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Business Credit Scorecards: Scale Your Credit Process With Automation

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Why Every Organization Should Use Credit Scorecards

Automation in the credit field is both a hot topic and a sensitive subject. Most large enterprises automate some part of the quote-to-cash cycle, and there is excitement at midsize and smaller firms around adopting more modern technology or, at least, better leveraging existing technologies. The sensitivity comes into play when it’s time to request the resources to automate successfully.

Automating otherwise manual tasks has many benefits, but the time-saving element is key. If there’s one thing that’s in short supply these days, it’s time. Take, for example, the initial credit decision for a new request for trade credit. Credit managers can’t spend days or even hours looking at spreadsheets, reading credit reports, calling trade references, and leaving voicemails before an order can be filled or a new account can be established. For those who are overwhelmed and tired of all the manual tasks involved in their day-to-day duties and welcome automation to the credit-decisioning process, it’s time to consider implementing a credit scorecard.

What Is a Credit Scorecard?

Simply put, a credit scorecard is a formula that uses data elements, or variables, to determine a threshold, or score, of risk tolerance to aid in the credit decision. These scoring capabilities allow credit professionals to quickly identify the customers who might pay late or pose other serious credit risks and yet create more time to analyze and approve all reasonable requests for credit. It’s especially helpful for those with a large volume of accounts or those who face competitive pricing pressure.

Automating Initial Credit Decisions Through Scorecards Can Help:

  • Reduce Risk – It can lead to decreased bad debt and lower DSO (days sales outstanding) and DBT (days beyond terms) by reducing exposure to high-risk accounts – because any red flags are detected upfront.
  • Increase Speed and Scale – It creates an instant process for handling routine or obvious approvals or declines, and by reducing the time spent on the review process, it increases the volume of accounts that staff can evaluate.
  • Increase Consistency – Calculating new routine credit decisions using the same formula becomes a repeatable process that removes any subjectivity, which can lead to fewer disputes.
  • Accelerate Revenue – The scorecard’s formula can be tweaked for subsequent invoices, and consistently creditworthy accounts can be targeted for future promotions to foster better collaboration with the sales team.

In short, implementing a business credit scorecard can alleviate time-consuming manual reviews and provide more consistent credit decisions. Routine decisions need to be made quickly and efficiently to not only shorten the sales cycle but also reallocate valuable time and resources to higher-exposure accounts. It’s a smart way to strike the right balance between managing credit risk and optimizing resources, and the results are worthwhile – more revenue, less bad debt, and increased profitability.

Download the e-book to learn how to set up a business credit scorecard for new accounts. It includes templates of sample scorecards for when the customer provides financial statements and when they do not.

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