Sunday, October 4, 2009

Growing E-commerce and growing challenges for Credit Manager

In India, Electronic commerce (e-commerce) is spreading its wings all round and after making space in metropolis cities, it is moving towards smaller setups across the rural market place. Its impact is growing daily in almost all sectors of the economy.
Indian Consumers are increasingly buying goods and services over the Internet. It is not just banking products like cash transactions or credit cards or books and CDs anymore. Houses, cars, insurance, and daily consumables items are are all bought and sold on the Internet daily.
Traditional businesses are reengineering their external and internal business processes to take advantage of today's networked world; new dot com businesses are being initiated at lightening speed fielded by venture capital funding; and more and more businesses are using the Internet to market, sell, and in some cases, to execute their entire revenue chain, from marketing through customer service.
These business-to-business (B2B) e-commerce initiatives are enabling businesses to operate more efficiently generate better cash flow and greater profit, and to rethink the traditional roles played by sales, marketing customer service, purchasing credit managers, and other professionals in the supply chain. There is no doubt that companies today must operate in a much different marketplace than even five years ago; speed and flexibility are valued more than traditional business drivers such as loyalty and time in the business.
The Internet has empowered the buyer by making information on companies and their products and services readily available. Consequently, sellers are facing increased competition. Because of the low barriers to entry in establishing a business, traditional businesses have to be attuned to the fact that competition can come quickly and from non-traditional sources. New ways of doing business are emerging with the role of traditional players in the supply chain being changed or eliminated in many industries: the travel agent, the real estate agent, the insurance agent, the distributor, etc. Everyone must value-add to the supply chain if they are to continue to keep their jobs.
There is no doubt that the value of e-commerce transactions, while still relatively small compared to the overall economy, continue to increase dramatically. The Internet itself has grown rapidly with access readily available across the urban India.
E-commerce is very attractive to many organizations as a way to not only increase business on a global scale and pan India scale, but most importantly to increase the productivity, and hence profitability, of corporations. In many cases this gain in productivity comes because traditional processes that involved people are being replaced, at least in part, by automated processes. The tight labor market reinforces the need for an automated process that is not so dependent on hiring additional resources to grow the business.

As these changes ripple through industries, many professionals are seeing their jobs fundamentally changed, if not eliminated. The credit manager is no exception.
Traditionally seen as the collector and keeper of information to manage business risk, is the role still necessary in today's business environment? Can the information be collected over the Internet? Can automated tools provide for routine credit assessments? If not, can the credit manager respond at the speed necessary to meet the needs of e-commerce? Are credit approval services available twenty-four hours a day, seven days a week?
It is unlikely that the role of the credit manager will disappear, but it must, and will, change. The principle business reasons for credit managers in the supply chain are to manage business risk and to optimize cash flow, as illustrated below.
Managing business risk is even more important in an e-commerce environment. Many organizations demand a short timeframe to achieve a return on investment (ROI) for their e-commerce investment and plan for large increases in sales in a short time-frame. A substantial investment in technology is required to create the infrastructure necessary to do e-commerce well, depleting back-up liquidity. Many businesses find they are selling to new businesses, organizations they have traditionally not done business with before and which demand instant credit approval, otherwise they will just move on to another vendor. These processes must be automated because of their impact on the success of an organizations e-commerce initiatives.
An e-commerce application that requires the buyer to stop and call a number to get credit approval will be highly detrimental to the overall e-commerce initiative. Similarly too stringent a credit policy will turn away potential customers. The Internet also means that a business must be open twenty-four hours a day, seven days a week. Are your customer service and credit approval services only available during normal business hours? What effect does this have on customers in different time zones?
E-commerce is global and businesses must consider all the support processes that are necessary to make the total buying experience work, and work well, for existing and new customers. This means automating many of the back end business processes and making them always available.
The involvement of the credit manager in the development of these applications will greatly improve their effectiveness, but many organizations will automate the process with or without that involvement. To be successful, the credit manager must understand e-commerce, what it means to the business process, how it works, how they can optimize its effectiveness for their organization, and how they can ensure the integrity and privacy of credit information in the networked world. Today's credit manager must be knowledgeable, flexible, and part of the company's e-commerce strategic planning team.
To be effective in the e-commerce environment, the credit manager must change its focus from the day-today review of credit applications to being the focal point for e-commerce credit policies, assisting in the development of automated tools to implement these policies, and assessing and modifying the policies to meet the changing needs of the business. That does not mean that there will be no manual review of credit applications, just that these will be viewed as exception processing not day-to-day operations.
The control of business risk and optimization of cash flow is equally vital of all business enterprises whether traditional business houses or an e-commerce enterprise. Credit Manager must step up to understanding the e-commerce model of their organization to play important role in developing policies to ensure minimum risk and maximum optimization of cash.
It is quite exciting and increased the challenge for modern Credit Managers.

1 comment:

  1. Hello Uday ! Nice to see you in blog world. I suggested you years back to write on financial issues and pen down your professional experience. At last you have started. CONGRATULATIONS!

    NOW on this article, I think, working for over 6 years in leading financial institutions, you have understood the activities and improtance of a credit manager and his changing role in the ever chaning e-commerce world... in this shrinking world, a credit manager needs to be adept with technology and felxible to allow credit and turn credit into quality credit and business ! And your two awards as best employee at ORIX AND NCCB was exemplifying your zeal and zest !

    At last, worth reading article ! Waiting for some new things !