Because incorrectly estimated or arbitrary credit limits can result in bad-debt write-offs and high DSO, “customer onboarding” is the first step and one of the most important steps in the process. When it comes to determining credit limits, the vast majority of companies skip over this step and instead rely on the word of sales representatives or customers.

The procedure for applying for credit

A survey conducted by the NACM found that 33 percent of organizations are struggling to find the time to perform due diligence on prospective clients. This is based on the fact that most businesses determine credit limits by considering data from credit agencies, financial statements, credit insurance, and bank guarantees. Paper-based credit applications, data collection from third-party agencies like D&B and Experian, and credit reviews are just some of the manual processes that make it increasingly difficult for credit analysts to find time to onboard new customers.

      Figure 1 : Process for Applying for Credit Currently

Leading Obstacles to Credit Applications

When it comes to applying for credit, the following are the primary obstacles that organizations face:

• The amount of paper that needs to be processed and stored by them on a monthly basis.
• Documents of a financial nature that are received from customers but are insufficient or inaccurate.
• Inputting data manually into spreadsheets and enterprise resource planning systems, which causes errors and causes time to be wasted.
• Downloading credit reports from industry-leading third-party agencies such as Experian and D&B.
• Excel spreadsheets are used for the calculation of credit scores.
• Obtaining permissions for sending emails.

Leading Companies’ Credit Application Procedures

Figure 2 : How to Apply for Credit Online

The elimination of manual labor and incomplete credit applications is made possible by moving credit application processes online, integrating those processes with credit agencies, and securing those processes with electronic signature technology. A paper-intensive credit management process can be replaced with an electronic one by using an online application. This enables a more efficient credit portfolio and risk management, as well as a more rapid onboarding process for new customers. The credit score and credit limits are both calculated automatically, and workflows are assigned to relevant credit managers so that they can review and approve the credit limits that have been assigned.

Figure 3 : Process for Customer Onboarding and Credit Review

It is easier for businesses to reduce their days sales outstanding (DSO) when they assign the appropriate credit limit to their customers.

The Adidas Group Is a Great Example of a Successful Online Credit Application

Customers can choose from approximately ten distinct credit application formats offered by the adidas Group in order to submit their requests for lines of credit from the many different business divisions located all over the world.

It took the credit team at adidas more than four days to process a single credit application because the process was so heavily dependent on manual labor and paper documentation.

This indicated that the credit team was primarily focused on tactical activities while trying to obtain a complete credit application rather than spending their time strategically working on the credit review process. In essence, this meant that the credit review was being conducted inefficiently.

The Adidas group began rolling out credit application software in an incremental fashion to each of their individual business units. Following the implementation of the High Radius online credit application, the team was able to reduce the time needed to onboard new customers to less than two days, and more than ninety percent of credit applications were submitted with all of the required information on the very first try.

The end result was that the team was able to review more credit applications per given while using accurate data to reduce the credit risk exposure and alleviate the risk of high DSO due to incorrectly estimated credit limits.

This allowed the team to reduce the risk of both high DSO and exposure to credit risk.

High Radius Credit Software

With its four primary components—a configurable online credit application, customizable credit scoring engines, a credit agency data aggregation engine, and collaborative credit management workflow—High Radius Credit Software automates the credit management process.

This enables credit managers to make highly accurate credit decisions 2 times faster and enables faster customer onboarding.

In addition to this, there are a great many important features that should absolutely be investigated, some of which include online credit applications, credit information aggregation, automated credit scoring and risk assessment, credit management workflows, approval workflows, and automated bank and trade reference checks.

As a consequence, the onboarding process for new customers is sped up, the quality of collaboration within the company is improved, customer satisfaction is increased, more targeted periodic reviews are conducted, and the credit risk across the company’s customer portfolio is reduced.