A lasting redefinition of the credit manager's profession

Between its appearance in companies in the 1970s^[1] and today, the credit manager's role has evolved from the essentially technical function of collecting receivables, attached to the accounting departments, to broader missions such as optimizing WCR, mapping and managing risks, etc., in direct liaison with the finance departments. This evolution can be explained by the many changes that have taken place in our society over the last few decades, bringing new challenges to credit managers.

What are these changes? What are the consequences for credit managers? What are the new challenges? Spotlight on a real paradigm shift, leading to a necessary evolution of the credit manager's profession.

The civilization of risk: a sustainable situation

To describe today's business environment, experts have coined the term VUCA. We live in a world of Volatility(with unstable situations of unknown duration, as we saw with the health crisis),Uncertainty, Complexity(too many stakeholders, too many processes, too many interdependencies) andAmbiguity(the causal relationships between two phenomena cannot be predicted a priori).^[2].

This context is partly the result of several disruptions, the effects of which have been accentuated in recent years:

• Information break

This translates into an overload of information to manage, and the growing importance of unstructured data. Analysts estimate that the overall size of the global "Data Sphere" (i.e. all the data that is created, collected or duplicated around the world) represented 33 zettabytes in 2018, compared with less than 10 in 2012. This poses a concrete problem for all managers, including credit managers: knowing how to discern quality, useful data from other, more numerous data, in order to make the right decisions.

• The implications for credit managers: coping with data overload

Like all managers, credit managers have to deal with a deluge of data. This creates two major difficulties: firstly, identifying reliable and relevant sources, and secondly, ensuring data quality.

The ease with which data can be created and disseminated encourages people to publish everything, including information that is worthless or, worse still, false. Hence the importance of using a trusted third party, such as Ellisphere, to validate the quality and reliability of information sources, as well as automation solutions such as accounts receivable collection software.

• Regulatory break

Changes in French and European regulations are having an increasingly structuring effect on companies, insofar as they require far-reaching transformations in management processes (e.g. with electronic invoicing), or in reporting, particularly extra-financial reporting, for example as a result of the CSRD (Corporate Sustainability Reporting Directive). In the area of payment times, the European Commission is working to propose new rules, which will complement the provisions of the existing directive, adopted in 2011^[3]. The aim is to introduce stricter measures to prevent late payment practices, in the form of maximum payment periods. The proposal makes the payment of accrued interest and compensation automatic, and provides for new enforcement and redress measures to protect creditors against bad payers.

• The implications for credit managers: constantly adapting to regulatory changes

Even if the proliferation of regulatory texts is less pronounced in the field of payment regulation (but this may change over the next few years), credit managers need to strengthen their skills in legislative and technical monitoring, including in related fields (economic conditions, new technologies, financial announcements, executive appointments, etc.), as this has a direct influence on customer credit policy.

• Technological breakthrough

Innovation and ever more powerful and rapid technological developments, such as Artificial Intelligence and Big Data, are also revolutionizing customer relationship management.

• The implications for credit managers: capitalize on technological opportunities

New technologies are now at the service of credit managers, maximizing their added value. Artificial Intelligence, for example, is shaking up the market, notably through self-learning analysis of payment behavior, alert generation, solvency analysis and the generation of key indicators.

Thanks to these innovations, which are able to process a greater quantity of data, credit managers can propose more relevant indicators and provide more refined, high-performance analyses.

• Organizational breakdown

Compared to the industrial era, companies in the digital age have a number of distinctive features: they are moving from stable, predictable environments to uncertain ones. Business processes are increasingly digitalized. Decision-making methods (relatively more transparent, more agile, more data-driven, etc.) and the way organizations are run are also undergoing radical change, for example with the "Data Driven" enterprise.

• The consequences for credit managers: a cross-functional role for credit managers

Like other strategic professions, such as HR, CIO and CFO, credit managers are increasingly taking on a cross-functional role within organizations. They are, as the AFDCC puts it, "creators of links".^[4]between sales, finance and legal departments. The credit manager is also the guarantor of the sharing of a customer risk culture within the organization, a task that is extremely difficult.

• A break with the times

Businesses operate in an increasingly unstable economic, social, geopolitical and environmental environment. The practical consequence is that it is even more difficult to anticipate customer payment behaviour and default risks, as cyclical fluctuations weaken cash positions. In fact, credit managers are pessimistic: the AFDCC (Association Française des Credit Managers & Conseils) 2022 survey reveals that, "in the current context, and with what we are seeing in terms of pressure on DSO and late payments, 70% of credit managers say they are pessimistic about the forthcoming trend in payment terms, compared with 30% in 2021."^[5]

• The consequence for credit managers: heightened vigilance with regard to cyclical fluctuations

Economic uncertainties and crises of all kinds, which can scarcely be anticipated, increase the number of company failures, which can be brutal. This calls for heightened vigilance on the part of credit managers, who must also take account of international customer risks.

Credit manager: new paradigms redefine the profession

The multiple upheavals facing companies today are an opportunity for credit managers to transform their profession in depth and extend their roles within organizations, in a sustainable way.

The AFDCC sums up the job as follows: "The credit manager's role is to control outstanding receivables, i.e. the company's sales not settled by its customers and outstanding orders. To do this, he or she aims to identify anything that could lead to delays or disputes, and implements quality processes throughout the customer relationship. The company's credit manager is both the manager of a quality process and the sales force's partner in the collection of sales".

The credit manager's "historical" missions have been reshaped by four new requirements corresponding to the four current changes:

• A multi-risk approach is essential : beyond payment risks, we need to integrate the "invoice environment", i.e. take into account weak signals, company behavior, structural changes in companies, extra-financial analysis...
• Risk analysis is becoming more personalized : the aim is to improve tailor-made predictability, with personalized tools based on the use of customer data. Credit managers need access to the information they need to make the right decisions, as quickly as possible.
• Customer risks are further integrated with business processes (API management), to feed other processes (e.g. compliance, anti-fraud, CSR, etc.) and a single customer repository (with a Master Data Management approach).
• Credit managers' missions are shifting from an accounting-based approach (invoice status) to a knowledge-based approach (customer behavior, economic environment, etc.), more in tune with economic reality.

 

While customer risks have long been managed reactively, or even neglected, major disruptions (technological, regulatory, informational, economic) now call for a much more structured approach and anticipation on the part of credit managers. This calls for a necessary transformation of their profession, based on 4 principles of action: mastering data, integrating regulatory compliance, optimizing processes and adapting to economic turbulence.

 

[1] "Credit manager, maillon fort de l'entreprise", Les Echos, August 28, 2008. lesechos.fr/2008/08/credit-manager-maillon-fort-de-lentreprise-496372

[2] Cf. Management VUCA, manager dans le nouveau normal, Éditions Gereso, 2022.

[3] Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions. https://eur-lex.europa.eu/legal-content/FR/TXT/?uri=celex%3A32011L0007

[4] "Creating value by optimizing the financial customer relationship", AFDCC. www.afdcc.fr/qui-sommes-nous/les-metiers-du-credit-management/

[5] AFDCC 2022 Payment Behavior Survey, AFDCC, 2023. www.afdcc.fr/enquete-afdcc-2022-sur-les-comportements-de-paiements/