eCredit: Online Solutions for Credit and Collections Professionals

eCredit removes the barriers to commercial credit scoring to enable companies of all sizes to enjoy its many benefits. Most companies use scoring to gain one to several of these advantages outlined below, with substantive results.

Improve Efficiencies
One of the key advantages of credit scoring is the ability to automate many low value-added tasks for a high percentage of accounts. In order to estimate the benefit of improving efficiencies for your company, ask how much time credit analysts spend on the following activities.

Today's technology can manage all of the activities listed above and can push to the credit analyst only those accounts that fail the automated review. Even in the case of a manual review, the scoring process has already gathered much of the data required to make an accurate decision, allowing the analyst to focus on the credit decision rather than the data collection. In both cases, the automated scoring process is able to quickly gather the necessary information, evaluate the account, determine the proper workflow, and ultimately communicate the result of the decision back to the requestor.

For example, traditionally a credit application is faxed or emailed into the credit department either by sales, customer service, a branch location or the customer. The credit analyst will then pull bureau information and/or call trade and bank references, make a decision on approval and credit limit and then communicate results back to the originator. This process can take anywhere from one to several hours to complete. With eCredit's automated scoring solution, only those accounts that fail the approval process are routed to the appropriate credit analyst, which typically saves 50%-80% of a credit analyst's time that can then be redeployed to new account processing.

Regardless of your order volume or order size, all companies can benefit from credit and collections scoring. Depending on your business, two groupings of benefits emerge:

Increase Sales and Customer Service
How would you feel if after test driving and negotiating the purchase of a new car you were told it would be at least a day or two before the credit approval decision came back? This does not happen today with car sales, because dealers use real-time credit scoring to ensure that your application is processed in seconds while you wait.

However, in the commercial world this "wait for approval" scenario happens all the time. To overcome this issue many companies will either ship the first order and try to chase it on the backend or risk losing the business by taking the time to make sure the potential customer is creditworthy.

The second scenario puts sales at risk and leaves an unfavorable first impression with the prospective customer. Today, technology has enabled the integration of a variety of scoring models to allow for real-time credit analysis which can:

Another sales tool used by all finance companies is risk-based pricing. The credit card offers you receive in the mail have all been processed using your credit "FICO" score to determine your interest rate (Higher risk equals higher APR). Today more and more commercial businesses are using risk-based pricing to help them approve more high risk accounts and offer more competitive pricing to lower risk accounts. The result of both initiatives is higher sales.

Accurately Predict Bad Debt Exposure
Predicting bad debt exposure is usually a process that involves looking at last year's number, historical numbers and making a best guess on future bad debt reserves. Today predictive scoring models can accurately predict bad debt exposure by assessing how risk classes of customers historically go bad (this same process is used when bundling mortgages for sale on the open market). A simplistic example is in the table below:


Risk Class	Number of Accounts	Total AR	Historic Bad %	Bad Debt per Risk Class
1 (Low risk)	1000	$5,234,555	1.2%	$62,814

2	2500	$14,234,900	1.7%	$241,993

3	4200	$31,903,976	2.2%	$701,887

4	3000	$18,984,983	2.7%	$512,594

5 (High risk)	1200	$7,293,410	8.5%	$619,939

TOTALS	11,900	$77,651,824	2.8%	$2,139,227

In the above example I have a very clear understanding of the risk of my customer portfolio as well as the historic bad/write off rate for each risk class. From there I can easily calculate my expected write off rate based on the overall risk of my portfolio.

This will allow for proper debt reserve allocation. Having a debt reserve that is too high ties up cash for more revenue producing activities, while having a debt reserve that is too low puts pressure on net income and interest expense to pay for the additional write offs.

Proactive Risk Analysis
Most credit departments have a review policy to proactively assess risk on a portfolio of accounts. However, many of these departments are stretched too thin to proactively perform the proper reviews on all accounts.

Automating the monthly, quarterly or annual scoring of your account base will allow your Credit Analysts to spend their time on exception handling and free them from the reviewing the "no brainer" accounts.

Proactive risk analysis will save Credit Analysts time, which they can then devote to more value-added exception accounts. It will also identify potential bad debt accounts earlier in the deterioration process. For example, if you are a primary vendor you will likely be the last to know that a customer has slowed their payment habits with the majority of their suppliers. Proactive risk scoring and analysis will identify those accounts on a more immediate basis.

Drive Collections Strategies
Most collections departments use aged trial balances to collect on past due customers, working from right to left on the aging report. Some collections departments have software that will electronically route work to collector work queues every night based on the company's collection policies and strategies. Today's best practices include incorporating your credit risk score (collection recovery score) into your collection strategies for more appropriate treatment of your accounts.

For example, the credit approval process may identify an account as high risk. The ability to then adopt a more aggressive collection policy and strategy on that account will improve the collector's ability to collect and lower DSO. Study after study has shown that the more an invoice ages the less likely it will be possible to collect on that past due balance. Being more proactive and aggressive on your high risk customers will improve overall collector performance and company DSO.

Ensure Regulatory Compliance
As a public company you understand the demands of Sarbanes-Oxley (SOX). As a private company, you may have been involved in an internal audit which documents and follows many of the same principles of SOX compliance. Automating the credit analysis process with objective and consistent scoring can help in SOX and internal audit compliance in the following ways:

Now has never been a better time to evaluate and implement credit and collections scoring for your company. Yesterday's barriers to commercial scoring are gone, which will allow the Fortune 500 company or small business the opportunity to enjoy the benefits of an automated scoring solution.