The Role of IT in a Credit Business: Re-Randomization of Accounts

There are many different credit organizations, offering a wide variety of credit products and managing credit portfolios in alternative strategic ways. Whilst it is fair to say that there are definite ‘rights’ and ‘wrongs’ in managing credit portfolios, it is also important to realize that there is no single, ideal approach to setting up your credit policies and strategies. Once an initial best practice strategy has been set up, constant changes in portfolio and economic dynamics, coupled with the need to maximize profitability, make continual re-evaluation of current procedures necessary.

As credit management professionals, the challenge is to identify ways to continually improve credit policies to become more profitable. This may be by increasing revenue, reducing costs, improving bad debt, making more effective use of resources or more likely a combination of all of these factors.

Often credit managers have ideas for changes to existing procedures that they believe will result in improved profitability. However, there is typically no empirical proof that the new strategies will work and it is necessary to take a ‘leap of faith’ to implement them. This often constitutes a business or operational risk and as such managers are less likely to test the more radical ideas. These ideas often offer large potential benefits but also have larger potential risk.

It is essential that portfolio testing can occur, to continually improve and test new ideas, whilst not taking unnecessary risk and suffering negative impacts. It is for this reason that the principle of Champion/Challenger testing was developed. Simply stated, Champion/Challenger testing allows the credit professional to test new business strategies on a small but representative sample of the account base, in order to prove the benefits whilst limiting the risks of new policies. It facilitates the on-going evolution of new credit strategies in the continual search to become ever more profitable.