Getting to the “why” with root cause analysis

Customer habits can be unpredictable. Noticing the problem is one thing but finding the root cause of the issue and finding a long-term solution that protects your company’s interests while maintaining a strong customer relationship takes time and dedication. 

“Whether you’re trying to figure out why your DSO is turning slow or why you have adjustments that seem off, root cause analysis is the deep dive you do to figure out what these problems are stemming from,” said D’Ann Johnson, CCE, corporate credit and contracts manager for A-Core Concrete Cutting (Salt Lake City, UT). “We want to find the heart of these problems, so we do a deep dive into every piece of the issue, find the cause and address it.”   

While addressing smaller issues when they pop up may seem easier, when you forgo addressing the root cause of the problems, they are liable to reoccur and weigh on your credit department. “Understanding the root cause behind a customer’s problems helps to find the best solution for everyone,” said Jason Mott, CCE, corporate credit manager at MFA Incorporated (Columbia, MO). “If your customer is having payment problems, is it because there is a dispute? Is there a discount that was not applied to the invoice? There are a lot of things that can go into why a customer didn’t pay and you need to find the actual cause before you can diagnose the problem and find a resolution.” 

When a customer’s payments slow, credit managers may be tempted to assume the worst before they have a full understanding of the situation. Root cause analysis encourages credit managers to take the time and learn the unique factors at play at every company. “It’s all about shifting from assumptions to understanding,” said Tim Lane, credit and collections manager at Arcosa (Norman, OK). “The symptoms don’t tell the full story of what’s going on, you need to dig deeper to know why that issue exists in the first place and then get to know the customer, their behavior, internal processes and the larger market conditions to find the root of their problem.” 

Building strong relationships with customers and maintaining consistent communication can help credit managers be proactive as they work to find and address the driving force of troubling customer habits. “If you’re not communicating with your customer, you’re never going to get to the root cause of a problem,” Mott said. “There are times when a customer goes past due and becomes harder to reach and visit. The first step in diagnosing a root cause is an open line of communication where the customer is willing to talk to you and tell you what’s wrong. It could be that they don’t have the cash, or they weren’t billed correctly. Once you know the cause, then you can start to develop a plan with your customer and find a solution that works for both of you.”  

If a customer isn’t forthcoming with information, there are other resources to help credit managers determine the root cause. “Besides reviewing a customer’s financial statements, credit managers can review the customer’s payment trends with other vendors by pulling credit reports and looking at their payment history,” said Kevin Stinner, CCE, CCRA, credit manager for J.R. Simplot Company (Boise, ID). “What information on the company can you find online? Financial statements are important because the numbers are there, but what backs up the financial statements is the credit reports, payment trends and other external resources.” 

Root cause analysis can also help credit managers identify strong points in their own metrics. When a credit department is seeing stronger metrics, it can be insightful to know what changes to credit procedures sparked the improvement.  

“Our DSO in the past two to three months has been decreasing,” Lane said. “We noticed that this lined up with improvements we made to our customer onboarding. We had started sending out welcome letters to new customers and our billing specialist started calling them the first time they were billed to make sure the charges were correct and matched everything in their system. So, when we saw that our DSO had improved, we were able to dig a bit deeper and find the connection with our process improvements, which let us know those changes are helping.” 

The bottom line: By conducting root cause analysis and looking deeper into even minor fluctuations in credit behavior, credit managers can be proactive in addressing problems before they spiral out of control. Whether they’re looking at a customer’s payment habits or their own department metrics, credit managers can improve processes by looking closer and asking themselves ‘why?’