Credit Risk Analysis In Debt Collection Automation Software

Still, there are many business owners and the AR team is struggling to analyze their credit risk which is their customer’s capacity to repay the debt.   

Are you one of those business owners who is facing the same issue, finding it challenging to analyze and manage your credit risk?  

You’re at the right place and it is never too late to know how to tackle the struggle you’re facing.  

Credit risk is nothing but a possibility from a borrower’s failure to repay the debt or money they owe a business for which they bought a service or product on a credit basis.   

 

How does a Poor Credit Risk analysis affect your Cash Flow - Improper Debt Collection System 

Cash flow is the most essential consideration of every business. Cash flow disruptions can have an impact on your day-to-day business operations and investments. These types of disruptions might arise as a result of poor credit risk management and analysis. 

Some of the factors that are caused by poor credit risk analysis are  

1. Increases Bad Debts 

If you are unaware of the credit risk you’re dealing with or if you’re not properly addressing them, you should probably be in a bad state of your debt collection process.    

If a customer buys a service or a product from your organization on a credit basis, promising you to pay it later, you must be furious in recovering the payment back within the due date or promised date. If the customer fails to make the payment, then it becomes bad debt for your organization.    

There may be reasons the customers have missed making the payment within the due date. The customer  

• May have been busy and forgot about the payment  

• Could have thought they have made the payment already  

• Still thinks that there is still time for the due date  

• May be facing a financial problem or natural disaster  

• May be intentionally avoiding the payment   

• Chances that the invoice doesn’t reach the customer or invoice with the wrong details  

Your customer may be facing any of the reasons mentioned above or some other reason apart from this.   

Most of these causes result from insufficient credit risk analysis for your debt collection management system. Poor follow-up on outstanding debts, invoices with the incorrect customer and payment data, and so on are signs of poor credit risk analysis, which can raise bad debts for your business or organization.    

 

2. Increases DSO 

DSO (Days Sales Outstanding) is the average amount of time taking for a company or business to recover the payments or debts from their customers.   

The higher the DSO of a company, the lower will be the cash flow, and the lower the DSO indicates a better and increased cash flow.  

If you’re facing cash flow issues in your company, one of the reasons may be the higher DSO that you’re encountering. It means, that recovering the debts or payments from your customers is too late. This is also a result of improper credit analysis which causes credit risks and this can cause serious damage to the cash flow of your organization.   

If you’re not maintaining your credit risk properly, it will increase your DSO which automatically affects your day-to-day business operations. Yes, as discussed, it will directly affect the cash flow and productivity of your business.   

 

3. Increases Financial Risk  

Every business owner has come across these financial problems at least once in their business lifetime. Increased bad debts and higher DSO for your organization indicate that your business is under a severe cash flow issue. Cash flow issue in the sense, of financial risk, will affect your business development and kills most of your time.    

A poor debt collection management system always creates poor credit risk analysis. Poor credit risk management always increases the outstanding debts for your organization which in turn creates cash flow issues for your organization.   

Recovering the debt may take some proper reports and management. Without maintaining a proper report or analysis, it is nearly impossible to increase the cash flow while decreasing the DSO for your organization. 

 

4. Poor Customer Experience 

Considering all of the above-mentioned issues and struggles, you must also consider your customer’s experience as it’s also a major part of credit risk management.  

Think of a possibility where you’re getting irrelevant invoice messages from banks, repeated reminders for the invoice that you’ve already paid, or a miscommunication.   

How annoying it’ll be! Likewise for your customers too. They’ll also be annoyed if you keep on sending reminders irrelevant to them.   

At the same, your customers will also be annoyed for getting   

• Invoice reminders with the irrelevant customer and payment data  

• Repeated reminders for the same invoice for which your customers had already made the payment.  

• Improper communication medium and method for communicating with the customers  

When your client experience is poor, it will be difficult to maintain a thorough credit risk analysis, which will undoubtedly result in cash flow and productivity problems. 

 

A Proper Credit Risk Analysis with a Debt Collection Software 

1. Debt Collection Software Reduces Bad Debts 

An invoice may turn into bad debt if the customer refuses or is unable to pay the amount within the due date. The more bad debt an organization has, the more the cash flow is affected.    

A proper credit risk analysis enables you to keep better track of your customer invoices and allows you to send invoice reminders on time.    

A proper credit risk analysis will allow you to    

• Eradicate errors in the customer invoice   

• Send the invoice to the right customer at the right time   

• Take note of the customer response to the invoice that you sent recently   

• Track and analyze the invoice properly with real-time reports   

Yes, with a proper credit risk analysis, you can able to reduce the bad debts for your organization and a proper credit risk analysis can be done by a proper and automated debt collection software. 

 

2. Automated Debt Recovery Software Minimizes the DSO  

As we told you before, an increased DSO will always be a big trouble for an organization. If your DSO is higher, it means that you have tons of bad debts to be recovered on your bucket list.  

With automated debt recovery software, you can easily recover your debts and your organization’s DSO will be reduced automatically.  

The lower the DSO of a company, the higher will be the cash flow.  

With automated debt collection software, you can automate all your boring and repetitive tasks by saving you a lot of time for focusing on the development of your cash flow and your organization’s productivity.    

If you wish to maintain all your credit risk analysis properly, you must consider automating your debt collection system. If you do so, with automation, you can easily reduce the DSO and increase the cash flow of your organization rapidly. 

 

3. Debt Collection Management System Reduce the probability of your Finacial Risk 

If you’ve come this far, you’ll have already known the result of automation and what it can give to your debt collection management system.   

Yes, if the automated debt recovery software can reduce the number of bad debts that are pending in your organization and also reduces the DSO resulting in increased cash flow and productivity, Hurray! Your financial problem or risk is already gone. Yes, with   

• Automated invoice reminders  

• Real-time reports  

• Human-centric touch and communication  

• Excellent customer experience   

you can make your customers pay on time within the due date, reduce your bad debts and increase the cash flow of your organization. 

 

4. Proper & Excellent Customer Experience with an Automated Debt Collection System 

Again, with debt collection automation software, you can not only streamline the credit risk analysis of your organization. You can also streamline your customer experience resulting in good customer response.   

A better customer experience will give a better customer response. A bad customer experience will always result in no or zero responses. 

You should also concentrate on your customer experience to get a good response from them. If you make your customer, feel comfortable with your debt recovery process, I'm sure that you’ll get a 2x more response than what you getting before.  

You have known now that automated debt recovery software can make this possible with its 

• Unique Customer Portal with a quick payment option 

• Human Centric invoice reminders and communication method 

With appropriate customer communication, you can maintain a strong customer relationship, and with a good customer relationship, you can make your customers pay on time, lowering bad debts and boosting your organization's cash flow. 

 

Maxyfi Debt Recovery Software 

Maxyfi is an automated debt collection software that includes all of the above-mentioned automation features as well as additional features for automating your debt recovery process and maintaining your credit risk analysis properly.   

Features that Maxy holds 

1. Automated yet Efficient Follow-ups  

Maxyfi has automated follow-ups that send automated invoice reminders to the customers which helps you avoid spending most of your time on manual tasks and allows you to concentrate more on your business development.   

 

2. Customizable and Pre-defined Workflows  

Maxyfi has pre-defined workflows which can also be customized according to your needs, to make your follow-ups more efficient and effective.  

  

3. Unique Customer Portal  

With our unique customer portal, you can make your customers pay faster than before with our easy and quick payment option.  

  

4. Dashboard   

With our intelligent dashboard, you can stay current on real-time customer invoices and payment data. You can see your total outstanding amount, pending invoices, and top debtors for your company all in one spot. 

Still more to know and explore... 

We are also offering a 14-day free trial for our debt collection software. If you're looking to improve your credit risk analysis and reduce your bad debts, you can give it a try.   

With a quick 20 mins discussion, you can get to know more about our automated debt recovery software and you can also read our Maxyfi Blogs for more detailed information.