How technology has transformed credit

The role of credit professionals in modern organizations is multifaceted and challenging, with numerous responsibilities and pressures. The evolution of technology, from computers to artificial intelligence, has transformed the credit management field, improved productivity and eliminated repetitive tasks. However, for some credit departments, technology has become a burden.

Why it matters: Understanding the impact of technology on credit management can inform us about the evolving demands and challenges in this profession.

1980s

The personal computer, which began to proliferate in the 1980s, is one of the most significant technological advancements in business credit.

The launch of the World Wide Web (WWW), the leading information retrieval service of the Internet (the worldwide computer network), in 1989 ensured that credit professionals would have access to vast amounts of data and information instantaneously. This ease of access has contributed to the rise of online credit applications and customer portals that streamline credit processes and ensure timely payment.

“Now, we can email dunning notices with a link for invoice downloads or direct bill payments via Credit Card or EFT,” said Lee Tompkins, director of credit and collections at MPW Industrial Services, Inc. (Hebron, OH).

In 1988, credit professionals saw a ‘software explosion.’ This online collection of software packages stored customer files, eliminating the need for index cards and excessive computer printouts. Since then, automated systems have evolved to help credit professionals make faster and more accurate credit decisions, reduce manual errors, improve cash flow and enhance efficiency in managing credit relationships with customers.

“Credit experts know they have everything they need and can access it anytime,” said Leon Zhang, credit operations manager at SRS Distribution Inc. (McKinney, TX). “Our greatest benefit is our automated scoring process that uses algorithms to evaluate creditworthiness more efficiently.”

1990s

Telecommunication, or communication over a distance by cable, telegraph, telephone or broadcasting transformed business credit in the late 90s. This meant that employees could work remotely from home, a satellite office or even a neighborhood work center. Telecommunication has led to what we consider ‘remote work’ today, where employees perform their job responsibilities outside of the traditional office setting.

Although remote employees require more technology for effective communication and collaboration, it allows for schedule flexibility and greater productivity. “It’s just been interesting to me how some members of my team focus more when working in their cubicles while others give me much more by working from home,” Tompkins said.

Not only has technology helped credit managers, but it has enhanced customer relationships because people are easier to get a hold of, whether it’s through email, Microsoft Teams or by phone. “You can more easily remind the person of invoices that are past-due or if there’s some disconnect,” Tompkins said.

2000s

The turn of the millennium ushered in a digital revolution that reshaped industries across the globe. For example, the rise of digital payment technologies, including electronic invoicing, online payments and automated clearinghouse (ACH) transfers, revolutionized the way B2B transactions are conducted. Digital payment solutions accelerated cash flow, reduced payment processing times and enhanced transparency, driving efficiency and liquidity in credit management operations.

The proliferation of mobile technology empowered credit managers to access critical information and perform essential tasks on the go. Mobile applications enabled remote credit approvals, customer communication and portfolio monitoring, enhancing flexibility and responsiveness in credit management operations.

Today

Although artificial intelligence (AI) is not new, its presence in the financial industry has grown significantly in recent years. Customer onboarding, predictive analytics, centralized data, scorecards and cash forecasting are just a few ways AI can be used in the credit department. The customer onboarding, for example, can go from a five-hour manual process to five minutes with the help of AI. The anticipation of customer behavior through predictive analysis and making the right decisions when it comes to collections can be used through an AI-powered solution.

OpenAI’s ChatGPT, launched in 2022, assists trade credit professionals in the rapid gathering of information, saving time spent on rigorous research required to onboard new customers. “We may have better ways of knowing who we should contact without just having a Post-it that’s stuck next to our phone,” said Eleanor Hartman, CCE, credit manager at Autodesk, Inc. (Portland, OR). “But the core of the credit department in managing relationships hasn’t changed.”

Yes, but: Advanced technology has been confronted with considerable challenges due to resistance towards these novel systems and a deficiency in employee training. “I think the biggest challenge that a lot of people end up facing is a disconnect with how comfortable people are using technology,” Hartman said. “Some people dive into it and there are other people who are afraid to do anything with an Excel spreadsheet.”

Technology can lead to information overload. So, how do you identify what’s pertinent and where to concentrate? Tompkins calls this predicament ‘analysis paralysis,’ a state of indecision caused by overthinking a problem or an overload of data. “With so much data available, you’re less sure what you should really be focused on,” Tompkins said. “You also can’t solely rely on technology to make credit decisions, otherwise, you’re going to be missing out on some opportunities with potential customers.”

As technology continues to advance, credit professionals must strike a balance between leveraging automated systems for efficiency and maintaining the personal touch required for effective relationship management with customers. “The key part that’s stayed the same in my 30+ years in credit, regardless of time and technology, is the relationship that the credit manager establishes with the customer,” Tompkins said. “That relationship, regardless of how it’s cultivated, is key.”

What’s next: As new automation tools become available, the credit management profession will continue to evolve.

“The next step then will be what comes with AI processing and data modeling on the data that is now captured and is being added to each day,” said Danny Wheeler, AR solutions strategy manager at BlackLine Systems, Inc. (Birmingham, UK). “Being able to accurately predict customer trends and behaviors and enable continually updating payment forecasts or better insight into seasonality impacts on customers or payments and then have that information being fed back into the process as actionable data to enable even better process management and customer relationship management.”

Some digital platforms help credit teams automate and offload the tedious parts of analyzing credit applications such as data collection, automation of trade and bank references, credit reporting and account monitoring. “Our system helps remove low-value work and gives credit professionals more time to focus on key aspects of their role and unlocks more of their time, insights and capabilities,” said Nauman Hafeez, chief executive officer at NetNow (Toronto, Canada).

The big picture: The evolution of technology from the 1980s to today has significantly transformed the credit management field. Yet it also presents challenges such as information overload.