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Last updated on 2024年7月4日

How do you leverage data and analytics to identify and prevent high-risk accounts?

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Bad debt is a serious threat to your order to cash (O2C) process, as it can erode your profit margins, damage your cash flow, and harm your customer relationships. To avoid the negative impact of unpaid invoices, you need to leverage data and analytics to identify and prevent high-risk accounts. In this article, we will show you how to use data-driven strategies to reduce bad debt and improve your O2C performance.

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Andriy Sichka

creditologist

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Carlito Carlos Edwin Gierran

Unemployed.
Ian Duncan MacDonald

DIVIDEND STOCKS ARE POWERFUL BECAUSE THEY COMPOUND. When you reinvest new dividend income in more of those financially…

1 Understand your customer segments

The first step to identify and prevent high-risk accounts is to understand your customer segments and their payment behaviors. You can use data from your customer relationship management (CRM) system, your accounting system, and your O2C software to segment your customers based on various criteria, such as industry, size, location, credit rating, payment history, and order volume. By analyzing these segments, you can identify patterns and trends that indicate the level of risk and the potential for bad debt. For example, you can see which segments have the highest or lowest payment rates, which segments have the most disputes or delays, and which segments have the most loyal or profitable customers.

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Andriy Sichka

creditologist
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Though the assessment of credit risk is a paramount of every aspect of credit and order-to-cash management, the 'risk prevention' paradigm is very far from being correct. In the vast majority of cases suppliers of goods and services stay in an extremely competitive environment and have to use trade credit to attract their customers. So 'risk avoidance' is unaffordable luxury for them. With regards to customers segmentation, it is important to remember that payment behaviour doesn't necessary correlates with risk. There is enough amount of cases where customers declared bankruptcy without delaying a single payment. The only reliable way to identify risky customers is to assess and regularly monitor creditworthiness.

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Carlito Carlos Edwin Gierran

Unemployed.
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Specifically in Counterparty Credit Risk Management where assessment and monitoring of the capital strength and leverage were properly assessed on a daily basis. Sometimes profit last month were masked by the heavy losses this month.

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Ian Duncan MacDonald

DIVIDEND STOCKS ARE POWERFUL BECAUSE THEY COMPOUND. When you reinvest new dividend income in more of those financially strong shares YOU ARE EARNING RETURNS ON YOUR RETURNS. LEARN HOW TO FIND THESE COMPOUNDERS.
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The only time competing companies are legally allowed to "collude" is in the sharing of commercial trade payment information. While not allowed to discuss future actions, they can comment on their historic relationship with an account. Credit managers attend industry credit meetings monthly to discuss common accounts. They anonymously and regularly submit their aged-trial-balance information to credit databases. By gathering trade data, starting dates, NSF checks, collection claims, legal suits and judgments scoring systems are built to accurately predict how long existing and prospective customers will take to pay suppliers or not pay them at all. Credit management is all about calculated risk. Maximizing sales requires some risk.

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James Albert

A to Z Business Resources Expert, Coach, Developer of Operational, Financial, Accounting, Bookkeeping, Job Costing, Sales, Service, Commercial Lien Laws, Wholesaler Credit Process developer
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Know your industry, the players in the industry, and know everything about how these businesses go to the market! Look at the opportunities as well as the risk associated with the opportunities.

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Atul Save

Counsellor, Trainer, Consultant - Banking, Credit Risk, BPR
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Giving credit in business is like investing in stock market for short term prima facie, but since business credit gets rolled over in practice, it is like long term investment in equity shares. Management quality (integrity), familiarity with business model, top line & bottom line growth, industry outlook and market gossip can be the guiding factors. For perceived high risk customers, it is better to give good discount on upfront cash payments and cover the default or delayed payment risk.

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2 Monitor your accounts receivable

The second step to identify and prevent high-risk accounts is to monitor your accounts receivable (AR) and track the performance of your collection efforts. You can use data from your O2C software to generate reports and dashboards that show key metrics, such as days sales outstanding (DSO), average days delinquent (ADD), collection effectiveness index (CEI), and bad debt ratio. By monitoring these metrics, you can see how well you are managing your AR and how much bad debt you are accumulating. You can also use data to identify the root causes of bad debt, such as billing errors, customer disputes, or poor communication.

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Mahammad Maner - Financial Operations Professional

Result Oriented Experienced Professional I MBA Finance I Financial Operations – OTC, AR, AP I Collection & Billing I Reconciliation I Process Management & Stabilization I Transitions I MIS I PMO I
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Proactive AR management is crucial for mitigating credit risk. Regularly monitor your Accounts Receivable (AR) portfolio and collection efforts. Utilize data from your Order-to-Cash (O2C) software to generate reports and dashboards displaying key metrics like Days Sales Outstanding (DSO), Average Days Delinquent (ADD), Collection Effectiveness Index (CEI), and Bad Debt Ratio. By analyzing these metrics, you can gain insights into your AR collection efficiency and identify potential bad debt accumulation. Further data analysis can pinpoint root causes such as billing errors, customer disputes, or communication breakdowns. Early identification and rectification of these issues can significantly improve cash flow and reduce credit risk.

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3 Automate your collection process

The third step to identify and prevent high-risk accounts is to automate your collection process and optimize your workflows. You can use data and analytics to create rules and triggers that automate the sending of reminders, invoices, and statements to your customers. You can also use data to prioritize your collection activities and focus on the most high-risk or high-value accounts. By automating your collection process, you can reduce manual errors, save time and resources, and increase your collection efficiency and effectiveness.

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Mahammad Maner - Financial Operations Professional

Result Oriented Experienced Professional I MBA Finance I Financial Operations – OTC, AR, AP I Collection & Billing I Reconciliation I Process Management & Stabilization I Transitions I MIS I PMO I
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Let's ditch the manual grind and get smart about collections! Data can be your secret weapon to automate routine tasks. Imagine setting up rules that automatically send friendly reminders, invoices, and statements to your customers. Plus, data helps you prioritize! Focus on the high-risk accounts that need the most attention, while letting automation handle the rest. This frees up your team's time for more strategic tasks, reduces errors, and keeps the cash flowing smoothly. #Automation #CollectionsEfficiency

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4 Communicate with your customers

The fourth step to identify and prevent high-risk accounts is to communicate with your customers and build trust and rapport. You can use data and analytics to personalize your communication and tailor your messages to your customer segments. You can also use data to track your customer feedback and satisfaction and address any issues or concerns that may affect their payment behavior. By communicating with your customers, you can improve your customer service, resolve disputes faster, and encourage timely payments.

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Mahammad Maner - Financial Operations Professional

Result Oriented Experienced Professional I MBA Finance I Financial Operations – OTC, AR, AP I Collection & Billing I Reconciliation I Process Management & Stabilization I Transitions I MIS I PMO I
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Open Communication is Key to Healthy Cash Flow! ? Building trust with your customers is key to preventing late payments. Data can be your bridge! Use it to personalize your communication and tailor messages to each customer segment. For example, friendly reminders for some, and more specific outreach for others. Data also lets you track customer feedback. Address any concerns quickly to avoid payment delays. Think of it like this: open communication leads to happier customers, which leads to smoother cash flow! So ditch the one-size-fits-all approach and leverage data to connect with your customers in a way that keeps everyone happy. #CustomerCommunication#PaymentSuccess

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5 Review your credit policies

The fifth step to identify and prevent high-risk accounts is to review your credit policies and adjust them according to your data and analytics. You can use data to evaluate the effectiveness of your credit policies and see how they impact your bad debt and your O2C performance. You can also use data to refine your credit criteria and scoring and apply them to your customer segments. By reviewing your credit policies, you can reduce the risk of extending credit to unqualified or unreliable customers and increase the likelihood of collecting your receivables.

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Mahammad Maner - Financial Operations Professional

Result Oriented Experienced Professional I MBA Finance I Financial Operations – OTC, AR, AP I Collection & Billing I Reconciliation I Process Management & Stabilization I Transitions I MIS I PMO I
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Level Up Your Credit Game with Data! Ever feel like your credit policies are stuck on repeat? Data can be your guide to a financial refresh! Analyze your current policies and see how they impact bad debt and overall Order-to-Cash (O2C) performance. Here's the cool part: you can use this data to refine your credit criteria. Imagine creating a scoring system that tailors credit limits to different customer segments. This way, you reduce the risk of bad debt from unqualified customers, while ensuring good ones get the credit they deserve. Data = smarter credit decisions, smoother cash flow, and happy customers! #CreditReview #FinancialOptimization

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6 Learn from your data

The sixth step to identify and prevent high-risk accounts is to learn from your data and analytics and continuously improve your O2C process. You can use data to measure the results of your actions and strategies and see how they affect your bad debt and your O2C performance. You can also use data to identify gaps and opportunities for improvement and implement best practices and recommendations. By learning from your data, you can enhance your decision making, optimize your workflows, and reduce your bad debt.

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Mahammad Maner - Financial Operations Professional

Result Oriented Experienced Professional I MBA Finance I Financial Operations – OTC, AR, AP I Collection & Billing I Reconciliation I Process Management & Stabilization I Transitions I MIS I PMO I
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Data: Your Secret Weapon for a Flawless O2C Flow! Don't just collect data, use it to become a financial Rockstar! Analyze the results of your strategies and see how they impact bad debt and your overall Order-to-Cash (O2C) process. Think of it as a continuous feedback loop. Data can reveal hidden gems - areas where you can optimize workflows and implement best practices. Imagine identifying gaps in your process that lead to delays or errors. By fixing these, you can dramatically reduce bad debt and keep your O2C running smoothly. So, leverage data to make smarter decisions. A data-driven approach means a more efficient O2C process, less bad debt, and a happier financial team! #DataDrivenDecisions #O2COptimization

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you leverage data and analytics to identify and prevent high-risk accounts?

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1 Understand your customer segments

2 Monitor your accounts receivable

3 Automate your collection process

4 Communicate with your customers

5 Review your credit policies

6 Learn from your data

7 Here’s what else to consider

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