning systems for credit risk. Not only can this software assess potential customers for credit risk during the application stage, it can also predict and manage payment risk throughout the customer relationship. It also supports credit managers, helping them to make accurate credit decisions by generating dynamic credit limits which evolve according to a customer’s spend and payment behaviour. Much like with credit cards, customers who pay promptly are rewarded with higher credit limits. What’s more, these softwares provide advanced warning if a credit limit is likely to be breached – before the end of the billing period.

Today’s modern day credit managerThe modern-day credit manager has a diverse role that involves working closely with sales, marketing, risk and finance departments to produce the best outcome for the company. An increasing part of this is integrating the right technology to make sure they stay ahead of the competition and can optimise their sales and financial health. After the financial crisis, effective credit management – balancing credit extension with liquidity – is more crucial than ever. If companies want to reach their full potential, an intelligent credit management system is critical, and the modern day credit manager is a key part of this.

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Credit score systems across the world. While credit score reporting is a concept that extends around the world, there are distinct variances in the systems used by different countries, as well as in the culture of credit itself.

UK creditCompared to Europe, the UK has more in common with the American approach to credit: Brits strive to get a mortgage rather than renting perennially, and rely heavily on debt culture.

In the UK, there are three official credit scoring companies and they use UK-specific criteria to determine creditworthiness. This means that, as in many countries, those immigrating to the UK won’t automatically benefit from their domestic credit rating. Instead, credit scoring agencies would firstly check that the applicant is on the UK electoral roll, to confirm personal information and residence details. They would then access other data, such as court records, to check whether they have had legal action taken against them due to debt. And they would likely also look at any credit links, for example joint bank accounts or utility bills, and the strength of that connection’s credit.

Once a profile is established, credit rating agencies will then look at how many credit reference checks have been carried out against a person’s profile, ranging from standard checks by utilities firms, such as gas and electricity providers, to other checks by store card and other credit providers. If this number is above average this suggests the person is actively seeking a lot of credit. Depending on the strength


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of their finances, this may count against them. In the UK, some lenders also share credit management data with other lenders and organisations, to amass a full picture of an individual’s credit health across credit cards, store cards, mortgages, loans, utilities contracts and bank accounts. This information can range from whether they’ve defaulted on payments to the amount they repay on debt each month.

USA and CanadaSimilar to the UK, credit – or debt – is an inherent part of personal financing within the USA and Canada, which caused particular problems in the USA during the sub-prime mortgage crisis. In Canada, credit scoring works on a scale of 300 to 900, which is similar to the USA’s 300 to 850 score. Canada has two credit bureaus, while the USA has three.

European creditEurope has a different cultural and financial approach to debt, in that it’s common in many countries to rent property permanently and avoid taking out a mortgage or amassing debt. Lending criteria also tends to be more stringent. While credit rating systems vary from country to country, there is still a centralised European record for those who make late repayments. Carrie Coghill of FreeScore.com explains:“Each loan application is reviewed based on your current salary, your family situation, current debts, residence status, and other factors. However, if you don’t make timely payments on loans, the lender puts you in a special file that’s shared by all lenders across most of Europe, and you’ll have a great deal of difficulty getting a loan.”Malaysia, Hong Kong and Singapore

These countries have a more advanced credit reporting system than the UK and USA due to better technology and database systems. Furthermore, consumer credit reporting is also combined with commercial credit reporting, which is a particular advantage to SMEs seeking credit.

South American creditAfter the economic crisis that affected many South American countries in the 1980s, a fairly strong credit reporting system was put in place, including banks and private lenders. However, there are differences throughout the region. Brazil, in particular, has made changes to the way debt is reported, with public and private credit agencies reporting positive as well as negative information. This is in contrast to its system pre-reform, where debtors’ names were removed from delinquent borrower lists once they had repaid their loans, which prevented the creation of a comprehensive credit database.

International divergencesWith such different international systems and cultural attitudes to credit, it remains to be seen which is the most effective. However, with Germany emerging as the most stable country to lead decisions around Eurozone financing, perhaps this is proof that a cautionary approach to credit is key.

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Embedding a culture of credit risk into your organisation. It’s a story that will be familiar to managers of businesses small, medium and even relatively large. To keep that crucial cash flow pulsing through the arteries of your organisation, you waste a great deal of energy chasing outstanding and persistent debt. This is a distracting waste of time that could be banished by properly embedded credit risk management. Not only is this great for cash flow in your home market, but it can also support that all-important export drive and help your company comply with corporate governance rules.

Popular CultureA healthy, secure business needs an all-pervading culture of credit risk management. Once established it will provide processes for identifying, analysing and managing exposure to risk, so that you can identify it and react quickly. To really work, the system needs to involve employees of every kind at each level in the corporate structure, who need to appreciate its many advantages of order-to-cash cycles, sales margins, turnover and profit.

Posted on 06/11/2015 by Nick Brown

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Making it happenTo realise your own embedded credit risk culture, there are some key fundamentals to adhere to. For maximum efficiency and risk control, procedures need to be clearly defined across all functions and teams. Your sales team should analyse the market in detail, qualify prospects and be highly selective about the customers it works with. Existing customers should be carefully monitored, and the business as a whole must be good at weighing up commercial advantage against risk. It’s important to act rapidly in response to negative information to minimise risk exposure too.

Knowledge is controlHaving a sound credit risk management culture is good for the organisation from within, but inspires confidence among suppliers and key partners too. You will additionally benefit from a clear view of commercial allies and competitors, active sectors and payment patterns. With detailed knowledge about the solvency of your main customers and any changes in customer portfolio, you will also be better informed about legal and contractual matters, such as the retention of title clause [RTC].

Optimise capital. Minimise riskA company equipped to anticipate, regulate and negotiate risk in real time can minimise the scope and frequency of problematic disputes and ensure that all-important cash flow continues unabated. Profits rise, and bad debt issues fall. The simplest measure of its effectiveness is seen in the top line figures: implement a company-wide culture of credit risk management and you could see receivables collection time fall by 25% and the overall cost of risk management fall by 50%.

What does it take to become a modern-day, savvy credit manager? We’ve packed a small book with the basics in an easily understood format that will give you the head start you need. Go to graydon.co.uk/downloads and download the Understanding Credit Risk for Dummies Guide to learn all about it!

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How to analyse Annual Accounts in 5 minutes? An annual account is hard to read for most of us. Even Finance Managers can occasionally experience difficulties when searching for specific details. Furthermore, sales departments may expect to receive some advice on the creditworthiness of new prospects. So how do you make a decision on the nature of these prospects? In order to swiftly get a snapshot of a company’s financial position, you only have to check for a few key figures.

With these key figures in mind, you can check:

• Strengths and weaknesses of the company• Trends• Benchmark with the complete industry• The balance sheet and profits and losses.

Working capital within Annual AccountsWorking capital consists of current assets, including stocks, and excluding current liabilities. When the working capital is a negative number, the company has less cash to pay you. A ratio that works well here, is the quick ratio. A quick ratio is calculated by the sum of current assets minus the conditions, divided by the current liabilities. This should give you an indication of the relationship between debt and equity. If the ratio below 1, then be vigilant. It may still be a promising customer, but you are at risk of bad payments.

Posted on 26/02/2015 by Adnan Essa

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Cash flowCash flow is very important. Cash flow is all incoming and outgoing money in the organisation. Is the company able to make money, or does it need added money annually? Of course, there are valid reasons to have a negative cash flow, for example a fast growing company, a company in the innovation phase, or a company which has just received a few large investments. However, if this situation takes too long, a company can go bankrupt. Make sure you can explain all negative cash flows. A healthy company should have more income than expenses.

The balance sheetThe balance sheet gives you insight into the liquidity and solvency of the company. How much equity has the business, what is the ratio of debt / equity and how much money does a company have outstanding with their customers (debtors)?

The profit and loss accountOn the profit and loss account, you can see the company’s profitability. Be aware that both gains and losses on paper are still no real profit. The money must actually enter the company before marked as profit. As written before:

“Profit is a matter of opinion, cash is a matter of fact.”

Check profitability of a company in combination with the cash flowAre you dealing with a larger or public company? Then you can check the annual account as well. Comments from the CEO or owner often give you a nice glimpse into the company itself and show how the company sees the market which they operate in. Next to this, it is just interesting to read.

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Spotting Trade Credit Fraud. The internet has brought about phenomenal changes, but one of its less salubrious effects is enabling the prevalence of fraud. Corporate fraud is now a reality of doing business. As fraudsters become ever-more sophisticated in their methods, companies need strict measures to protect their finances.

In 2013, the National Fraud Authority reported that the UK economy lost around £52 billion to fraud. Of this, almost £16 billion related directly to the SME sector. When including unreported losses (some companies don’t want to publicly acknowledge falling victim to fraud), some financial experts estimate the overall total closer to £80 billion.

The importance of due diligenceIt’s important to be extra cautious in spotting fraud. For example, you may think that doing business with a company registered with Companies House guarantees its authenticity. But Companies House has two main functions: to incorporate and dissolve limited companies, and to store company information and make it publicly available. It doesn’t ensure the accuracy of information submitted. False documentation is often filed with Companies House to give a fraudulent business an aura of legitimacy. In fact, a large proportion of frauds are generated from false documents being filed in the public domain. So credit managers should bear in mind that fraud is more likely to be committed under the guise of a private limited company than under a non‐limited entity. And the bottom line is simple: it’s down to credit managers, rather than Companies House, to verify the credentials of any company they do business with.


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Protecting your businessThere are some key steps you can take to help you spot trade credit fraud and protect your company. The first is to validate VAT numbers. If you have the business’s VAT number and its country of origin, it’s easy to validate the VAT number online with the following steps:

1. Go to the VIES VAT Number Validation – European Commission – Europe site (http://ec.europa.eu/ taxation_customs/vies/).

2. Select the alleged country of origin in the Member State drop‐down box and enter the alleged company’s VAT number.

3. Select your country from the Requester Member State drop‐down box and enter your VAT number.

4. Click the Verify button.

Another way to determine if a VAT number is genuine is to use this simple, three‐step calculation:

1. Write the number vertically, as shown in Figure 5 1.

2. Multiply the first of the 7 digits by 8, the second by 7, the third by 6, and so on. Then sum the total.

3. Deduct 97 from the number you got in Step 2, until you obtain a negative figure.

This negative figure should match the last two numbers of the VAT number.And you can also help protect your business against trade credit fraud with a simple online check. Check out their premises on Google Street View. If the type of building and location doesn’t fit the context of the company, this can be a red flag that needs further investigation.

Checking the accountsAlthough the internet brings with it increased susceptibility to fraud, it’s also a blessing for quick fact-checking and information gathering. Whether that’s checking for disparities in companies’ account figures, unusual filing patterns or changes in address or company information.

With all these resources to hand, due diligence is key to avoiding fraud. The most important thing to remember is to hold your ground and not let pressure – either from the client themselves or members of your own business – stop you from conducting thorough research to make sure you avoid trade credit fraud.

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How Finance and Sales teams can work together to reduce DSO. Working capital is a priority for most businesses. It provides the security for your company to keep operating on a day-to-day basis, knowing that you have enough cash and liquidity to meet your financial obligations for the next 12 months. One of the key factors in making sure you have sufficient working capital is creating an effective Days Sales Outstanding (DSO) process.

DSO explainedDSO is the average number of days between when a company completes a sale and when it collects payment for the sale. The higher your DSO figure, the less cash flow and liquidity you have. So finding the optimum DSO number should be a priority for all businesses.

Companies of all sizes and sectors can suffer from late payments and a high DSO figure, potentially affecting cash flow, financial security and supplier relationships. A surprising findGraydon and Credit Expo recently conducted a survey of 5,750 companies in the Netherlands, looking into the relationship between Sales and Finance departments. The results were highly telling. Sixty percent of credit managers felt that the issue of timely payment wasn’t given enough importance in client discussions. Sales and Finance: working togetherCreating more alignment between Sales and Finance departments can be a key part of reducing DSO. As the Sales team builds and maintains relationships with clients, they can help the Finance department by establishing clear payment terms with the client upfront. Of course, this can be a tricky conversation, but it’s an important one – as bad debt can be far more detrimental.

Hans Peter Vloemans, Sales Manager at Graydon, highlights why Sales representatives can benefit from discussing payment terms in client meetings:

“This conversation can give commercial employees ammunition to use if any problems arise later. For example, if a salesperson has agreed with a client that the client will receive a discount if it pays within two or seven days, and the client doesn’t keep to the payment agreement, the salesperson can remind the client, in a friendly but firm manner, that it risks losing its discount.”


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Improving communicationDetermining the financial risks of doing business with a client can have a significant impact on a company’s profitability. Which is why all companies should make communication between Sales and Finance a matter of importance. In doing so, each team will have a better understanding of the other’s priorities, particularly why client quality is more critical than quantity, and the detrimental effect of late payment, doubtful debt and bad debt on the business.

Indeed, insight from the Finance team should be used when selecting clients, and cooperation between the two departments should be robust and ongoing. Not only will this protect the company from working with clients with a bad payment culture, it will also reduce the time and resources spent initiating relationships with companies that turn out not to be creditworthy. A mutually beneficial partnershipOne way to increase understanding between Sales and Finance is to deliver commercial training to Credit Managers. Understanding the commercial implications of a client relationship, rather than viewing clients as debtors, can be an important transition for Finance teams and create a middle ground with Sales.

Similarly, Sales teams can benefit just as much from Finance’s involvement, as Vloemans explains:

“Credit Managers can have an advisory role and adjust the rules of play in the interests of the entire company. For example, if a client’s cash is low, Finance can advise Sales to work with part deliveries or with just-in-time delivery, so that the client can spread its payments. Or if a client only pays after 90 days on average, the Credit Manager can advise Sales to communicate a price that is a few percentage points higher than normal, in order to offset the losses through late payment.”

Keep a close eye on your customers, suppliers and even competition through instant notifications, enabling you to act quickly. Customised event alerts ensure you’re in the know with only the information that’s relevant to you or your organisation. Find out more about Risk Monitoring on our website.

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Individual Insolvency Register discloses bankruptcies. The benefit of the Register is that if someone is entering into a business arrangement or applying for a loan, their credentials can be checked. But it also means that nosy neighbours and the curious can find out immediately, and for free, whether someone they know has been declared bankrupt in England and Wales.

If you go bankrupt the details of your bankruptcy are registered by the Insolvency Service – and made public and easily accessible. So how does the Individual Insolvency Register work?

The individual insolvency registerThe under-25s and over-65s are the age groups most likely to go bankrupt, according to research by business advisers, RSM Tenon. Once bankrupt, they will find themselves on the Individual Insolvency Register – a government-managed register of everyone undergoing bankruptcy or taking out an individual voluntary arrangement (which is a milder alternative to bankruptcy) in England and Wales.

The Insolvency Register, as well as holding the details of all current bankruptcies, also lists bankruptcies that have ended in the last three months. But it’s not just restricted to bankruptcies. It also includes those subject to bankruptcy restriction orders, debt relief orders (to absolve debt under £15,000) and debt relief restrictions orders (where an official receiver believes a debt situation was deliberately exacerbated by an individual before they applied for a debt relief order).


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Why does the Register exist?The rationale behind the Insolvency Register is to make it crystal clear who has applied for bankruptcy or debt relief – particularly as the details of those declared bankrupt are no longer automatically listed in local newspapers due to a change in law.

The benefit of the Register is that if someone is entering into a business arrangement or applying for a loan, their credentials can be checked. But it also means that nosy neighbours and the curious can find out immediately, and for free, whether someone they know has been declared bankrupt in England and Wales.

However, in addition to satisfying personal curiosity, the Register is an important resource to deliver increased financial security. The Insolvency Service lists the Register as a tool for the provision of information to creditors and the general public, debt recovery, screening for employment, commencing legal action, general investigation and screening for credit reference purposes.

What information is listed?To ensure an individual can be identified clearly, the Insolvency Register includes a lot of personal information. If you find yourself on the Register, not only will your name be listed, but also your date of birth, occupation, gender, details of the bankruptcy order and, to the dismay of many, your home address (although this can be overruled if there are exceptional circumstances – such as a threat to your safety).

Isn’t this an invasion of privacy?Basically, no. The Insolvency Service is obliged by law to make this information available. And the information provided needs to be specific so there is no confusion around who is subject to the bankruptcy – this is particularly necessary for people with common names.

But to mitigate the stigma of bankruptcy, once a bankruptcy has been discharged, the details will be removed from the register after three months.

What’s the personal impact of bankruptcy?Bankruptcy will remain on your credit file for six years, which will affect your credit rating and make it more difficult to get credit in the future. This could include getting a mortgage, a tenancy, or a personal or business loan. It may also be difficult to open a new bank account.

However, for those facing financial difficulties or bankruptcy there is help available. The Citizens Advice Bureau outlines options to help you manage debt and deal with upcoming bankruptcy.

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How to determine the credit-worthiness of your prospects. Clients are crucial for a successful business, but making sure these clients are creditworthy is equally important. So how can you determine their creditworthiness before you make a commitment?

If you sell a product or service, the likelihood is that you don’t get paid in full up front. Without having access to the client’s financial accounts, this means there’s always a degree of risk involved. However, there are measures you can take to safeguard yourself and learn more about your clients’ creditworthiness before you make an agreement.

The importance of due diligenceAn effective way to establish a client’s creditworthiness is to commission a credit report from a reputable credit agency. While this is a short-term expense, the long-term benefits could be huge – reducing your company’s liabilities and mitigating supply chain risk. For example, Graydon’s company credit check service offers up-to-date financial, commercial and transaction-based company information. This includes company identification details and official company data, financial data, historical credit rating and payment data, as well as a monthly credit guide and risk category. This means you’ll receive recommendations on the degree of credit to extend in order to protect yourself from late payments and bad debt. Armed with this insight, you can make informed decisions about who you do business with.


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Conduct your own researchIn addition to a credit report, there’s plenty you can find out by doing your own research. Look on the government-supported website Companies House to access director information and annual filings. Although you’ll have to pay to receive more detailed information, you can then see the company’s publicly available accounts to build up a picture of their financial health.

Supply chain reputationAnother way to get a better picture of a client’s creditworthiness is a more old-fashioned approach – to research their reputation. Talk to other product or service suppliers who have dealt with this client and find out about their payment culture. Do they pay suppliers on time? Do they pay the due amount in full? Have they encountered any issues with the client? Sometimes this type of information can be more enlightening than the facts and figures.

Consult the Prompt Payment Code (PPC)The PPC was established to address the late payment culture that was causing many small and medium-sized enterprises (SMEs) to suffer in the UK. Typically, SMEs are often dependent on a small pool of large companies. This means they’re more significantly affected if one of those clients fails to pay for goods or services on time. The UK government identified a damaging culture among some larger businesses who neglected to pay invoices on time – either due to negligence, lack of awareness or a conscious decision to exceed their suppliers’ payment terms in order to increase their cash flow. Signatories to the PPC, however, undertake to pay suppliers within 30 days, with a 60-day maximum limit.

Furthermore, both large companies and SMEs are now required to report annually on their own payment performance, which will provide a transparent picture of their payment culture. Unless a business signed up to the PPC can prove exceptional circumstances for late payment, they will be removed from the PPC. So if you’re doing business with a signatory company, it’s a strong indication that they are creditworthy and exercise good payment practice.

By building up a thorough picture of prospective clients, your sales team can make sure they’re targeting the right prospects and minimising financial risk.

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The Future Credit Manager no longer has a financial profile. Assessing opportunities, striving for profit, coordinating ... The credit manager of the future will no longer be exclusively concerned with granting, rejecting credit or collecting outstanding invoices. Instead, they will be presented with a much broader and diverse to-do list. The modern credit manager therefore no longer has a financial profile.

Perhaps we should come up with a new name for the modern credit manager. The credit manager 2.0 must not confine themselves to chasing down outstanding debt. On the contrary, they have to put down their financial hat and assume a much more coordinating role. First and foremost, they should focus on the profitability of the entire company, which goes much further than ensuring correct payments.

In an ideal world, the credit manager coordinates the entire sales process, from prospection to payment. Why should they not, together with sales, scrutinise potential customers? The fact is that solvent prospects will as customers pay better, generate fewer complaints and provide higher profitability.

Posted on 05/11/2015 by Eric van den Broele

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Credit management and complaints managementThe new credit manager should therefore also take account of complaints management. Complaints do not just arise out of the blue. Often, there is an underlying issue. Customers with financial problems, for instance, will also give priority to their main suppliers while other trading partners have to wait for their money. In most cases you will discover this by supplementing your own data with information from external suppliers, but it is crucial information for the credit manager. The credit manager’s remit should therefore extend well beyond the financial department.

Short-sighted visionIn adopting this attitude, you will be able to detect a lot of opportunities. Because bad payers are not necessarily a problem. They also offer opportunities. Why not give bad payers a discount in return for cash payment? It is a win-win situation. The customer gets a discount, sales increases turnover and credit managers collect money more easily. Admittedly, this attitude calls for a completely different mentality. Today credit managers still often focus too much on granting or not granting credit, while the sales department takes the view that without credit there can be no sale. Both views are short-sighted. By looking for solutions together, you will come to a wide range of successful sales arguments.

“Credit management and sales each have their own vision but both are short-sighted.”

Granting credit to customers is costlyFirst of all, granting credit to customers is risky and always costly. Below are a number of arguments against granting credit too easily:

• Prefinancing cost• Loss of profit• Risk of late payment or non-payment

For many companies, granting credit makes the difference between profit and loss. Too often, entrepreneurs assume that credit is a good thing for the business, but this is not necessarily the case. Customers who have been granted credit and eventually fail to pay constitute a considerable loss for the company. Your company will have to realise many other sales to make up for that loss. The same applies to customers who do pay but not in accordance with the payment terms agreed. They also constitute a considerable loss.

The opposite is also true. Companies that do not grant credit miss opportunities. Credit managers are therefore well advised to map out the decision-making process with chances and opportunities. Our advice: agree good arrangements with sales.Graydon’s latest study on payment behaviour has shown that 30% of all invoices are paid late. 2% are never paid.

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Customer scoring for allCredit managers today also have an exemplary role. They increasingly use customer scoring, an objective way of categorising customers. This approach need not remain confined to credit management. Other departments can also draw benefit from it. Customer scoring is a technique that unambiguously maps out risks and opportunities. Credit managers can persuade other departments of the use of this exercise.

“Credit managers can persuade other departments of the use of customer scoring.”

In practice, this process will pass through the general manager or someone in a distinctly coordinating executive position. They can roll out best practices throughout the company. In this operation, the credit manager can take the lead. On the basis of their own experiences with customer scoring, they can clear the way to more objective and especially more efficient and across-the-board corporate processes.

Moving away from traditional thinkingShould the new credit manager possess financial, analytical and commercial skills? Certainly! But can it be a little bit more? Credit managers should also bring people together and coordinate them. Their main concern: how do we achieve maximum profitability? In some (or quite a lot of) cases this will even mean lower turnover.

This mind switch will undoubtedly also have consequences for the training of future credit managers. Most credit managers start their career sending out notices and reminders. This is a fundamental problem. Credit managers ’grow up’ with the idea that all customers are bad payers that have to be prodded into action. Purposefully abandoning this frame of reference is a first step in the right direction.

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Reduce your DSO and the impact to your business could be huge. Reducing your DSO can make a huge difference to your business – but this needs to go hand-in-hand with an effective payment collections system.

DSO, or Days Sales Outstanding, is the number of days it takes a company to collect payment on a completed sale. So a longer DSO means less cash flow and less liquidity. For example, if a company’s payment terms are 30 days but, on average, it’s receiving payment from customers within 36 days, this can amount to a large deficit – meaning lower working capital and higher financing costs.

Collecting payment efficientlyCompanies of all sizes can be susceptible to late payments. More often than not, it stems from inefficient payment collection. Reducing DSO needs to be a key company objective with stringent performance measurements. A business whose DSO is too large will not only suffer from lower cash flow but will also miss out on the interest of their accumulated outstanding income. And it could risk jeopardising relationships with its own supply chain if the income delay affects repayments.


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Taking actionCompanies who find their extended DSO is negatively impacting their business need to take action. Even if the impact of delayed payment isn’t critical, a slow build-up could lead to significant cash flow problems over time. What’s more, if companies don’t address a failing payment collection system early on, it will likely continue to get worse, meaning a greater rescue operation in the future.

What can be done?If you’re unsure how to improve your DSO, first break down your late payments by category and identify which segments are causing the biggest problem. Then look at where your approach is falling short. If the task seems too big to tackle alone, it could be worth hiring an outside company to review and improve your processes.Genpact, a global leader in transforming business processes, articulated how they helped a UK-based global services company with $200 million in outstanding debts to transform its payment collections system and improve its cash flow by $80 million.

Through thorough analysis, they identified that it was the company’s long median DSO for non-sensitive customers that was causing a bottleneck in cash flow, impacting its working capital and P&L, and its relationship with vendors. This was down to a lack of accountability and an inefficient collections strategy at its payment collections agency. In particular, the company didn’t have in place a controlled process or defined turnaround times for responding to customer queries and logging status updates.

Genpact therefore instituted a number of process improvements, which included linking call volumes to monthly incentives, generating automated reports, analysing agents’ performance, focussing collection strategy on both the value and aging of debt, and implementing new policies to ensure better case documentation.

Leadership buy-inThroughout this process, they made sure key stakeholders and senior management were engaged – through bi-weekly project reviews, weekly project updates with the Global Operating Leader and Quality Leader, and involving the head of the Shared Services Centre to expedite process improvements. Furthermore, this was all within the framework of a strict project plan to prevent deviation from timings and goals.

A systematic approachYou don’t necessarily need the help of an external agency to reform your DSO. But a thorough, systematic and analysis-based approach will help you identify the root cause of the problem and where you need to make changes. By reducing their DSO from 34 days to 26 days, this company was able to improve cash flow by $80 million. Even fractional improvements could have a significant effect – so make sure DSO is a priority.

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The impact of receiving an incorrect credit rating check. Receiving an incorrect credit rating check can be costly – and not just for the business, as Companies House have discovered to their cost.

The government was recently forced to pay out £9 million in legal costs after a single spelling error led to the collapse of a 124-year-old Welsh family business . At least 250 employees lost their job after Companies House misspelt the Cardiff-based military equipment supplier, Taylor & Sons Ltd, and recorded it as being in liquidation. In fact, it was another company, Taylor & Son Ltd, that had been wound up. But the error led to the closure of Taylor & Sons Ltd business, as customers cancelled orders and contracts, and perhaps most damagingly, credit from suppliers was withdrawn, severing a crucial part of the business supply chain.

Demonstrating how crucial both accuracy and credit ratings are to modern business, it only took Companies House three days to correct their error – but by then the damage was irreparable, as the information had spread across the internet.

Credit ratings and the supply chainIf your credit rating is low, suppliers will be less keen to extend credit to your business and may do so under stricter, less financially attractive terms.


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Supply chains and credit ratings are also interlinked through the principle of supply chain finance, where a business with a strong credit rating helps companies within its supply chain to benefit from its own credit rating. For example, if a buyer has a stronger credit rating than a supplier, when the buyer purchases goods, it can notify a bank that it has approved the purchase invoice. The bank is then secure in the knowledge of the supplier’s future cash flow and can offer the supplier a 100 percent immediate advance, crucially, at a lower interest rate. So an incorrect credit rating can not only affect a company’s ability to do business, but it can also have a knock-on effect for the businesses throughout its supply chain.

Ratings disparityRecent analysis of 100 private companies’ credit ratings reports, carried out by the accountancy firm, Shelly Stock Hutter, had some concerning results. It found that companies’ credit ratings could vary significantly between ratings agencies, with credit limits for one company ranging from £1.5 million to £4.9 million depending on the ratings agency. In another example, one company had its credit limits reduced between 2011 and 2014 by two agencies, while another agency significantly increased its limit, despite the fact that all the ratings agencies were relying on identical information.

Bobby Lane, a partner at Shelly Stock Hutter who oversaw this analysis, says that these “huge variations” could endanger companies’ capacity to trade:

“On the one hand an incorrect rating will affect their ability to gain credit from suppliers and raise finance. In addition it could deter companies from growing by avoiding trading or offering terms to potential customers that are creditworthy.”“If a business trades with a customer on the basis of an incorrect rating and it goes wrong there could be potentially catastrophic consequences.”

If your credit rating has incorrect information, you should contact the credit ratings agency as soon as possible and provide documents to prove the inaccuracies.

Do you want to ensure whether a company you’re doing business with, is credit worthy to full fill its payment obligations and adhere to prompt payment? Then undertake a free Credit Rating Check on a UK company of your choice!

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What is working capital and its impact? Working capital is a formula used to measure a company’s liquidity, efficiency, and financial and operational health. In essence, it’s the ratio between a company’s assets and its liabilities.

As the working capital measurement only takes into account the volume of the company’s debt due for payment in the next 12 months, it’s a relatively short-term outlook that changes year on year. It’s this change that provides a good indication of a company’s ongoing health – particularly when compared to other businesses in its sector.

The working capital formulaWorking capital is calculated as a company’s current assets minus its current liabilities.

Current assets can include any cash the company holds, its accounts receivable ledger (the expected payments for goods or services that have already been sold), marketable securities (financial instruments that can be easily converted into cash, such as stocks and bonds) and the company’s inventory (the goods a company has ready to sell).


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Current liabilities can include the company’s accounts payable (debt that must be repaid within a specific period of time, for example to suppliers or banks), dividends, accrued expenses (such as wages, interest and tax that are yet to be paid) and the current portion of long-term debt notes payable (the amount of its long-term debt that the company needs to pay during the next 12 months).

So if a company has £100,000 in current assets, and its current liabilities are £60,000, its working capital is £40,000. Positive working capital indicates that a company is able to repay its short-term liabilities, while negative working capital suggests that a company would struggle to do this without additional financing. If a company’s working capital has decreased, analysts may see this as a sign that a company has expanded too rapidly, is overleveraged, is paying its bills too quickly and collecting receivables too slowly, or that its sales are struggling.

Working capital ratioAs there will be a vast difference between each company’s assets and liabilities, a ratio is created to reflect the company’s performance. This ratio is calculated through dividing the current assets by the current liabilities. So £100,000 divided by £60,000 is 1.67.

A ratio between 1.2 and 2 is considered good. Anything below 1 is considered to be negative working capital. Conversely, a score higher than 2 may seem positive in theory, but in reality it can indicate that a company is not reinvesting its excess cash. This can suggest that the business lacks operational efficiency or has a weak financial strategy.

The working capital ratio can also be an indication that a company’s money is too tied up in its inventory, or that it’s not collecting payment from customers quickly or efficiently. Confusingly, this will be reflected in an increase in working capital, as its accounts receivable will grow. It’s because of this complexity that changes in working capital (either positive or negative) can indicate a situation that needs to be explored. Indeed, achieving the right working capital ratio is a fine balance.

Flaws in working capitalWhile working capital calculations are a useful measurement in many ways, they do have their flaws. Many point out that, to get an idea of a company’s health, it’s best to measure it against similar-sized companies in the same industry.

Others emphasise that the level and timing of a company’s cash flows are more important in assessing whether it would be able to repay liabilities. A company with a high volume of current assets may still have reduced liquidity if a large portion of this is tied up in inventory, which it would struggle to sell at short notice.

So while working capital can provide a certain level of insight, it functions best as an indicator for more investigation, rather than a foregone conclusion of a company’s health.

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The modern-day credit manager. Credit managers play a critical role in keeping their company’s finances well-balanced and positioned for growth. The modern-day credit manager controls their company’s credit policies, establishes optimum levels of risk and decides how much credit to extend to customers – as well as the terms of payments.

Credit risk managementManaging credit risk effectively will ensure that a company has healthy cash flow and working capital, a good Days Sales Outstanding ratio and a supportive credit strategy to boost sales. Rather than preventing sales, credit risk management is about encouraging the right sales to make sure the company receives payment on time. It can then reinvest this money in inventory and meet operational costs, like wages.


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Credit managers are responsible for making sure that the credit risk policy isn’t too restrictive and encourages sales and growth. Indeed, one of the most challenging areas of credit management is considering a customer from both a sales perspective and a risk perspective – and finding a way to harmonise both views. By approaching credit management with an integrated view of the customer, the company’s sales, marketing, risk and finance targets remain aligned.

Credit management objectivesOne of the key goals of the modern credit manager is to reduce bad debt and minimise the losses that stem from this. They also need to reduce the company’s capital tied up in debt and improve its liquidity.

To manage credit effectively, it helps to have a dynamic approach to monitoring creditworthiness. This means being proactive in responding to changes to a client’s circumstances and financial behaviour – whether that means creating more favourable terms for clients whose creditworthiness has improved or responding swiftly to situations where credit risk has increased.

Early warning systemsAs businesses benefit more and more from emerging technology, a number of companies are investing in credit software solutions that provide early warning systems for credit risk. Not only can this software assess potential customers for credit risk during the application stage, it can also predict and manage payment risk throughout the customer relationship. It also supports credit managers, helping them to make accurate credit decisions by generating dynamic credit limits which evolve according to a customer’s spend and payment behaviour. Much like with credit cards, customers who pay promptly are rewarded with higher credit limits. What’s more, these softwares provide advanced warning if a credit limit is likely to be breached – before the end of the billing period.

Today’s modern day credit managerThe modern-day credit manager has a diverse role that involves working closely with sales, marketing, risk and finance departments to produce the best outcome for the company. An increasing part of this is integrating the right technology to make sure they stay ahead of the competition and can optimise their sales and financial health. After the financial crisis, effective credit management – balancing credit extension with liquidity – is more crucial than ever. If companies want to reach their full potential, an intelligent credit management system is critical, and the modern day credit manager is a key part of this.

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A Credit rating checklist for your customer. Office interior design specialists Morgan Lovell provide excellent guidance on how to ensure contractors are financially sound before starting a project. We’ve tailored their advice into a credit rating checklist that applies to all, which you can find below.

Meet the directorsEither before or during acquiring a credit rating, meet with the directors of the company - if you can - to establish what role they play in the firm. If they don’t have an active involvement, it’s clear any credit control actions will need to go through another senior member, such as the Finance Director (FD). It would be worthwhile for your FD to meet the customers so they can ask all the necessary questions about the buyer’s financial health.

Explore the company as a wholeIt’s also important to understand the company as a whole, as this will give some idea about their ability to meet payments. Do they have the backing of a parent company to help them meet payments if cash flow is suffering? Is competition high? Do they have a solid reputation? Answer these questions and you can draw some worthwhile conclusions about their credit rating. Assess their supply chainOne other factor which will impact on their ability to meet terms is the supply chain they have in place. It’s not unreasonable to request to know who their own suppliers are, as their actions can have a knock-on effect that impacts negatively on your firm. With this knowledge, you can perform further checks to give you a broader understanding of precisely who you are partnering with. Their supply chain will play a pivotal role in a credit rating assessment.

Check the health of their financesA credit report will provide much of the information you need to understand a buyer’s financial position and past payment behaviour, and other clues can be gained with a more in-depth look. A large company will likely release end of year reports which lay bare their performance during the previous financial year, and it would be beneficial to study this. Look to see if they made any risky purchases or paid more for an acquisition, for example, than they needed too. Do they consistently turn a profit? And is revenue steady or volatile?

Ensuring you’re fully informed is vital when it comes to deciding the credit rating risk posed by a potential customer. Using the above checklist, you can make sure all the information you need is obtained the next time your business gains a new lead.


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What keeps a credit manager awake at night? Measuring performance is an important aspect of business and it is no different when it comes to credit managers. The first step to doing this is to establish what needs to be measured. In terms of a credit manager, their job is essentially to manage the financial sales process as well as the financial management of customer relations. How they are performing in these aspects will determine whether or not they are doing a successful job. If they aren’t, they could be in for some sleepless nights.

Measuring the performance of a Credit ManagerOne of the issues when it comes to assessing the performance of a credit manager is the difficulty in separating them from other areas of the business involved in customer relationships. One way around this is by establishing what makes good credit management. In other words, what does a credit manager wake up in the morning and aim to achieve?

Posted on 19/03/2015 by Will Aitkenhead

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Prevention and collectionAt the initial point of contact with potential customers, the credit management team will need to work out the creditworthiness of the future client. Once this has been established the payment terms, credit limits, discounts etc. can be drawn up.When the goods or services have been delivered to the customer, the next step is to collect payment. Invoices must be accurate and sent on time, otherwise payment can be delayed. If delays do occur, it is up to the credit management department to make sure they chase these up and retrieve the money as soon as they can.

Working in harmonyPayment terms information will be used by the sales team in any negotiations and the two departments must work together during this process. It is the job of the credit manager to ensure they have a healthy relationship with the sales manager to make this process as smooth as possible.

The resultsThis is where it gets difficult. Measuring credit management KPIs is not easy, given the amount of variables involved. One measure that CFOs and CEOs will turn to is DSO (Days of Sales Outstanding), which is the amount due by customers in a number of days. So, if there is a sales volume of £1,000 a day and the total amount of outstanding receivables is £42,000, this equates to 42 days. It can be misleading though, as it doesn’t take into account seasonal sales figures, varying product groups, disputes or the profitability of the client relationship.

Sales-weighted DSO is a way of getting around this, which is worked out by taking the total outstanding amount of receivables and subdividing it into fractions that match to each month. Adding the fraction of the sales of each month will give you the sales weighted DSO. There are other methods, but this is the most widely used and generally accepted to be fair.

Flagging the issuesAs with most aspects of business, there are normally warning signs as to when a credit manager is not performing as they should be. These can include:

• Regularly hitting the overdraft limit• Debtors continually missing the agreed credit period• Payers who are normally very prompt missing deadlines• Complaints and queries increasing• Customer using continuous excuses to exploit your slack system• Market rumours that could harm your future business• Staff members leaving

Of course there are many methods of assessing the performance of your credit manager. But ultimately, the performance of your business relies on them hitting their targets and they will know this as well. If they are not performing as they should be, they may experience a few sleepless nights along the way.

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What are your business data plans for 2016? Another year brings with it new trends and approaches in business intelligence as firms seek to deliver more value for customers, protect their interests and get ahead of the competition. 2015 saw a sharper focus on data from more businesses, and the rise of certain applications of information is sure to carry on into the New Year and beyond. Now is the time to ask yourself: does your business have a solid data plan for 2016? And, are you aware of the trends that could shape how data is used during the next 12 months? Read on for four trends and approaches to consider, if you haven’t already.

Predict the futureFor a long time the data held by firms was used to draw conclusions and devise strategy relating to customers and internal teams by looking backwards. Predictive analytics goes beyond descriptive analytics and historical reporting to make predictions about future occurrences, reducing guesswork and helping businesses to be more informed when making decisions. This approach is on the rise as the software that is needed is becoming more affordable and user-friendly. The advantages reach risk management, marketing, operations, and other key areas, which when combined and leveraged effectively can increase competitive advantage significantly. With many yet to embrace this approach, 2016 is the time to invest in it yourself if you have a clear problem to solve and masses of data to crunch.


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Real-time analysisAnother business intelligence use heading for the mainstream is real-time analytics. The digital economy in particular has heightened the need for almost instant analysis of customer behaviour and other business critical actions. Clearly, the decision a customer made 30 seconds ago is much more relevant and valuable than one made 30 days ago. Apache Spark is one general processing engine that is leading the pack by processing vast amounts of data and delivering insights in near real-time. Highly scalable, the software has the backing of IBM who now offers it as a service on its Bluemix platforms.

Extract more value from your supply chainMost business’ supply chains represent a significant cost component, but big data is increasingly being used to extract more value from it. The process of planning, sourcing and implementing a supply chain garners plenty of data that is ripe for analysis, if used effectively. To successfully apply business intelligence to the supply chain, your business needs to focus its insights on the planning stage. The learnings that are gained can be used to plan with greater accuracy, reducing waste or out of stock (OOS) events, for example, that harm competitiveness.

Empower more of your teamTaking a wider view, businesses are expected to empower more of their team with business intelligence, otherwise known as self-service business intelligence (SSBI). Such platforms give team members access to information without the need for ongoing support from IT professionals. The input of specialists is needed during the early stages to organise the data warehouse and implement the query and reporting, but after that, users have the freedom to generate personalised reports themselves. With more tech-savvy millennials entering the workplace, this stance makes sense. More individuals can take advantage of the data their firm holds, while IT professionals are freed up to focus on other tasks.

Big data presents a host of opportunities to drive business performance, add value, and manage risk if it is applied to a detailed plan underpinned by business objectives and clear goals. The above are just four ways you can leverage corporate information in 2016 and beyond.

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How your business can benefit from predictive analytics. Predictive analytics has emerged as another tool for businesses to bolster their risk management approach and in turn, retain their competitive advantage. With big data at its very heart the technology presents users with hugely valuable learnings that inform their most important decisions. While many are yet to leverage predictive analytics, TDWI has compiled a 2014 report highlighting the main reasons why businesses have and should adopt this vital tool.

Predicting trendsThe primary driver behind the adoption of predictive analytics, according to TDWI’s report, is its ability to predict trends. According to Anne Liser Kjaer, CEO of trend forecasting agency Kjaer Global, trends “should inspire and inform companies’ future vision from the board, brand and marketing to innovation strategies for developing products, services and experiences that will fulfil and meet the needs of tomorrow’s people.” The learnings that are gained and outcomes that are foreseen are therefore not for one-time use. They can inform your own product or service strategies from the very beginning, putting you on a path that poses less risk and gives your customer what they truly want and need.


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Understanding customersThe second driver was the understanding of customers that predictive analytics can deliver. The process that leads to predictions involves the analysis of past customer data which in itself is valuable even without an estimate of what could happen next. By understanding how customers have behaved in the past your business can see which sales and marketing strategies have and haven’t worked, highlight how the needs of buyers has evolved, and identify why they choose you over a competitor.

Improving business performanceIn the context of predictive analytics, the third driver – improving business performance – focuses on a forward-looking stance rather than a view of previous success (or lack of) to generate higher revenue. To improve business performance, predictive analytics promotes a proactive approach led by decisions that are based on the expected behaviour of customers and movements of markets. One example that ties back in with the second driver (understanding customers) would be a firm using historical buying data to spot when purchases of a specific product rise and fall, enabling them to adjust price ahead of time to match this fluctuation in demand.

Driving strategic decision makingInterestingly, driving strategic decision making was only the fourth most common reason why businesses invested in predictive analytics. These types of decisions are far more important and influential than many of the everyday judgements you are likely to make, as they are underpinned by the company’s mission and objectives. A degree of risk is always faced when making choices that alter strategy, but predictive analytics ensures the decision is more calculated and therefore more likely to be the right one. Put simply, previous business actions and their outcomes can be analysed and used to map out future consequences based on similar actions. Whether the outcome is good for your business or not, you can adjust the strategy accordingly.

Predicting behaviourThe fifth and arguably the most valuable driver behind leveraging predictive analytics is its ability to anticipate behaviour. Knowing your customers can help you to guess when and what they will buy next, but predictive analysis goes further by forecasting actions that could be damaging. This could include a view of customer payment performance to anticipate if and when they may struggle to honour a credit agreement, giving you the chance to take the necessary risk management steps.

It is only recently that the true value of predictive analytics has been realised. The firms that get on board with it today can gain a clear advantage over their competitors, but it requires a strong commitment to sourcing, integrating and analysing data first. One prediction seems certain to materialise: this multi-billion dollar industry is set to rise.

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See off your competition by becoming a data-driven ninja. It’s abundantly clear in the digital world that properly harnessed data is an essential weapon. The data-driven enterprise uses data to inform sound strategies and shrewd decisions, besting competitors who simply don’t have the technology or corporate culture needed to unleash it. Attaining data-driven ninja status is not easy though. Having lots of data is really just the start, because it needs to be collected, cleansed, integrated, managed, accessed, secured and properly analysed to work its magic.

One ninja is never enoughData should be used by clued-up people company-wide, not by a closeted guru somewhere. If your organisation is serious about seeing off the competition, you need to make sure that BI and other analytical tools are being exploited by all kinds of employees. They need to be able to use and access the systems as part of the everyday. As with any true skill, it starts with proper training, from the boardroom to the front lines.


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Where next?The data-driven ninja - and his or her like-minded colleagues – is always thinking about where they want to go and how to get there. For rapid, smooth progress they create Key Performance Indicators that track improvement and monitor company-wide activity to make sure that important goals, company practices and technology implementations are synchronised. This all contributes to the smooth integration of data into the wider strategy and transforms efficiency, customer service and ultimately profitability.

Not just faster, but betterCompanies often focus on using big data analytics to make better decisions more quickly, but there is also huge potential for spotting opportunities and risks. These might have lain dormant or hidden before, simply because the technology wasn’t in place to spot them or people just weren’t asking the right questions.

Questioning the questionsThe old-school approach to leveraging knowledge or insights from a database was simply to ask established questions and wait for wisdom. There’s an assumption here that the familiar questions are the best ones to ask, but that might not be true. The data-driven company has an ethos of improvement when it comes to questions. What else should we be asking? What questions are yet to be asked?Getting it wrong can be rightThe data-driven ninja knows that failure is sometimes inevitable when you’re innovating. Many companies invest in BI, big data and analytics and then get cautious – stifling experimentation among ‘non-specialist’ employees. Risk taking is an inherent part of beating the opposition and being progressive.

Learn from the mastersAlthough data-driven companies encourage cross-departmental collaboration and pervasive involvement, they also use data scientists and machine learning to keep the absolute cutting edge in keen and power continuous improvement. Names such as Amazon, Google and Microsoft are just a few of those doing exactly this to forge stronger, longer lasting relationships with customers and wrong foot competitors. Every self-respecting ninja knows that the path of wisdom starts with a master…

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Personalisation in credit management just got serious. Whether you’re offering precisely the right credit to a promising prospect, responding to the needs of a key customer or monitoring bad debt risk, a personalised strategy is key to getting the best result from your target. ‘One size fits all’ marketing and communication has no place in credit management today. Off the peg no longer fits. So given that personalisation is the hottest of topics and tailored communication is essential for relevant interactions, what are the cornerstones of success?

Personal numbers69% of UK consumers receive some form of marketing message by email every day and 37% receive direct mail weekly. This is a huge amount of ‘noise’, so to get heard your message needs to be distinctive and well judged. Personalisation is the key. But while 61% of marketer organisations are using the most basic form of personalisation - by addressing contacts by their first or second names – only 11% are using more detailed preference data, so the vast majority of us are ignoring what prospects and customers actually want or need to receive! Only 9% are using attitudinal data such as whether customers are price sensitive or impulse driven for example and it is in these more sophisticated areas of personalisation that much potential lies.


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The power of fourA sound personalisation strategy starts with four fundamental steps. Begin with context and your business needs and think about the benefit to your customer. From here you should define Key Performance Indicators and the metrics that will maximise ROI. Secondly, ensure that you really know your customer or prospect. There are few things more counterproductive than incorrect personalisation. A third cornerstone is establishing the right insights on which to base good decisions. Make sure you can clearly see what’s working and what isn’t. Ideally you need a single source of the truth to provide the best customer insight, but consistent customer insight by channel is a more realistic goal for many. Cornerstone four is made up of the right people using the best possible tools for the job. There’s no ultimate single piece of technology to manage all content, data, decision and deployment functions, but you can certainly optimise what you have got – training the right people with the right skills to managing your tools across channels. It’s vital to automate too. Rules should be created that manage customer interactions minus any human intervention. Lifecycle and event driven email campaigns are examples of this in action.

Right, nowProvided data and insights are accurate and the message is targeted, personalisation is a potent, necessary tool for credit managers. As ever in the digital world, standing still is not an option and it will pay to get seriously personal sooner rather than later.

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Big Data to play a huge role for credit management in 2016. For 2016 and beyond, more businesses will transform their processes and strengthen their strategic planning through the application of Big Data. Naturally the effects are being first and perhaps most acutely felt in finance teams, where a dim view has been taken of disparate mixed ledgers for some time.

Out with the oldEvery credit manager knows that there are priceless insights and time savings to be extracted from single source data, but some foundations need laying first. Existing entrenched processes and traditional departmental ‘silos’ need to be purged: they still linger in many organisations. Only once this piecemeal, fragmented old system has been updated can the benefits of Big Data be applied.


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Big begins smallA ‘start-small’ strategy will ensure that the advantages of Big Data will be demonstrable and sell themselves. It pays to target easy wins that clearly demonstrate tangible benefits in carefully chosen business areas. The data that can be used to analyse payment behaviour is a good example. It delivers an excellent overview that allows credit managers to look at individual credit limits and access. It provides a high degree of control and supports collaborative efforts with other teams, generating optimum returns. Crucially, this data impacts positively on numerous teams and employees, from sales directors to CFOs, helping each discipline make sound financial decisions.

Culture clubSpreading the impact of Big Data company-wide in 2016 will be about understanding company culture. Many departments are not motivated to share their data, which is why all those separate silos develop. As a credit manager you rely on shared data to establish and maintain a smart risk culture. You need to involve everyone: you need to spread the word, by example. As the data gathers, you can use it to support all sorts of functions within credit management, such as debt analysis, debt collection monitoring and record assessment and streamlined integrated processes across the board.

Better, across the boardAccurate, fast, well-informed business decision-making has never been more important and so the potential for Big Data to enable this across whole organisations becomes increasingly appealing and vital. With superior shared intelligence, it’s so much easier to make vital judgements, such as whether a high-risk customer is in truth a high value opportunity. Beyond assessing which customers are great trade prospects or ultimately creditworthy, your data can also be used to guarantee bank credit and minimise the cost of borrowing.

Wave goodbye to guesswork in 2016At heart, Big Data takes away the guesswork for credit managers, FDs and other decision makers, allowing you to see a clear, long term picture of customer behaviour, financial opportunities and of course pitfalls. Embracing Big Data will give you the quality of information and foresight to manage risk your way.

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Do you have a data strategy for your organisation? Producing a data strategy has never been more important for organisations of all shapes and sizes. With the digitalisation of the business environment continuing at an ever quickening pace there is so much data to consider and incorporate. From web pages to purchases, everything is recorded and identified, which gives you an exceptional insight into customers.

What data should be collected?This is the first thing you need to establish and it will vary from business to business. Too many companies try to collect every piece of data without actually breaking it down and establishing what is important to their needs. Identifying and referencing content as well as searching for appropriate subjects and data elements allows you to work out which tools and methods you need to benefit the business.

You also need to establish how long you keep the data for. This will help you to break down the data and work out what is important and helpful. Report usage will determine what analyses and sources are no longer relevant. Just as you would have a clear-out of your fridge or cupboard to get rid of any out-of-date food, you need to do the same with data.


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Where do you store the data?This is another time for tough decisions. Some data needs to be accessed quickly and other aspects many not be so time dependent. You need to establish what can be archived and where to archive it. You can use on-premise storage or cloud-resident storage. If you decide to use a cloud based storage system then make sure you establish your rights to the data in case the vendor goes bankrupt. It’s also important to back up your data regularly for the same reason.

Where and when can the data be accessed?This is an issue that involves practicality and legality. Make sure you set appropriate security levels for all of the data so that only those who you want to see it can access it. If you operate across different countries you also need to ensure trans-border issues don’t stop you accessing the data. Some countries impose restrictions on the amount and type of data that can be transmitted across borders. Check that you and your cloud vendor are not breaking these regulations.

Use data visualisation effectivelyVirtual data warehouses give you the chance to access data in real-time and without high storage costs. There are risks to this though as sourcing data from multiple sources can become inaccurate. But this process does allow you to transfer data that was established before organisational data standards were created so that they meet these requirements.

Data before processA lot of the issues raised involve strong management and responsibility, so you need to make sure you have the team in place to manage your data strategy effectively. Introducing a Chief Data Officer can be an excellent way of dealing with an environment that is becoming ever more data-rich. This role involves not only assessing the potential analysis but also viewing things from a client’s position.Many people argue that finding the right data is far more important than having the processes in place. So to bring the whole thing full circle, you need to establish what data will be collected first before you can successfully launch your data strategy.

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How to motivate your team to reduce DSO. When the aim is to cut DSO (days sales outstanding) the actions of your staff can have as much of an impact as a new accounts receivable (AR) procedure. Motivating your AR Officer, Collections Officer and other relevant team members to reduce the time taken to collect payment is therefore a worthwhile undertaking. Here we look at the ways in which you can encourage swift action and a culture that strives to make the AR process as efficient as possible.

Set targets and offer bonusesIncentives – whether cash or otherwise – are one of the most effective ways to motivate a team. In the context of reducing DSO you could look to set a target figure each month and provide a reward when this is reached. For example, if the aim is to maintain a DSO amount of 20 days but your firm currently averages 35, set targets to reach 33, then 30, then 27 and so on until the goal is achieved. Having an objective to achieve each month will not only be encouraging in itself, but the temptation of personal gain at the end of it is doubly motivating. As DSO can influence the accounts receivable figure you could consider an additional reward for revenue which also incentivises the sales team.


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Educate your teamIf bonuses aren’t possible, simply educating your team on the dangers of late payments and bad debt as well as the true value of cash to a business can have a positive effect. Although it seems obvious, some may not realise that their job depends on the financial health of the business, which their actions can directly impact. Use development and training sessions to highlight how DSO is an indicator of debt, and that improving one improves the other.

Similarly, a full understanding of the Time Value of Money (TVM) principle could be the stimulation staff need to take a closer look at how they approach payment collection and invoicing. The principle follows that cash received sooner is more valuable than the same amount gained at a later date, as interest and reinvestment enables it to work harder. Education in these factors and others can help to make life easier for your staff, which increases confidence and encourages them to improve further to the benefit of the business.

Lead by exampleOne of the most sustainable ways to improve the output of your team is to lead by example. Make it a main aim to pay suppliers on time and in full. Eventually it will become ingrained in the company culture and push the collections team to chase harder for cash that is owed. Any new hires can also quickly understand the way things are done which strengthens this good practice.

Unless you are blessed enough to have a monopoly on the market, convincing a consumer to choose you over a competitor is the hardest thing your business will have to do. Receiving payment once goods or services have been delivered should therefore be a priority, but some are guilty of dragging their heels. Avoid being one of them by motivating your team to get what is owed as soon as possible.

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Moving towards proactive credit management. Late payments and bad debt are two of the biggest problems that businesses face on a regular basis. Poor credit management can result in cash flow issues which will seriously harm the performance of any business, large or small. Credit management may seem like a simple task that involves reacting to customers, but by taking a proactive approach you can actually eliminate many of the problems associated with late payment and bad debt.

Chasing debts can be a difficult and sometimes impossible job for any credit department, regardless of the firepower you have behind you. As well as being time consuming, the problems associated with late payment and writing off bad debt can be crippling in the long run. Taking a proactive credit management approach will see you avoid many of these difficulties.

Don’t wait for themWaiting until customers have past due invoice dates is the typical approach that credit management departments will take, but this just creates problems and leads to automatic bad debt. Mitigating credit risk from the start will enable you to better manage your accounts and prevent cash flow problems in the future. This process will also save you time, and therefore money, on debt collections.

Software is readily available to help you with this process, allowing you to manage credit checking, credit insurance and risk analysis in a more informed and proactive way. By producing automated chase letters and copy invoices, the technology allows you to contact customers at different points throughout the procedure, rather than just waiting for non-payment to occur after the deadline.


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This results in a proactive conversation with your customers, alerting them to the fact they haven’t paid the invoice and giving them the chance to raise any problems. In-built escalation procedures will alert you to accounts that may be problematic while the accurate reporting builds a more rounded picture of your credit management situation. This all gives you extra time to concentrate on more important matters.

Positive relationshipOne of the key benefits of this approach is that you build and develop a more positive relationship with customers. Normally the only contact the credit department has with a customer is when payment is late. This automatically creates a bad feeling between the two parties. By being proactive, both sides can identify potential issues much earlier in the process, which leads to collaborative working before a serious problem arises.

Detailed application processThis is the first place to start your proactive approach. Putting in place a detailed credit application process will allow you to gain important information from prospective and existing customers before you extend them a line of credit. If a company is reluctant to provide information then you must follow this up and get as much as you can. The following details are some of the most important:

• Company name and address• Legal structure• Nature of business• History of business• Names of key officers• Estimated annual sales• Trade and bank references• Personal guarantee

Assess everybodyThe more selective you are about who you do business with the fewer problems you will have with debt collections. It really is that simple. Review and assess as much information as you can and try to obtain trade references for information about payment history, buying trends and past disputes. Engaging with your customer to learn more about them is a great way of understanding more about their business, how they work and their expectations of you as the supplier.

It’s also important to remember that you can review any accounts anytime and don’t be afraid to make adjustments to the current agreements. This proactive approach will prevent you having problems in the future.

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Why SMEs may have a business intelligence advantage. Small and medium-sized enterprises (SMEs) differ vastly from big businesses. While SMEs may not have the power or financial strength of their larger counterparts, this size discrepancy can produce a number of advantages.

Size advantageReports by Dresner Advisory Services found that SMEs are often more flexible and closer to their customers than their larger competitors. This proximity and capacity to adapt gives SMEs a valuable business intelligence advantage.

Smaller-sized businesses often rely on a reduced pool of clients who generate a large proportion of their work. The high dependency-level of these connections means that these companies build stronger relationships with their clients, gaining greater insight and business intelligence.

Furthermore, unlike in larger, more rigid companies – where implementing change can be a lengthy process – SMEs can often execute changes and deliver greater agility around their clients’ needs. Underpinning this is the finding that SMEs report higher levels of business penetration than larger organisations. And within the SME category, smaller enterprises record higher levels of penetration than mid-sized businesses.


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One of the reasons for their success could be that, with smaller data systems, SMEs can invest greater trust in their organisations’ streamlined data. In larger organisations, sharing data and business intelligence can be less coordinated.

“SMEs have the advantage of agility and the ability to use BI as a competitive differentiator,” explains Howard Dresner, chief research officer at Dresner Advisory Services. “Because of the closeness of executives to the technology, business and customers, they have an edge against larger competitors.”

A streamlined approachWhile larger businesses may have greater human and financial resources, enabling them to spend more time and money on gathering business intelligence, SMEs often face less operational challenges in leveraging this knowledge.

“Larger organisations get bloated with bureaucracy and process, forcing them to focus [business intelligence] upon efficiency,” Dresner explains. “In contrast, smaller enterprises are, by definition, more efficient and can focus externally – enabling them to take market share from larger players.”

SMEs – a growing market for business intelligenceAnd the market is responding to this advantage. Previously, business intelligence providers focussed on targeting large businesses who offered more profitable deals. However, as the nature of business intelligence evolves and technology solutions become more versatile and suitable to clients of all sizes, SMEs have become a more attractive sales proposition. Dresner explains, “of course, larger enterprises continue to generate the big deals, but they are far fewer in number than SME deals. SME is a growth segment for vendors.” And this change in market landscape is also affecting how business intelligence vendors are approaching prospective SME clients, who typically seek lower cost deals.

As products evolve to meet market demand, the adaptable nature of SMEs is fuelling greater flexibility in business intelligence technology. Befitting their more mobile nature, mobile device support, dashboards and cloud technology are all growing in popularity amongst SMEs.

“Cloud enables readily-implemented and consumed solutions at a price point that enterprise software can’t approach. And everyone loves dashboards,” says Dresner.

It’s precisely this agility that positions SMEs so uniquely. With a flexible growth strategy, SMEs can be extremely well-placed to access and implement business intelligence, and evolve their strategy for maximum success.

Create bespoke applications using Graydon’s company information data. Seamlessly combine your data with the Graydon database to galvanise and grow your existing data strategy. More on data integration on our website.

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Do not fall victim to Corporate Identity Fraud. Corporate fraud is one of the world’s biggest growth industries. Its broad scope and evolutionary nature means businesses must take a proactive stance in protecting their assets and identity.

What’s the risk of corporate fraud?Around 17% of UK businesses have been victims of fraud. The impact can be wide-ranging: from financial loss to companies and clients; to brand and reputation damage; and in some cases, business failure. Understanding some of the different types of corporate fraud can help you take an informed approach to safeguarding your business.

Corporate identity hi-jackingAs the Home Office explains, corporate identity fraud is “when a false corporate identity or another company’s identity details are used to support unlawful activity”. In practice, fraudsters may use your organisation’s good payment record and reputation to procure goods and services from suppliers. They could do this by submitting false documents to Companies House, changing the registered address and adding details of fake directors. Once achieved, they can then make false credit applications.

Alternatively, they may use your business identity to extract personal information from your customers or suppliers with the aim of defrauding them.To protect your business, check your registered details regularly to make sure they haven’t been changed. You can also use a reputable credit reference company to undertake regular checks on your customers and suppliers, looking out for unexpected changes in their available information.

Falsified credit applicationsMisleading companies into extending a line of credit is a very common type of fraud. A higher proportion of these scams occur towards a company’s year-end, when fraudsters know that key finance staff may be distracted by their increased workload.

To protect your company, never be rushed into making a decision about extending credit. Conduct due diligence on the client – you can check their credentials with their auditors. And ensure to meet face-to-face at their premises. If they do not agree to this, don’t extend credit to them. Signs for concern may be if they use a PO rather than a physical address, or if they don’t want to meet at their offices or if they appear to have recently moved into a leased address.


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Before extending credit, make sure to establish how long they’ve been in business, how long they’ve been at their present location, their credit rating with other vendors and credit reference agencies, and personal information on their directors or owners.

Website cloningWebsite cloning is when fraudsters replicate your company website, creating a fully functional site – with a few key differences. This site can then redirect the financial details that customers enter, or change your company’s contact details – redirecting customers to fraudsters.

To guard against this, search online for your company on a regular basis to ensure you know your online presence. And when doing business with other companies, always look for the padlock symbol on their website and ensure the web address starts https://.

False invoicingFraudsters may falsify invoices, purporting to be from established suppliers that you work with. Be on the lookout for inflated charges or duplicate invoices. When in doubt, always call the supplier, and ensure your accounts employees understand the importance of never ignoring credit or payment terms.

First steps – conducting basic checksBasic due diligence can help protect your business from the offset. Before you start to vet potential and existing clients more thoroughly, this basic checklist can highlight any obvious areas of concern. So make sure you:

• Know the identity of your customer (meeting face-to-face is always best)• Check the company registration number (the one UK data item that can never change)• Validate all delivery addresses• Check the company auditors are registered with a recognised professional audit body• Run a domain name check• Check for valid VAT numbers.

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How to use a company check to negotiate better deals. A company check is an important tool for business due diligence and should be carried out before any major interaction with another company. But company checks can also help you spot business opportunities and provide you with the information you need to negotiate the best deals for new business.

Websites, face-to-face meetings and interviews can tell you a lot about a company. But conducting a company check can be just as revealing – showing you everything from a company’s financial performance and structure to the history of its directors. When carrying out a company check, the combination of company accounts, annual returns and annual reports will provide a critical view of the company’s health to help inform your decision whether to do business.

Business intelligenceCompany checks can also be used in other ways. With some committed research, the wealth of information available could help you spot vital trends in a company’s performance and highlight opportunities for investment or collaboration that aren’t immediately obvious.

Opportunistic enterprises analyse other companies’ performance as a key method of finding new business opportunities. After all, knowing your market and spotting better-than-average performance is a wise investment approach. A little research could go a long way.

Account-based marketingThis is particularly true for those who use account-based marketing. Also known as key account marketing, this is a strategic approach to understanding key current or future clients in order to offer them a more profitable service. The aim is to conduct in-depth research and develop thorough knowledge of how these client works in order to create targeted marketing packages that meet their needs. This approach is heavily data and analysis-driven. Therefore, companies using this technique are in a strong positioned to make the most company checks.If, for example, a company reports higher-than-usual annual revenue or demonstrates an upward trajectory in its profitability, this could be a good opportunity to look for collaborative business prospects. By adopting an account-based marketing approach, businesses can then contact the company with more attractive credit terms, incentives or returns than competitors.


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Important trendsWhile business operations vary substantially between each company and every enterprise’s objectives are unique, when it comes to investing there are underlying principles that are important across the board. Identifying the following positive trends in a company’s performance could herald a positive investment opportunity:

Analyse financial performanceTake a look at how the company’s financial performance has fared over the last few years, looking for changes and finding their cause. For example, did improved or decreased performance stem from an identifiable event? How will this event continue to affect the company?

Structural changesHas there been a change to the company’s structure in recent years, for example through a merger or streamlining exercise? Research how this impacted its finances and whether improved performance is just a temporary result of reduced operational costs and increased cash flow, or if this is a permanent development.

Risk ratingsFirst identify your own risk framework and appetite, and then look at the company’s. Has there been an improvement in their risk profile or credit rating? Has this followed a positive upward trend or is it vulnerable to fluctuations. How comfortable or able is your company to accommodate this risk?

Management approachTake a thorough look at the management structure of the company and research the profiles of its directors and executives. This includes looking at their past enterprises to understand their career trajectories and the business culture they are likely to be contributing. A recent change in management could be a profitable shift or it could signal instability, depending on the individuals involved.

By investigating a business thoroughly, you can identify gaps in their performance or offering where you could sell in your products. Tailoring your services to meet their needs could be the key difference between your success over competitors.

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Use a company director check to your advantage. Hiring an employee is an important decision for any company – not only is it an investment in the potential employee, it’s also an investment in the company’s performance and its future. But, when inviting someone new into your company, there are always risks involved – from underperformance through to employee fraud. Which is why effective background checks are crucial.

HR referencesThere are different ways to gather information on someone’s professional history. The most common is an HR reference. However, the law regarding this is complex, and hiring managers can find that it doesn’t give them enough information to flesh out a rounded picture of a candidate. In fact, employers are not legally obliged to provide a reference, unless the employee’s contract states they are entitled to one, or if the employer risks victimising the employee by not providing a reference.


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Furthermore, many employers are now very cautious in the official information they provide, given the potential liabilities involved. Typically, they may just confirm that the individual was employed, their job title and the dates of their employment. In this case, it can be a good idea to do some more research.

Company director searchOne option is to conduct a company director search on any candidates. Basic company director searches are free and provided by many online sources, with the motherships of information being Companies House and the County Courts. While a company director search is, of course, only useful to research candidates who are company directors, just because someone’s CV doesn’t state they are a director, it doesn’t mean they haven’t set up a private company outside their 9-5 job. Indeed, the latest figures from Companies House show there are 3,417,272 companies registered in the UK. With so much data available, it’s worth doing a quick check.

What will a company director check reveal?Director searches are a useful part of employment due diligence because, at a basic level, they can further verify a candidate’s directorship dates in their past employment. But they can also throw up other useful information – both about their previous companies and their own performance. Through a company director search, you can then conduct a company check on any directorships listed in order to research their financial strength, annual revenue and any developments in the company’s history. If the candidate’s director position was at a company whose performance improved during this period, this could be a good indicator and worth bringing up for discussion. Conversely, if a company was liquidated, suffered poor financial health or investigated for fraudulent activity, this will also need to be discussed.

Not all red flags are bad newsIt’s worth bearing in mind that if a candidate was a director at a company that collapsed, this may not be bad news. Many companies were adversely hit by the global financial crisis and a director of one such company could even have some valuable lessons to impart from this experience.

However, there are a few red flags that do need thorough investigation. If your research reveals that a director is disqualified, personally bankrupt or currently subject to a bankruptcy decision, then it is in fact illegal for them to hold a present directorship.

The Graydon Company Director Search provides information on over six million director and company officer appointments within UK registered companies. Conduct a Director Search on our website.

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Know Your Customer (KYC) – the shifting landscape of this regulation. As the finance industry made a return to stricter regulation, following the financial crisis, the requirement to know who companies were dealing with, became a priority. And this landscape continues to evolve.

Know Your Customer (KYC) - A global frameworkIn recent years, financial services firms beefed up their compliance teams worldwide, in order to comply with anti-money laundering, Know Your Customer (KYC) and other regulatory requirements. This sea-change in approach gained further prominence following a number of high profile investigations into fraud or money laundering by global financial institutions. It became clear that better frameworks were needed to ensure companies didn’t facilitate money laundering through failings in their customer checks.

KYC dictates that companies are responsible for validating the identity of their customers and understanding any potential criminal activity risk that may result in doing business with this customer. And to ensure ongoing compliance, companies are also responsible for initiating regular checks throughout the duration of their relationship with the customer, including tracking and evaluating changes to the customer’s profile. The customer’s profile is referenced against watch lists, including politically exposed persons, those facing regulatory sanctions or criminal actions, and those listed by the Office of Foreign Assets Control.

Anti-money laundering regulationOne of the greatest challenges of complying with fraud and anti-money laundering regulation affects international companies, who need to ensure they adhere


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both to local and global regulatory requirements. With overarching regulation complemented by unique local law, international firms need to allocate sufficient resources to understanding and implementing checks that meet both systems. Such challenges in the compliance landscape have given rise to a wealth of services designed to help companies know their customers and comply with local and international law.

Accounting firm PwC issued a quick reference guide to knowing your customer. The company explains that their guide addresses issues including, “whether local regulators support the use of the risk based approach to AML; how to deal with politically exposed persons and whether doing business with shell banks is prohibited.” But in response to growing demand, other companies have gone further, developing platform services to facilitate the KYC process and holistically manage companies’ needs.

Anna Mazzone of Thomson Reuters says regulators “want the banks to be spending more time analysing the legal entity, not turning this into a check-the-box exercise of just collecting documents and stuffing them in a file.” Aware of the market opportunity to provide a streamlining service to firms, a number of companies have responded to this challenge.

As banks and other financial services firms spend significant human and financial resources validating information, organisations are responding to a gap in the market by launching centralised registries that simplify the KYC process by storing, validating and sharing corporate clients’ information. These registries also benefit companies’ customers by sparing them the inconvenience of submitting the same information on numerous occasions.

Industry-owned groups Swift and the Depository Trust & Clearing Corp. (DTCC) both have their own registries, while commercial companies including Thomson Reuters, Strevus and a Markit-Genpact joint venture have also developed registries.

Advantages of reliable compliance systemsRichard Yorke, executive vice president and head of the international group at Wells Fargo, underlined the importance and advantage of reliable compliance systems: “I do think compliance is a competitive advantage, done properly — the ability to execute on regulations, giving confidence to your customers that you’ll be processing transactions that are appropriate.”

As such, large banks are partnering with Swift and DTCC to expand their registries. Twenty banks have already joined Swift’s registry, including JPMorgan, Citigroup and HSBC.

As the regulatory landscape continues to evolve, the importance of knowing your customer will only increase. And clients can look forward to systems that offer more security in their business relationships.

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Fraud prevention, starring big data analytics. Fraud accounts for approximately five percent of lost revenue in the average organisation. Assessing the dangers to themselves and their clients is without question the biggest challenge for risk managers. But with the help of big data analytics there is hope that the impacts of fraud can be minimised and maybe even eradicated completely.

The perils of traditional fraud detectionPrevention and detection is the target for all companies of any size or stature, but around 50 percent of fraud is found by accident when a loss has already happened. Fraud can cause reputational damage that often far outweighs the loss of revenues, as customers lose faith in the company’s ability to protect their assets.

An increase in access channels and transaction volumes has made it significantly more difficult to cope with fraud. Tried and trusted methods of prevention such as behaviour monitoring, network analysis, pattern recognition and profiling have been struggling to keep pace with the technological advancements of the fraudsters. But there is an answer.


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Changing the game with big dataBig data can be used to unearth patterns, trends and more general associations and connections of human behaviour, and it is now an essential tool to prevent fraud. Five years ago, such technology didn’t exist, but now we can use it to our advantage with a multi-faceted analytic approach.

Big data means companies and banks can have real time access to analytics on a large scale, helping them to produce effective risk management strategies to fit financial crime. The heart of the process involves focussing on behavioural profiling and then detecting the unusual when it occurs. It needs to be flexible, but a successful system will be able to detect and even predict suspicious scenarios before it’s too late.

In terms of banks, this real time prevention can be disruptive for customers, which is why Pactera is one company trying to develop a big data solution that can detect fraud without disrupting service levels. SAP is another, with real-time detection tools and predictive methods helping to optimise fraud-scenario assessment and lower the risk.

Who needs protecting most?Big data is helping many businesses across a number of different areas, but when it comes to fraud prevention it’s industries like the financial services, governments and healthcare that are most at risk. This is because these industries are so data-intensive that their huge pools of data can sometimes mask any fraud that takes place.

Many of them already use analytics to assess sales patterns, and this data can have the dual purpose of detecting any strange customer activity. This can be as simple as a change in a customer’s normal connection point (e.g. phone or desktop computer) or average transaction amount.

Big data analytics can also be used to prevent internal fraud, by assessing previous fraud occurrences and drawing together the likely scenario that leads to internal fraud.

Return on investmentThe critical benefit of real-time fraud detection is a reduction on revenue losses, which will mean a return on investment. This is at the heart of all business plans and it is no different when it comes to fraud. For years now the fraudsters have had their way but it seems that finally the risk managers have the tools to successfully fight them.

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Implementing a due diligence process before the deal is closed. Whether you’re planning the acquisition of a company or simply considering issuing a line of credit to a client, carrying out due diligence checks before sealing the deal is an essential process. It will not only help you to make a more informed decision by revealing any hidden issues associated with the business in question, but can also reduce the risk of bad debt and other problems that could affect cash flow. The processes you should implement depend on the type of deal in question. However, in all cases it is important to instil the importance of due diligence to all employees. Stress that it is not simply a tick-box exercise to appease the powers-that-be and make sure that they are aware of any processes you have in place. Here are three common situations where we recommend due diligence before taking the plunge:

When considering an acquisitionYour company’s doing great financially and you’re in a position to buy out another business. Before making this significant step, due diligence is crucial - or you may not remain in such a buoyant financial position for very long.

Due diligence practices in the case of acquisitions and mergers traditionally require in-depth examination of documents such as financial statements, inventories and intellectual property rights. But it’s equally important to investigate why the business has been put on the market. Is it simply a question of releasing funds for retirement, or are there darker issues at play, such as a pending lawsuit?

Posted on 21/01/2015 by Zahra Saeed

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Another vital check involves the company’s assets and liabilities. What assets are needed for the business to remain operational? What is the true value of the assets if they’re sold on the open market? When it comes to liabilities, does the company owe any overdue payments? What about a lease on a commercial property that could prove onerous?

Finally, it’s worth sizing up the competition of your intended acquisition. Look into its three main rivals and compare margins. This may also help to determine the size of the target market- and the potential sales volumes for you.

When moving into an international marketThe world might be your oyster in today’s globalised business setting, but before you make that first commercial step into foreign climes, remember to implement a robust due diligence checklist.

It might be a good starting point to hire a specialist in international trade laws – and ideally one with specialist knowledge of the country in question – to make a risk-based assessment before going ahead with the contract. They should also be able to advise you on the working ethos of the country in question. Will they stick to deadlines? Might you have to deal with a culture of corruption or bribery?

If you’re exporting goods, always try to obtain a credit rating and reputable references for any buyers before shipping any products overseas. When it comes to international supply chains – both when exporting and importing – it’s crucial to bear in mind any political or environmental risks. Of course, natural disasters such as the 2011 Japanese earthquake (which significantly affected supply chains across the U.S.) could not have been predicted, but it is still possible to assess the political stability of a country, for example.

If you’re planning to establish premises abroad, your due diligence process should also extend to considering any environmental concerns and legal obligations you might have.

When taking on a new clientThe lure of new business is understandably tantalising, but don’t forget to conduct due diligence processes before committing to a new sale. Always carry out a credit check to ensure that the company is financially stable and able to honour payments. Most good credit risk management consultancies will offer this service for free, so you have nothing to lose and a lot to gain by taking the time to do so.

Your new client may also be able to provide bank or trade references – and don’t hesitate to ask them for these, especially when there are big payments or a long line of credit at stake.

Remember that the internet is your friend when it comes to investigating a potential client. From reviews and testimonials from other suppliers to the client’s own social media, there’s a wealth of information available with just a click of a button.

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Does your supplier check out? Due diligence within SCM. As we arrive at the second anniversary of the 2013 horsemeat scandal, it might be a good time to review the due diligence checks your company has in place to ensure that your suppliers – food-related or otherwise – are meeting the required legal and ethical standards. And of course making sure that they are doing all they can to avoid or mitigate risk.

At the time of the infamous scandal, accountancy firm Ernst & Young carried out a survey that revealed that only 48 per cent of UK companies carry out due diligence on their supply chain. Even more shockingly, 30 per cent of firms said that they did not carry out any checks whatsoever and 14 per cent didn’t even know the meaning of third party due diligence. To ensure that the supply chain management system you have in place is ethically and economically robust, make sure you’re taking the following checks into account.


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Don’t forget the ‘third tier’ suppliersAccording to José Copovi King, products and services director at supply chain data sharing platform Sedex, companies tend to apply substantial due diligence when it comes to the first and second tiers of their supply chain, but then lose momentum further down the process. This is particularly dangerous as a recent report conducted by the not-for-profit organisation showed that the rate of non-compliance increases the further down the supply chain you go. King explains:

“While the sample in the report achieved an engagement rate of 44.5% with the first tier of suppliers and 47% with the second tier, engagement dropped to just 7.3% of third tier suppliers. On average, these third tier supplies raised 27% more non-compliances than the first tier, meaning that companies often have little or no visibility of where the real risks in their supply chain lie.”

Conducting due diligence checks all the way down your supply chain is especially important if your business is consumer-facing, says King. Such companies often also have the best processes in place as a result, and he highlights Marks & Spencer and Unilever as brands that stand out: “Marks & Spencer’s Plan A has been held up as an industry gold standard and Unilever’s Sustainable Living Plan has achieved significant progress.”

Establish and monitor your key performance indicators (KPIs)The importance of maintaining transparency across your supply chain should work both ways, and part of this should involve your suppliers being fully aware of the key performance indicators (KPIs) you have established for them. Not only will this help you to measure progress better from your partners, but will also provide visibility on both sides when it comes to your suppliers’ contribution to your business strategy. You might be reluctant to entrust a third party with this potentially confidential information about your business, but closer collaboration can ensure a clearer understanding of each other’s needs and a better working relationship in the long term.

Equally important to establishing the KPIs for your supply chain partners is monitoring them, so make sure to implement a strong structure to systematically check that they are being met.

Know your legal obligationsRemember that ignorance of the law is no excuse, so it’s essential to know your legal obligations when it comes to auditing your supply chain. For instance, you are required under the UK Bribery Act to be able to demonstrate that you have adequate procedures in place to address supply chain risks. Failure to do so could result in a hefty fine or even a prison sentence.

Similarly, if you are working with a supplier based abroad, you should be aware of the legal requirements of the country in question, particularly when it comes to health and safety, employment and environmental laws. At the same time, products bought from the supplier should adhere to the required UK standards.

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Business interruption and supply chain rank highest on the 2015 Allianz Risk Barometer. The fourth annual Allianz Risk Barometer on business risk brought to light the challenges posed to businesses by today’s interconnected world. With almost half of all respondents citing business interruption and supply chain risk as one of the top three most important perils for companies, it isn’t surprising that these two issues share top billing for the third year in succession in this global survey.

What is the Allianz Risk Barometer?The Allianz Risk Barometer is a survey of businesses, risk consultants, underwriters, senior managers and claims experts within global insurance company Allianz Global Corporate and Specialty (AGCS) as well as local Allianz entities. The study was conducted over October and November 2014, and included a record 516 respondents spanning 47 countries. Those interviewed were asked to name up to three risks they felt to be most significant within the sectors and industries where they had particular knowledge.

The key trendsBusiness interruption and supply chain risk were rated as the top perils by 46 percent of respondents, marking a three percent year-on-year increase. Natural catastrophes ranked a distant second at 30 percent, with fire/explosion hot on its heels in third place with 27 percent. It’s clear, therefore, that the $249 billion economic losses suffered by the Asia Pacific region in 2011, is still preying on businesses’ minds.

“The lessons of the Bangkok floods and Japan tsunami have resulted in growing awareness from businesses of the knock-on effects from business interruption and supply chain management. Companies now have a greater understanding of the need to monitor risk aggregations, not just geographically, but also in business interruption exposures,” explains Mark Mitchell, regional CEO at AGCS Asia.

On a positive note, macroeconomic risks saw a dip compared to last year, with concerns about the impact of governmental austerity measures not even making the Barometer’s top ten. Similarly, there was a decline in fear of risks connected to credit availability and Eurozone disintegration, reflecting the optimism brought by the slow but steady economic recovery in Europe.


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The perils of an interconnected worldAccording to Allianz, the number of multinational companies has increased from 7,000 50 years ago to 104,000 today. And it’s expected to reach 140,000 by 2020. This rise in globalisation means additional risk complexity, with each risk having the potential to create a knock-on effect and lead to more danger. As companies’ supply chains increasingly span countries and continents, the exposure to political strife, social upheaval and war becomes ever more apparent. It’s no surprise then, that this risk sees a four percent increase on the Barometer compared to the previous year.

“The growing interdependency of many industries and processes means businesses are now exposed to an increasing number of disruptive scenarios,” says Chris Fischer Hirs, CEO of AGCS.

The rise of cyber crimeIn the UK, the main year-on-year change in risk perception within business interruption related to loss of reputation or brand value, and cyber risks. Indeed, the latter was the most significant mover in this year’s Barometer, with a 12 percent increase compared to the 2014 survey. It’s also the top emerging risk for the next five years according to Allianz.

At the same time, cyber risk is also seen as the danger most underestimated by companies, who blame budget restrictions for failing to prepare for the potential disruption caused by such an attack. However, the recent hacking on Sony Pictures is a clear example of the increased sophistication of such online assaults, and shows the significant damage and loss of reputation that can be caused by such a breach. Businesses would do well to take note and put in the time and effort to avoid such a disaster occurring.

The full list of top ten business risks on the Allianz Barometer

1. Business interruption and supply chain risk – 46%2. Natural catastrophes – 30%3. Fire/explosion – 27%4. Changes in legislation and regulation – 18%5. Cyber crime, IT failures, espionage, data breaches – 17%6. Loss of reputation or brand value – 16%7. Market stagnation or decline – 15%8. Intensified competition – 13%9. Political/ social upheaval, war – 11%10. Theft, fraud and corruption – 9%

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The emerging trend of CEO fraud. CEO fraud isn’t, as you might think, fraud conducted by CEOs. Instead, it’s conducted by fraudsters impersonating CEOs and senior executives to trick clients into making payments to fraudulent accounts. This type of fraud is usually conducted by sophisticated criminal organisations with comprehensive knowledge of the market, its structure and the types of customers or employees that are susceptible.

Common CEO fraudCEO fraud can take a variety of forms, but there are a couple of common scenarios. For example, a purchaser may make regular payments to overseas vendors. One day, they receive an email purportedly from their vendor contact, asking for payments to be made to a new bank account due to problems with their current bank account or a switch in provider. The vendor’s overseas location makes it more challenging to verify this change and, with a little pressure applied by the vendor, the buyer makes a wire transfer to the new account – into the hands of fraudsters.


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Another growing trend targets employees, rather than external clients. For example, a regional CFO of a subsidiary might receive a call, allegedly from the global CEO’s assistant, to request an urgent money transfer to cover a tax payment elsewhere. Naturally, the CFO would want to discuss this first, so calls may be set up and official letter-headed paper used in communications. What’s more, the fraudster would have intricate knowledge of the company’s policies – making the scenario more convincing. But, again, money is wired to a foreign, fraudulent account, and then dispersed rapidly before the fraud is identified.

These types of fraud – and there are numerous variations – draw heavily on the power and persuasion a CEO would incite. Employees may circumvent normal security procedures because the request is coming ‘from above’. For added authenticity, the fraudster may introduce a third party, posing as a lawyer or regulator.

What to watch out for

• Communications restricted to telephone or email correspondence, instead of face-to-face or video conferencing. • Urgent and exceptional requests – particularly to transfer significant volumes to a foreign bank account.• Manual transfers that don’t follow standard procedures but can be used in urgent cases.• Persuasive dialogue that may involve an element of secrecy (if a project is ‘under wraps’); authoritative requests, ordering you to act quickly; pressure – implying that your action will influence the outcome of a project; and valorisation – praising your efficiency and discretion.

How to protect your businessFirstly, make sure your employees are aware of these scams, and know to follow the security procedures in place regardless of who instigates the request. Secondly, be sure to keep computer antivirus software up-to-date and deliver regular anti-fraud training to your employees.

Verify any request for orders, transfers or changes of financial details. The best way to do this is to telephone your original contact using the contact details you have on file for them – or those in an official source, such as a company website. To be extra safe, it’s worth using two forms of contact in case one has been hijacked. And inform your superior, risk or legal department if you have any doubts.

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Our bloggers.

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Eric Van den BroeleSenior manager and training consultantEric van den Broele leads the Research & Development department within Graydon Belgium NV. He has vast experience in developing credit management systems for big businesses and small enterprises. Eric often gives guest lectures at various universities in Belgium.

Adnan EssaSenior Digital Marketing SpecialistAdnan is passionate about digital marketing and keeps up to date with the latest developments in the industry. An avid sports fan and supports the red half (the only half;) in Manchester. Adnan is keen to engage with credit and finance professionals through relevant and informative content.

Alice PayneFreelance WriterAlice is a versatile writer and editor with 5 years’ experience, combining her experience in copywriting and journalism to write for clients as diverse as Nutmeg, the Welsh Government, KFC, Robert Walters, Pinebridge Investment, and Epping Forest. She has worked as a press officer at Bank of America Merrill Lynch, as well as in marketing for UK Trade and Investment.

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Colin SandersHead of UK OperationsColin is head of UK Operations at Graydon. Vastly experienced in the field of Credit Risk and Intelligence, he plays an instrumental part in ensuring customers are kept well informed through data intelligence to make the right decisions. In his spare time, Colin follows his beloved Spurs FC.

Nick BrownFreelance WriterNick is a highly experienced writer who has spent more than 25 years working for advertising, marketing and design agencies across the UK. In that time he has developed campaigns and copy for most sectors and many clients, including BT, Castrol, Citroen, Google, Land Rover, Microsoft, NatWest, Sony, Volvo and Waitrose.

Zahra SaeedSales Manager Corporate ClientsFrom DIY tips to A-list celebrity interviews, Zahra’s writing experience spans a diverse range of subjects. When she’s not blogging, she can be found in the kitchen trying to recreate her mother’s recipes or lost to the world within the pages of a good book.

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Nick DriverFreelance BloggerNick has experience writing for a broad range of clients on topics from business and finance to education and the automotive industry. In his spare time, Nick enjoys running and following his beloved Southampton FC.

Blogs Graydon 2015. The importance of data driven for B2B. The term ‘data driven’ is gaining popularity among B2B companies.

Because of the growth of (digital) media and systems, managers can

base their decisions on facts instead of on their gut feeling. There arises

a 360 degree image of the customer.

The success of a data driven approach is dependent on the quality

of collected data, and on how this data is analysed and interpreted.

That will be the core theme of the best Graydon blogs 2015 for the

disciplines Finance, Risk & Compliance and Marketing.

blogs graydon 2015. the importance of data driven for b2b

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