Credit Management meets computer automation
A necessary balancing act. A risky business
Matters have been shaken up by the recession. Red lining - the practice of simply refusing to offer certain products on the basis of where people live - has long been outlawed by the Office of Fair Trading (OFT). However, there is an ongoing debate around issues of financial exclusion: The fact that it is often the poorest in our society who pay most for credit. Government - and in particular the Department of Business and Enterprise (BERR) - is concerned with how business grants credit: a Consultation on the implementation of the consumer credit directive is under way. And there has been much focus on what are considered to be bad or irresponsible credit handling habits.
One danger of tightening up credit controls now is that as we emerge from recession, the number of individuals categorised as "greys" by financial and other concerns will be much enlarged. Many individuals will have blotted their credit copybook - and the industry will need some latitude in order to bring these individuals back to the fold.
Philip King, Director General of the Institute of Credit Management, is well aware of this issue. Talking to The Register, he said: "The reality is that with less funds available from banks, the solution for many businesses is to beef up the flow of cash into the business.
"Some businesses are being draconian, reacting - or over-reacting - to present circumstances. Smart businesses are looking at their customer portfolio, working out who pays regularly and well, whilst looking more closely at those who represent a higher degree of risk.
"The best approach may be to reduce payment terms, whilst giving something in return: Simply demanding faster payment, mismanaging the relationship in any way, may store up problems for the future, when the economy picks up again."
At base, he recommends against businesses just getting tougher. Best practice, he observes, is about segmenting and dealing with individuals. He adds: "Automated systems are a good way of driving activity, but they should never overtake thought. There will always be a need for rational judgment."
Additional tips on how to manage cash flow and credit - possibly more relevant to the B2B environment - can be obtained from a series of guides put together by the ICM and BERR.