the biggest problem faced by receivables management is how to solve the contradiction between credit management and sales expansion, and how enterprises can strike a balance between risk and development. There will never be a standard answer to this eternal question. Different enterprises have different choices and tendencies at different stages and under different strategic guidance. But one thing is clear. No matter what our decision is, we need to have complete information and detailed analysis before we make a bet.
first, customers are not all gods
apart from the bad debt loss caused by accounts receivable, it is doubtful that the customer is God only in terms of the goal of the enterprise. Because today's market structure is a buyer's market, the enhancement of customer power leads to the overall decline of product prices, the decline of profit level and the narrowing of profit space of many products and even the whole industry. In such a market structure, not all orders are economical, that is, there is no profit zone.
customers without profit zone can not create value for enterprises, and customers in profit zone are not all value creators of enterprises, which is ignored by the authors of "discovering profit zone".
in theory, the value of an enterprise is measured by the net cash flow generated by operating activities, but in reality, profitability and liquidity, profit and cash flow do not always occur simultaneously. There are two situations that result in the profit zone customers not being value creating customers:
first, the timing difference between profitability and liquidity. Generally speaking, the income and profit of some companies have increased, but the cash flow has not increased at the same time. Take a stock as an example, the company's 2005 and 2006 annual reports show that the main business income increased by 36.14% and 23.36% respectively, while the balance of accounts receivable increased by 64.93% and 102.94% respectively. The 2007 semi annual report also revealed that the main business income and net profit increased by 28.44% and 31.93% respectively, while the accounts receivable increased by 63.07%. As of June 30, 2007, the company's accounts receivable has increased by about 447% compared with the beginning of 2005, and its proportion in the main business income has increased from less than 18% in 2005 to 68%.
second, the permanent difference between profitability and liquidity. Not all accounts receivable can be recovered, the existence of a large number of bad debt losses will lead to the accounting revenue and cash received in absolute quantity is inconsistent. In reality, the loss of bad debts is quite serious. Many companies suffer huge losses because of bad debts.
therefore, even from the perspective of price, customers in the profit zone may not be the creators of enterprise value from the perspective of cash flow. The secret is accounts receivable and bad debt losses. Therefore, strengthening accounts receivable management is even more significant than strengthening marketing management.
2. Striving for market share or value growth
not all customers are gods. This conclusion or view is more realistic in China. This is because there is a much more serious lack of credit in our social structure than in western countries. According to statistics, the average bad debt rate of accounts receivable of Chinese enterprises is about 5% - 10%, while that of American enterprises is only 0.25% - 0.5%, with a difference of 10-20 times; the average delay period is 7 days for American enterprises and 90 days for Chinese enterprises. According to the statistics of the Research Bureau of the people's Bank of China, China's annual credit loss is 585.5 billion yuan, equivalent to 36.8% of the fiscal revenue, of which 180 billion yuan is evaded or abandoned.
in such a market environment, the business attitude, management awareness and goal pursuit of enterprise managers should be very clear - through expanding market share and effective credit management, expanding the value creation area and realizing the sustained and rapid growth of enterprise value.
in the environment of surplus economy, the high-intensity market competition and the improvement of customers' bargaining power have changed and differentiated the role of customers in enterprise value creation, resulting in the emergence of "market without profit" or "market without value" customer groups, weakening or cutting off the positive correlation between market share and profit or value creation. In such a situation, it is necessary to adjust, revise or innovate the traditional conventional concepts -- from the perspective of value creation and accounts receivable management, enterprises need to realize a kind of business transformation: from market share as the center to value creation as the center.
the realization of this change requires enterprises to establish a business model with customer selection as the starting point, value creation as the center, and accounts receivable management as the basis. It also requires enterprise operators to change their current business style and thinking of emphasizing operation over finance and profits over cash flow.
obviously, the innovative business model is adapted to the needs of the buyer's market structure and the low reputation society. In this business model, accounts receivable management is an important component or element.
III. design of enterprise cycle, credit policy and accounts receivable management system
Although accounts receivable management is necessary for enterprise value creation, and even the most important in some enterprises, the actual situation is always unsatisfactory. One of the important reasons is the lack of research, selection and design of credit policy and system.
in fact, the design of credit management or accounts receivable management system starts from the choice of credit strategy and policy. The so-called credit management system is actually the embodiment of credit strategy and policy. Here, credit strategy and policy refer to the credit risk strategies and measures selected by an enterprise according to its business strategy, not the credit conditions mentioned in textbooks. In other words, the management system of accounts receivable is actually the embodiment of the credit policy selected by the enterprise according to the business strategy in different cycle stages.
according to this view, the design of accounts receivable management system should be based on the choice of credit policy.
Annex 1: Table 1 enterprise cycle and credit policy selection
|growth stage||aging stage|
|select parameters||business characteristics||expectations outweigh achievements||achievements exceed expectations|
|target Wizard||Sales Guide||profit first|
|management focus||market share, marketing management||value creation cash flow management|
|Authority||the most authoritative marketing and sales department||the most authoritative financial and legal department|
|credit strategy||high risk credit strategy||low risk credit strategy|
|credit strategy||credit range||wide, all customers can sell on credit||narrow, selective credit|
IV. process reengineering and accounts receivable management
when it comes to accounts receivable management, people naturally think of the popular whole process credit management mode. From table 2 (Annex 2)
|in advance:||in the matter:||after the event:|
| customer credit management; collection of customer credit information;
establishment and management of customer credit files;
customer credit analysis management;
customer credit rating management;
| credit business management, credit policy formulation and rational use;
credit limit audit and credit approval;
Sales Risk Control and contract management.
| accounts receivable management; total amount control of accounts receivable;
sales ledger management;
aging monitoring and payment recovery management;
financing realization and debt management.
|regular supervision and inspection of the group|
the so-called process reengineering refers to the reconstruction and redesign of the internal business and management process of an enterprise, which usually adopts the methods of elimination, simplification, integration, refinement and informatization. From the perspective of credit management, the process to be reengineered includes at least the following three aspects:
1. Organizational transformation. In practical work, credit and accounts receivable business involves many departments and posts, such as sales, finance, logistics, after-sales and so on. At least three problems need to be solved: first, how to define the responsibilities of sales and finance. Second, whether it is necessary to set up a separate credit management department. Third, the responsibility of contract management. In fact, whether it is allocated to the financial department or not, the financial department needs to control all the contracts of the enterprise.
2. Business process optimization. Sales and collection business related to credit is one of the key businesses of enterprises, and the process is the most important and complex. Such as customer development and information collection business process, customer credit rating business process, order processing and internal credit business process, sales risk control business process, payment recovery business process and so on. The improvement of the seller (enterprise) credit control ability and the reduction of the buyer (customer) credit risk are the key to improve the business process. The improvement and perfection of these processes will help enterprises to enhance their value-added level in the value chain.
3. Informatization. The effective operation of organization and process needs the support of complete information system. Even if we focus on credit and accounts receivable management, we must integrate it with other business management. In other words, we must build an integrated and networked information system within the enterprise and even the group.