Optimising order-to-cash: a guide for trade creditors – Part 5
Part 5: The importance of maintaining a KPI strategy for trade creditors in the UK commercial lending market
Key performance indicators (KPIs) play a critical role in trade credit, allowing creditors to provide a measured and consistent service. In today’s dynamic business environment, maintaining a robust KPI strategy is more important than ever. At Experian, we recently interviewed credit professionals from across the trade credit industry to understand the challenges they face and how KPIs can address them.
Measuring performance at every stage of the credit life cycle provides a holistic and transparent view of operational performance. By targeting KPIs at crucial processes, trade creditors can gain timely and actionable insights, allowing them to identify gaps in their portfolio or credit strategy and make informed decisions. Robust KPIs also enable creditors to plan with purpose, identify inefficiencies, and drive continuous improvements in their business.
For example, monitoring the early-payment rate on customer credit can help boost cash flow and reduce the number of accounts moving to collection. Experian’s payment performance program, a reciprocal data-sharing scheme, encourages trade creditors to share their sales ledger data, helping them collectively better understand customers and their payment behaviour. In fact, trade creditors who share their sales ledger data as part of our program on average reduce their Days Beyond Terms by 3.9 days within 12 months, improving their DSO score and business cash flow.
Tracking the number of customers that ‘Promise to Pay’ (PTP) and the number of times creditors had to contact an account to secure a PTP can expose the effectiveness of dunning efforts. Measuring customers’ payment behaviour helps creditors identify the best time to get customers to pay and create targeted credit terms. Understanding how payment behaviour has evolved over time and comparing open positions to current orders can provide valuable insights for creditors.
What makes an effective KPI for trade creditors?
When establishing KPIs, it’s crucial to consider co-owning targets and focusing efforts on shared business goals. KPIs should be SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) and measure performance across multiple stages of the customer lifecycle. A combination of proactive (leading) and reactive (lagging) measures is essential, with leading indicators helping to reduce the need for reactive actions and lagging indicators offering valuable lessons for improvement. Different measurements may be required for different customer industries and organizations, and benchmarking against the market is crucial for context.
However, establishing KPIs is only the first step. It’s important to ensure that the results are clear, accessible, and easy to act upon. Market insight dashboards can make KPI information accessible to stakeholders quickly and intuitively, and regular reporting ensures that KPIs are monitored, understood, and assessed frequently. Weekly account management reviews can help take consistent, evidence-based actions and keep measurements up to date.
How does Experian help trade creditors?
At Experian, we provide data and tools to support trade creditors in their KPI strategy. Our industry and regional data allow clients to benchmark their performance against peers, and our payment performance program highlights vital metrics such as ‘days beyond terms’ and query counts. Our credit risk data can be integrated with Tableau and Power BI, making it easy to set up dashboards and track metrics, and our APIs are industry standard and work universally with ERP systems, allowing for fast integration into any organization with the support of our technical teams.
Maintaining a strong KPI strategy is crucial for trade creditors in the UK commercial lending market. By measuring performance, identifying insights, and taking informed actions, trade creditors can improve their operational efficiency, cash flow, and overall business performance. At Experian, we provide data and tools to support trade creditors in their KPI journey, helping them make data-driven decisions and drive continuous improvements.
Interested?
Get in touch with us to see how your trade credit business can meet the challenges of our times with more effective, fairer lending.
Further reading
Optimising Order-to-Cash: A Full Guide for Trade Creditors in the UK
Data cleansing - the foundation for effective credit management. Get set up for success and stay up to speed with changes in your portfolios. Find out more.
Optimising Order-to-Cash: A Guide for Trade Creditors – Part 4
Regularly reviewing your portfolio and better understanding your exposure has never been more important for trade creditors. Find out more.
Optimising Order-to-Cash: A Guide for Trade Creditors – Part 3
Automating decisioning systems can improve efficiency across the O2C process. Find out how Experian can revolutionise your business' credit control process.
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