Credit Management in Australia 2015 · General Manager, Commercial and Property Solutions The...

Credit Management in Australia

2015Veda National Credit Managers Survey

02 Foreword from Moses Samaha

03 Key findings

04 Introduction04 Context

04 Purpose of the survey

04 Who we surveyed

05 Credit management experience

05 Company size

05 What we asked

06 Assessment of economic conditions 06 Impressions of current and future conditions and its effect on business

06 The outlook

08 Credit policy changes in response to the economic conditions

11 Managing credit1 1 Demand for credit

13 Payment terms

14 DSO activity

14 Types of information used to help make decisions about credit policies

15 Account reviews

16 Triggers for reviews

16 Prioritising collection activity

17 Credit Management in the future

20 Conclusion

Contents

02

Welcome to this report on a survey of Australian credit managers that the Veda credit risk management team has conducted over the last few years.

Veda provides services to a large proportion of Australia’s credit professionals, and working closely with them gives us a detailed understanding of local credit management issues within a national and global context.

Since the GFC, the surveys have provided valuable insights into credit risk management practices. The timing of this year’s survey coincided with a more upbeat Federal Budget, and two key themes emerged:

Economic conditions are seen to have improved and are no longer seen to be having a negative impact on businesses. Sentiment regarding future economic conditions has continued to become more positive, and the rate of recent tightening in credit policies may relax

to a degree. Indeed, looking forward we may see a loosening of policy if economic conditions continue to improve. That said, credit policies remain tighter than in the pre-GFC environment which may be more of a structural change.

This survey focused on the outlook for credit management in the future, in particular out to 2020. We are seeing changes in the role that credit managers play within the broader organisation. Increasingly, credit managers are expected to be working more closely with

other areas of the business, and providing more strategic advice. This is a broader manifestation of the power of big data and its potential efficiency gains for businesses tapped into it.

The improving business sentiment seen in this year’s survey mirrors what we have seen in Veda’s Business Credit Demand Index, where the growth of business credit applications remained positive and on an improving trend in the first half of 2015.

I hope you enjoy the insights that the findings of this survey offer, and a big thank you to everyone who participated.

Moses SamahaGeneral Manager, Commercial and Property Solutions

The improving business sentiment seen in this year’s survey mirrors what we have seen in Veda’s Business Credit Demand Index, where the growth of business credit applications remained positive and on an improving trend in the first half of 2015.

Foreword from Moses Samaha

Veda Credit Management in Australia 2015 03

Key findings

Economic conditions have affected business sentiment in a varied manner, with 38% of credit managers indicating a positive impact from general economic conditions over the last 6-12 months but 30% indicating a negative impact.

Credit applications have risen for 41% of credit managers and have fallen for 18% of credit managers over the past year. This follows on from a strong year in the 2014 survey where the respective figures were 45% and 18% change.

Payment terms have become marginally shorter compared with previous surveys, with average payment terms estimated at 29.38 days in 2015 compared with 30.61 in 2014 and 33.65 in 2013.

87% of credit managers indicated their belief that by 2020, credit management will always be involved in the acceptance of customers.

The special focus of this survey was credit management within the organisation and how this may change in the future.

45% of respondents indicated that the biggest challenge of the credit manager of the future will be to position credit management as a strategic partner. This was consistent with the finding that credit managers will be working more closely and sharing more information with the rest of the organisation in the future.

There continues to be an improvement in expectations of economic conditions, with 33% of respondents anticipating a positive impact, up from 27% in the year prior.

Credit managers have tightened credit policies significantly; 70% of credit managers indicated they had increased or tightened collections activity over the past 6 months.

There has been a marginal improvement in Days Sales Outstanding (DSO) performance with the average estimated at 43.44, down from 43.89 in 2014.

A divisive issue was to what extent the credit management process would be automated by 2020. 49% agreed with the proposition while 42% disagreed with it.

Currently, 65% of respondents indicated credit management resided in the finance department but this proportion is expected to decline in the future as credit management is increasingly integrated into management.

38%

41%

87%

45%

DSO29.38

33%

70%

65%CM

49%

04

Veda conducted an online survey, concluding in July 2015, to assess the changing status of credit management in Australian organisations.

The survey presented questions in a range of formats to key personnel responsible for credit and cash flow management. The questions were designed to provide valuable insights into current credit conditions, practices and find out how business sentiment over the past 6 to 12 months has affected credit practices.

This report intends to provide insights into the impact which business sentiment over the last 6 to 12 months has had on credit management conditions in Australia.

The data accumulated from our participants will help to paint an accurate picture of how the current economic conditions are affecting Australian business and raise awareness of any notable shifts in credit management from those presented in Veda’s 2014 report.

The participants of our survey are credit managers within a variety of Australian organisations across different industry sectors.

Although our participants represent a range of industries, the majority of participants were in the manufacturing, finance and insurance, construction, and wholesale trade industries that operate on a national scale with over 500 customers. The total number of survey participants in this year’s survey was 240.

Introduction

ContextPurpose of the survey

Who we surveyed

2015


On average, our participants have 19 years of experience in the credit management industry.

Only 10 survey participants had less than 4 years of experience, suggesting the overwhelming majority has a deep knowledge of credit management, history, annual trends and processes.

Range: 1 to 43 years

Average: 19.23 years

Our participants represented organisations ranging from less than 500 customers to over 10,000 customers across a variety of industries.

The majority of our participants were in the manufacturing, finance and insurance, construction, and wholesale trade industries and had over 500 customers.

The survey posed questions relating to the impact of economic conditions and business sentiment on the challenges, changes and practices of credit management in Australia.

This survey aimed to provide insight on:

• changes in economic conditions and the impact on business;

• changes in the process of new credit applications and approvals;

• changes in the credit management of existing customers;

• changes in the management of collections and recoveries; and

• changes in credit management in the future (2020).

Credit management experience Company size What we asked

19

06

Impressions of current and future conditions and its effect on business Economic conditions have affected business sentiment and credit policy is being tightenedIn Veda’s Credit Management in Australia 2014 report, sentiment among credit managers was poor. Approximately 60% of respondents indicated that general economic conditions continued to have a negative impact on business over the past 6 to 12 months. Respondents were more optimistic about the coming 6 to 12 months, with 27% expecting general economic conditions to have a positive impact on their business, while 39% expected a negative impact.

In 2015, sentiment was better among credit managers. Only 30% of respondents indicated that general economic conditions had a negative impact on business over the past 6 to 12 months. In terms of the coming 6 to 12 months, 47% of respondents expected general economic conditions to have a positive impact while 21% believed that general economic conditions would have a negative impact. This represents another year-on-year improvement in sentiment about the outlook.Chart 4.1

Severe negativeimpact

2%

28%

21%

33%

27%30%

41%

5% 6%

0%

Negativeimpact

Neutral Positiveimpact

Strong positiveimpact

0

10

20

30

40

50

Past 6-12 mths

Future 6-12 mths

Chart 4.1 Impressions of current and future conditions

The outlookThe outlook from survey participants continues to become more positive. Credit managers are more optimistic than they were in 2014, when they were again more optimistic than in 2013. This is reflected in a declining proportion of respondents expecting a negative impact from economic conditions in the next 6 to 12 months. Indeed, the outlook among credit managers is more positive in this year’s survey than it was in each of the past four years.

Reflecting this continued improvement in optimism:

• 47% of businesses expected to be positively affected by general economic conditions in this year’s survey, compared with 27% of participants in last year’s survey, and 16% of participants in 2013; and

• 21% of businesses expected to be negatively affected by general economic conditions in this year’s survey, compared with 39% of participants in last year’s survey and 57% of participants in 2013.

Chart 4.2 Businesses expecting a negative impact from general economic conditions in the next 6-12 months

Chart 4.2

2011 2012 2013 2014 2015

0

20

30

10

40

50

60

80

7074%

59% 57%

39%

21%

Assessment of economic conditions


This improved sentiment reflects a range of factors in the context of the Australian economy:

• Australia’s unemployment rate has remained around the 6% mark since the survey last year although industry prospects are far more varied;

• Australia’s economic growth has remained below trend (2.3% over the year to March 2015) and will remain so in 2015-16 as the economy battles the wind down of mining investment;

• The Reserve Bank has cut the cash rate to a record low of 2% and more rate cuts are a very real prospect;

• The exchange rate has depreciated significantly over the past 12 months, with falling commodity prices and lower interest rates important in this change. This is helping to stimulate tradable sectors.

• Australia’s Federal budget remains entrenched in deficit, with plunging commodity prices hurting prospects of achieving budget balance.

It should be noted that after the conclusion of the survey, the international economic outlook again became more uncertain due to Greece’s debt crisis and position in the Eurozone as well as China’s difficult economic transition and financial volatility.

Among some of the key economic drivers, over 70% of participants took the view that broader economic growth would have a positive impact on their business. This is considerably more optimistic than in last year’s survey where this was around 50% of participants. Interest rates are at record low levels and this was expected to have a positive impact by more than half of participants. The depreciation of the $A over the past year has been significant, yet 60% of respondents indicated that the currency impacts would be either neutral or negative. Respondents were varied in their views of the Budget on their business, but on balance respondents indicated it would have a moderate positive impact. In contrast to last year’s tough Federal Budget, this year’s Budget included a number of measures targeted at small business, including a small business tax package and appears to have been better received.

Despite general optimism, participants expressed concerns about a range of specific factors, including the impacts of the downturn in Australia’s mining industry, economic growth and employment and levels of indebtedness in the Australian economy.

Chart 4.3 Expected impact of key economic drivers over next 6 months

Chart 4.3

Significantnegative impact

Moderate negative impact

Neutral Moderatepositive impact

Significant positive impact

Don’t know

Broader economic growth

Level of interest rates

Level of currency

Budget

0

10

30

20

40

50

70

60

8%

19%

35%40%38%

64%

48%

28%32%

7% 5% 5% 5% 5%3%7% 7%8%

20% 19%

0% 0% 0% 0%

08


Credit policy changes in response to the economic conditionsThe economic conditions facing businesses in Australia have implications for credit policy. Although the general mood among survey participants can be considered to be one of cautious optimism, many participants reported that credit policies had been tightened in the last six months.

Specifically, the survey asked participants to note any credit management policy changes they had adopted or were planning to adopt. These policy shifts included:

• adopting stricter/tighter or reduced/easier lending/credit criteria;

• increasing/tightening or reducing/loosening collections activity;

• reducing or increasing credit limits provided;

• registering or not registering security interests; and

• providing shorter or longer payment terms.

Of those that reported credit policy changes in the last six months, they reported the following (compared with last year’s survey):

Looking ahead to the next six months, of the participants who reported planning to change credit policy in response to economic conditions (compared with last year’s survey):

As a result the majority of respondents expect to further increase or tighten collections activity in the future.

70% increased or tightened collections activity (70% in 2014);

49% have stricter lending and credit criteria (58% in 2014);

30% have registered security interests (41% in 2014); and

16% have reduced credit limits (23% in 2014).

59% plan to increase or tighten collections activity (61% in 2014);

41% plan to have stricter lending and credit criteria (50% in 2014);

27% plan to register security interests (34% in 2014); and

19% plan to reduce credit limits (22% in 2014).

Although the general mood among survey participants can be considered to be one of cautious optimism, many participants reported that credit policies had been tightened in the last six months.


Other

Register security interests

Reduce or loosencollections activity

Increase or tightencollections activity

Provide longerpayment terms

Provide shorterpayment terms

Increase creditlimits provided

Reduce creditlimits provided

Reduced or easierlending/credit criteria

Stricter or tighterlending/credit criteria

0 20 40 60 80

11%

2%

30%

27%

5%

70%59%

14%

10%

17%

18%

13%

10%

16%19%

10%

8%

49%41%

4%

Last 6 mths

Next 6 mths

Chart 4.4 Changes to credit policies in response to economic conditions

These findings may have broader implications for the Australian economy. While the Reserve Bank of Australia continues to keep interest rates at record lows to stimulate the economy, credit growth may be restrained if the availability of credit is tightened further. Hence, the Reserve Bank’s frustration that a low cost of credit is not translating into much stronger economic activity, other than in promoting additional lending for housing. But credit managers are making prudent decisions not only taking into account the cost of funds, but the ability of the broader market to deliver growth over time.

Participants reporting a positive impact from the economy were less likely (38%) than those experiencing negative (50%) or stable (51%) to report changing to stricter credit criteria. They were also less likely to have increased or tightened collections activity (60%), with 79% of credit managers experiencing negative conditions having done so.

Looking forward, as Table 4.6 shows similar patterns emerged, with those more optimistic about the economy less likely to tighten their credit policies. This reflects a more relaxed attitude to risk consistent with a view of the broader economy which is more positive, and is an intuitive result.

While the Reserve Bank of Australia continues to keep interest rates at record lows to stimulate the economy, credit growth may be restrained if the availability of credit is tightened further.

10

Of those that felt the following impact over the past 6-12 months from the economy:

Negative Stable Positive

They have changed...

To a stricter or tighter lending/credit criteria

50% 51% 38%

By increasing or tightening collections activity

79% 56% 60%

By reducing credit limits provided

14% 17% 13%

By registering security interests

30% 32% 24%

By providing shorter payment terms

14% 13% 18%

Over the next six months they plan to change...


34% 45% 34%


54% 56% 49%


21% 14% 15%


24% 31% 21%


14% 20% 16%

Of those that reported that the outlook for the future looks:

Negative Stable Positive

They have changed…


46% 48% 41%


76% 64% 59%


12% 16% 15%


34% 34% 19%


18% 16% 10%

Over the next six months they plan to change…


32% 42% 33%


62% 57% 44%


22% 14% 17%


24% 28% 22%


14% 17% 15%

Table 4.5 Changes to credit policies for those feeling a negative, stable or positive impact from the economy over the past 6-12 months

Table 4.6 Changes to credit policies for those that reported a negative, stable or positive economic outlook



Economic conditions are affecting the demand for credit and are having an impact on credit management processes. Looking back to last year’s survey, the economic backdrop during 2015 is seen by credit managers to have improved, although economic conditions continued to present challenges for many businesses. This meant that the management of credit outstanding was of significant importance.

On balance, Day Sales Outstanding (DSO) performance has improved marginally again in 2015, and is almost down to 2012 levels. There has been some change in the process surrounding account reviews, with more respondents moving to fixed period reviews rather than at customer request.

Demand for creditSurvey participants reported varied conditions when it came to the demand for credit. The survey results revealed that:

• the demand for credit was rising for 41% of respondents, down from 45% in 2014;

• the demand for credit was falling for 19% of respondents, up from 18% in 2014; and

• 41% reported a neutral change in the demand for credit, up from 37% in 2014.

That left a net balance of 24% of participants reporting an increase over the past 6 months. It is also informative to consider the change in the net results from 2014 to 2015. The net proportion of survey respondents reporting an increase in credit applications fell from 27% in 2014 to 24% in 2015. This suggests that the extent to which the demand for credit is rising has lost some momentum since the last survey, when averaged across all survey respondents. However, credit demand remains notably stronger than was the case in 2013 when a net balance of only 13% indicated an increase in credit applications.

Interestingly, of the largest sectors for credit respondents (shown in Chart 5.1), all saw an increase in credit applications (net balance). This improvement in credit demand was seen across all major industries. Relative to 2014, the magnitude of this net balance was higher in the manufacturing sectors (43% versus 26%) in particular, while it was lower for the retail sector (30 down to 20%).

The only industry which saw a negative balance for credit applications was the transport and storage sector which had a net position (proportion of increases less proportion of decreases) of -14%. As an industry, transport and storage tends to do well when construction does well, and the weakness may reflect the difficult position many mining-related companies are facing with the winding up of mining investment combined with falling commodity prices.

Managing credit

Chart 5.1

Construction

35%

30%

22% 22%

43%

26%

20%

30%

20%18%

Financeand

Insurance

Manufacturing Retailtrade

Wholesaletrade

10

0

20

30

40

50

2015 2014

Chart 5.1 Net balance of participants reporting an increase in credit applications

On its bureau, Veda has seen positive growth in overall business credit applications in the first half of 2015. However, trade credit applications on Veda’s bureau have shown some weakness during this time.

12

Reflecting the broad nature of survey participants, around 30% of participants have opened less than 50 accounts in the last 6 months, while a further 47% of participants opened between 50 and 500 accounts. The remaining 24% of participants opened more than 500 accounts in the last 6 months.

This is broadly similar to the 2014 survey, although there are now slightly more organisations opening between 50 and 500 accounts, and slightly fewer opening less than 50 accounts in the last 6 months.

Significantdecrease

Moderatedecrease

Neutral

Moderateincrease

Significantincrease

0 10 20 30 40 50

4%

3%

14%

15%

37%

41%

35%

35%

10%

6%

2014

2015

Chart 5.2 Change in the number of credit applications over the last six months

0 10 20 30

2014

2015

27%

24%

Chart 5.3 Net balance of those reporting an increase in the number of credit applications over the last 6 months (%)

0 5 353025201510

5000+

3001 to 5000

1001 to 3000

501 to 1000

251 to 500

151 to 250

101 to 150

51 to 100

1 to 50

4%

3%

5%

6%

14%

7%

3%

8%

11%

9%

11%

12%

7%

6%

12%

20%

33%

29%

2014

2015

Chart 5.4 Amount of new accounts opened in the last six months

Managing credit


The 2015 survey reveals that the proportion of participants who would provide credit if there was an adverse present was at 38%. This is marginally higher than in 2014 when this percentage was 34%. However, it is still significantly less than in 2013 when 64% of respondents indicated that they would provide credit when an adverse is present. This is a reflection that credit policies have become tighter although there has been some slight loosening since 2014.

Payment termsMost organisations request 30 days for payment.

77% of organisations represented in the survey provide 30 day payment terms, 20% request payment in 60 days, and 41% operate with COD or other payment terms. Note that the responses do not sum to 100% because multiple payment terms can be offered.

The average payment term, as weighted by the responses shown in Chart 5.6 and factoring in non-standard responses in the other category where possible, was estimated at 29.38 days in 2015 compared with 30.61 days in 2014. This suggests that there has been a continued increase in the number of credit managers requesting shorter payment terms in 2015.

The survey results show that the standard payment terms for most credit managers remains 30 days.

The 2015 survey reveals that the proportion of participants who would provide credit if there was an adverse present was at 38%.

Chart 5.5 Providing credit when an adverse is present

Chart 5.5

2011 2012 2013 2014 2015

0

10

20

60

50

40

30

70

31%

51%

64%

34%38%

Chart 5.6 Payment terms offered

Other

60 days

30 days

14 days

7 daysor less

No terms/COD

0 20 40 60 10080

27%

24%

21%

20%

81%

77%

24%

22%

22%14%

34%

20%

2014

2015

14

DSO activityAverage DSO amongst survey participants has improved over the past year, almost returning to the levels seen in 2012.

The DSO in 2015 at 43.4 days was marginally less than the year prior when it stood at 43.9 days and is close to the low of 43.2 days which was seen in 2012. This improvement may be reflective of some generally better conditions for some parts of the economy recently given lower interest rates and a lower $A. It may also be a reflection of the finding that credit managers continue to tighten lending practices, helping to improve payment performance.

Indeed, the survey findings on the proportion of participants reporting a change in DSO are also consistent with an overall improvement in DSO performance since 2014.

The proportion of participants reporting deterioration in their DSO activity fell by 8 percentage points in 2015 while there was an increase of 12 percentage points for those reporting an improvement, compared with 2014. The changes from the 2014 survey suggest that, on balance, DSO performance improved in 2015.

Chart 5.7 Average current DSO performance (days)

Chart 5.7

2011 2012 2013 2014 2015

37

41

39

43

45

47

44.89%

43.22%

44.91%

43.89%43.4%

Deteriorated

Improved

No

0 10 20 30 40 6050

18%

10%

26%38%

56%

51%

2014

2015

Chart 5.8 DSO change over the past six months (%)

Types of information used to help make decisions about credit policiesThe types of information most frequently used by survey participants in their credit decision-making process were as follows:

• 83% used information from an application form;

• 78% used company or business credit reports;

• 77% used ASIC information; and

• 69% used directors/proprietors histories and their other business relationships.

In addition to those key information types, the results showed that credit managers also used a broad range of other information types in their decision making.

The results have remained broadly similar to last year although respondents appeared to use some information types less completely than in the past. For example 77% used ASIC information down from 89% in the year prior. The Financials information source was included for the first time in 2015 and so there is no comparison point from 2014.

Managing credit


Account reviewsAccount review frequencyAccount review frequency has shown some change since 2014. In particular there has been a trend towards fixed period reviews (whether quarterly, six monthly or annually) away from reviews at the customer’s request or other. The proportion of those doing annual reviews increased to 33% from 27%.

Other

PPSR grantor search results

Property and assets ofthe proprietor or director

Proprietor or directorfinancial information

(e.g. income, expenses)

Property and assets ofthe company/business

Company orbusiness financial

information (e.g. revenue,profit, expenses, etc.)

Financials

Credit scores

Trade paymentinformation/references

Directors’ / proprietors’credit histories andtheir other business

relationships

ASIC information

Company or businesscredit reports

Information froman application form

0 20 40 60 80 100

7%

10%

35%

26%

28%

28%

24%

31%

33%

33%

48%

45%

61%

54%

66%

57%

71%

69%

89%

77%

87%

78%

86%

83%

0%

42%

2014

2015

Chart 5.9 Information types used to make decisions about credit policies for new customers (%)

At customer request/Other

Annually

Bi-annually

Quarterly

0 10 20 30 40 50 60

55%46%

7%

8%

27%

33%

12%

13%

2014

2015

Chart 5.10 When to complete account reviews (%)

16

Triggers for reviews

Past due is the main trigger for conducting reviews69% of survey participants reported that a trigger used to review accounts is when they are past due, while 52% reported the use of external alerts such as external administration or court action, and 58% reported the use of amount outstanding.

While the top three triggers for conducting reviews remained the same from last year, some changes were recorded in how common it was for particular triggers to be used. Generally speaking, respondents were less ‘trigger happy’ in 2015. Indeed 10% of respondents indicated they did not use triggers to review accounts, up from 7% in 2014. This may reflect the above finding that reviews of accounts are becoming more formulaic (based on fixed time periods rather than at the customer’s request).

Prioritising collection activityIn terms of prioritising collection activity, 43% of respondents indicated that customers with the greatest dollars outstanding were their main focus while 36% indicated it was customers with the greatest days outstanding on their payments. These were the two dominant answers to the question which is intuitive as it reflects customers who already are problematic rather than look like they may be problematic.

Score movement

PPSR alerts onnew registrationsagainst a grantor

I do not usetriggers to

review accounts

Tradepayment report

Other

External alertse.g. external

administration,court actions

Amountoutstanding

Past due

0 20 40 60 80

10%

8%

9%

10%

7%

10%

21%

18%

27%

18%

65%

52%

65%

58%

80%

69%

2014

2015

Chart 5.11 Triggers used to review accounts

Chart 5.12 Prioritising collection activity

Managing credit

Customer looking like they pay other suppliers

faster than you

Customer paying slowerthan other suppliers

Customer with greatest probability

of becoming insolvent

Customer looking likea high risk of failure

Customer with greatestdays outstanding

Customer with greatestdollars outstanding

0 2010 30 40 50

2%

4%

7%

8%

36%

43%


A special focus of this year’s survey was the future of credit management, in particular for the period to 2020. We asked a series of questions to gauge the opinions of credit managers on:

• How credit management’s position and influence within the organisation may change in the future;

• How credit management’s perceived importance may change;

• The impact of new technologies on credit management; and

• Challenges for the credit manager of the future.

Credit management is a function that has historically been situated within the Finance department of an organisation. This was borne out in the survey with the majority of respondents indicating that currently that is where credit management sits in their organisation.

However, some changes are expected to occur in the future. A smaller majority of respondents indicated that credit management would still be situated within the Finance department in the future, with more respondents indicating that credit management may be located elsewhere. In particular, there may be a tendency for credit management to move out of the finance department and operate either as part of the management function more generally, or as an independently operating function.

Sales (82%) and management (78%) were by far the two departments most often nominated as using the customer insights of credit management. Meanwhile, almost half (47%) of respondents indicated that administration used these insights and almost a third (29%) indicated that marketing used the insights of credit management.

Chart 6.1 Position of credit management within the organisation now and in the future

Chart 6.2 Which departments use the customer insights of credit management?

Credit Management in the future

Considering these findings on the departments currently using the customer insights of credit management, it is informative that as a whole most credit managers believed that they will be sharing more information with the rest of their organisation in the future.

Around 71% of credit managers agreed that more information will be shared with the rest of the organisation about riskier opportunities in the future. But even for less risky opportunities a majority (68%) agreed that more information would be shared, and 25% completely agreed with the proposition for less risky opportunities.

Other

Management

OperatesIndependently

Sales

Financial dept

0 10 20 30 40 50 7060

6%8%

21%

17%

15%

9%

3%

2%

54%

65%

Future

Currently

Sales

Management

Administration

Marketing

Logistics

Purchasing

Other

0 30 9060

82%

78%

47%

29%

15%

11%

7%

18

Changing technology, particularly digital and analytical innovations, have influenced the credit management process over the years. Yet, human judgement has historically been an important aspect of credit management. Looking ahead, respondents held mixed views about the extent to which technology may make credit managers less needed in the future. Overall, there was a slight skew towards partial agreement that the credit management process would become more automated in the future, but many respondents did hold differing opinions.

We do note that 2020 is not that far away, which may have influenced the responses of some participants. Over a longer time horizon, technological changes may have more potential to manifest in changes in credit management processes.

Credit managers were strongly of the view that credit management will always be involved prior to the sales process. In total, 88% of respondents agreed, and around 71% of respondents completely agreed with the statement. This is strong evidence that most credit managers believe that credit management will be a critically important function for organisations in the future.

Chart 6.3 In the future credit managers will share more information with the rest of the organisation

Chart 6.4 In the future, credit management will always be involved in the acceptance of customers prior to the sales process

Credit Management in the future

Don’t know

Completely agree

Somewhat agree

Neutral

Somewhatdisagree

Completelydisagree

0 20 40 60 80

25%

3%

2%

13%

43%

58%

24%

23%

5%4%

1%

1%

About least riskier opportunities on pospects and customers

About riskier opportunities on pospects and customers

Don’t know

Completely agree

Somewhat agree

Neutral

Somewhatdisagree

Completelydisagree

0 20 40 60 80

71%

17%

6%

5%

1%

0%

This is strong evidence that most credit managers believe that credit management will be a critically important function for organisations in the future.


Only around one third (32%) of respondents stated that they currently give advice about which markets to approach to sales or management. Yet, this is expected to change markedly in the future. In the future, just over half (51%) of credit managers expected to provide this advice to sales or management. Again, this indicates the changing role of credit managers, and underscores the finding earlier of the expectation of credit managers to provide more information to other parts of the organisation in the future.

Perhaps not surprisingly given this changing role of credit managers, the greatest challenge for the credit manager of the future as nominated by credit managers was the challenge to position credit management as a strategic partner. Around 45% of respondents nominated this as the biggest challenge, but 23% nominated that ensuring their organisation actually uses credit information was the biggest challenge.

It is also interesting to note that while a large proportion of respondents did not think that changing technology would make credit managers redundant in the future, an even larger proportion (85%) stated that offshoring of credit management would not occur.

Chart 6.5 In 2020, my credit management process will be run virtually automatically. The number of human decisions will be reduced to a minimum

Chart 6.6 Do you give your sales department/management advice about which markets they should approach?

Chart 6.7 Biggest challenge for the credit manager of the future

Don’t know

Completely agree

Somewhat agree

Neutral

Somewhatdisagree

Completelydisagree

0 15 30 45

10%

39%

9%

27%

15%

2%

Don’t know

No

Yes

0 10 20 30 40 706050

12%

3%

38%

65%

51%

32%

Future

Currently

Positioning credit management as a strategic partner

Making sure that the commercial organisation actually uses credit info

Linking processes/systems

Converting the flow of datainto relevant customer

and market insights

Sharing information better

Other

0 2010 30 40 50

45%

23%

13%

10%

7%

3%

20

The 2015 survey indicated that the economic conditions experienced by credit managers in the prior 6 to 12 months had improved. 35% of respondents indicated that economic conditions had been favourable and 30% said conditions had been negative. While this still indicates economic conditions are far from perfect it is a big improvement on 2014 when 60% of respondents indicated economic conditions had been negative and only 12% said economic conditions had been positive.

The Reserve Bank of Australia has cut interest rates to a record low of 2% to support economic growth while the Australian dollar has fallen amidst the challenges faced by the mining sector. On the fiscal front, the Federal Government has opted for a softer Budget this year which may also be responsible for more business friendly conditions. However, growth in the economy remains below trend and uncertainties about our main trading partner, China have intensified in recent times.

The number of credit applications has risen for 42% of respondents and decreased for 18%, a net balance of 24%. This is marginally less than the net balance seen in 2014 which was 27%. As a result, credit applications continue to grow, although momentum is slightly less than in the prior year.

Despite economic conditions being viewed as somewhat easier over the past 6-12 months, credit managers continue to adopt stricter and tighter lending criteria. However, the trend has slowed in this respect with credit managers intending to tighten practices at a slower pace than they were planning a year ago. This is particular the case for those who are optimistic about the economic outlook as opposed to neutral or negative.

This year 38% of respondents indicated they would provide credit when an adverse is present, up from 34% the year prior. This may reflect increased comfort with the economic landscape. However, this is still significantly less than the 64% response in 2013, indicating the broader trend to tighter lending standards.

Perhaps reflective of the trend towards tighter credit policies in recent years as well as the recent improvement in business conditions, DSO performance improved again in 2015, falling to 43.4 days which is marginally above the lowest figure in the surveys

recorded in 2012 (43.22 days). This is consistent with responses indicating that 38% had enjoyed an improvement in DSO over the past six months as opposed to only 10% experiencing deterioration.

This year’s survey also found that the nature of the credit management function is changing. The credit management function of the future is expected to be more integrated with the rest of the organisation, will be providing more information to other parts of the business and will remain critically important to the sales process. It is also likely to take a greater role in advising of new market opportunities in the future. It is not surprising that the greatest challenge of the credit manager of the future is expected to be positioning credit management as a strategic partner.

After another year of improving, but less than optimal economic conditions, Veda’s Credit Management Survey 2015 aimed to reveal changes in how credit managers feel about the economy, and changes in the credit management industry in Australia. Our participants have indicated that times are less difficult than in recent history and credit applications are continuing to rise. Despite this, stricter lending criteria and continuing caution in the management of existing customers remain key themes in the industry.

Conclusion

Despite economic conditions being viewed as somewhat easier over the past 6-12 months, credit managers continue to adopt stricter and tighter lending criteria.

To find out more visit veda.com.au

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This summary, the service described and related product collateral do not constitute legal or compliance advice. Organisations are encouraged to obtain independent legal advice.

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