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What does integrated credit management (ICM) mean?

In these times of credit & economic crisis, where companies more and more experience difficulties in getting credit lines from their banks, good customer oriented cash / credit management is the cheapest and maybe best option to finance you daily business operations by improving cash flow, working capital needs and finally profitability.

In its most extensive form, ICM means:


  • Analyzing, managing and optimizing the financial risks of doing business. Doing business is only useful, when invoices will and can be paid by your customers.
  • Optimizing customer value by focusing on the (strategic) commercial value of the customer for an organization in terms of revenues and profitability.  
  • Applying financial relations management (FRM) in line with customer relations management (CRM) and company objectives. In general a good relationship with a customer will have a positive impact his payment behaviour and finally customer loyalty.
  • Aligning of people, processes and systems into the organization by means of communication and cooperation throughout the whole financial and physical supply chain. The integrated approach includes both query as customer relations management. 
  • The use of integrated automated solutions is essential to disclose relevant information throughout the organization. These dedicated software solutions will enable your company to automate your processes in an efficient and centralized way.


Trust & doing business

Basically, people do business to make a  profit, ideally on both sides. When your organization delivers goods or services on open account, this implies that you have to put trust in each other. The supplier trusts that customer will pay his invoice and the customer trusts that the supplier will deliver the goods or services correctly and in time. In a way doing business is actually nothing more or less than having trust in each other. When we would be living in a perfect world, credit management would be an abundant business activity. Unfortunately, daily practice shows that trust needs to be earned each time we do business with each other.  Trust is typical human aspect: we can trust each other or not. If we do not trust each other, doing business together is highly unlikely.  So if we trust each other on a human level, how can we be sure that our trust in each other will not be broken?

In business, just as in life, there are no 100% guarantees. One thing is certain, the past is always better in explaining why something has happened then the future. But the past can be a reasonable yardstick to say something about the future. In business and especially in credit management we have to deal with the past to say something about the future.


Simply put, the creditworthiness of a company can be determined or based on two things:

1) Financial facts such as: quick ratio, the company's assets or net worth, operating cashflow

2) (historical) Payment behavior

The more soft and hard information we have and the longer the timeframe, the more we are able say something meaningful about the stability and probability of default of a certain company. However, what is valid today, does not necessarily have to be so tomorrow. There are many examples of (large) companies who looked stable on the outside, but in reality they had been windowdressing there balance sheets and by doing so misleading the observer. This means that there will always be a risk of default. Luckily these situations are exceptions, so among others we have to trust on our own observations based on hard facts (financial information, historical behavior), our own professional experience, market developments and changes in behavior. Especially the last factor is a very important one. A customer who has been paying you consistently at 40 days is basically a good customer (even when the net payment term is 30 days). When this customer suddenly starts paying you regularly at 45 days, this might be an early warning signal that something might be wrong. Migrations or shifts in payment behavior therefore need to be measured and monitored: the earlier you identify these migration the better you can take measures to limit your financial risk and find customer focussed solutions.

Know your customers

In active daily credit management, knowing your customers, the market and your competitors is essential to perform excellent on the job. Knowing your customers means that you primarily need to have an interest in people and the line of business you are and they are in. Why do your customers buy from your company? How important are the products you supply to your customers for them? What is the relative position of your company in the market (compared to your competitions). In other words, what defines and determines the existence of your company. In credit management the (financial) relationship with the customer plays an important role. Though credit management is - for outsiders - mostly not associated with commerce, it is important to understand that a customer oriented and proactive approach is essential to improve the performance levels of credit management. A customer oriented financial approach  will benefit the commercial relationship of the customer with your organization. Here we see the  functional link between finance and sales and therefore sound cooperation and communication between those two departments are vital to the integrated credit management approach. Credit management and the sales department have one important thing in common: they both deal with customers and customer relations. It's only the perspective that differs. Aligning financial and commercial policies and objectives is therefore important. If you do that well, credit management and sales will reinforce each other's activities instead of  opposing each other.

The Importance of Query / Complaints Management

Complaint handling is one the key areas which may have a huge impact on DSO, operational effectiveness and customer satisfaction. When a customer calls to complain about a wrong invoice, delivery or service. If a complaint leads to blocking an invoice, this will not only cause the invoice being paid later than usual but also causes an increase in operational cost because the complaint needs to be solved. As such complaints have a negative effect on cash flow, working capital, cost and your bottom line.


Automation plays an essential role in ICM, however, automating a bad process is the worst thing you can do. So start with getting things right in your organization first. First untill you have a clear idea about how your business processes run, you can define procedures and policies which can ultimately be translated to software. Software or information itself will not bring success, but how you use it and what you do with it does! So before you call a credit management software vendor you should do your homework first. The integrated approach means, that credit management, query management and customer relations management are integrated in one automated system.




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