‘Analysis Paralysis’ is often cited as a reason for businesses failing to achieve their potential – too much time spent analysing an opportunity (or problem) with the result that the window closes and nothing is achieved. In fact, much has been written about this, with Google, alone, returning over half a million pages!
The problem is that many in business – particularly the more entrepreneurially-minded – use this syndrome as an excuse not to analyse anything, relying instead on ‘gut feel’ for all decisions.
However, analysis is a critical part of achieving maximum success in a business and there are many areas where this can be automated to a large extent, too.
One often-overlooked area of a business – because it is nowhere near as glamorous as Sales in many eyes – is Credit Control (also referred to as the Debtors’ or Accounts Receivable Department, depending on where you are in the world). And yet, it’s an area that can have a huge impact on the overall health of a company, and one where analysis should play an important role.
In the years BCC (Before Credit Crunch), of course, many companies effectively outsourced much of the decision-making to Credit Insurers, who would determine appropriate account limits for customers, and would chase up for the longer-overdue debt once it was reported to them. The company was paid out either way – by the customer or the insurer – so was less concerned.
This, of course, has all changed.
Credit Insurers are now a lot more careful with their level of risk and companies are having to re-evaluate their approach: do they accept lower credit limits and a consequent restriction to their business, or do they ‘self insure’ to maximise their opportunities?
By analysing their customers’ payment patterns over time, companies will develop a much better understanding of their customers, being better able to assign appropriate credit limits, while also developing an early-warning system of impending trouble.
What’s more, utilising this information in cash-flow forecasts will provide a far more accurate picture of expected income for a given period than the ‘rule of thumb’ that so many companies seem to still use. And, of course, this should feed through to enable companies to give accurate information to their creditors as to payments due, and take maximum advantage of any early-settlement discounts that may be available.
It all comes down to understanding your business more thoroughly. If nothing else, the economic conditions of the past couple of years should encourage businesses to pay a lot more attention to the fundamentals, and that will be good for everyone going forward.