7 tips for effective credit management and avoid business risks
The current economic situation can lead to major cash flow problems in many companies. Preventing delinquencies or collecting receivables immediately is critical to the survival of these businesses.
To help you gain insight into your own credit management and improve your business risk prevention, here are 7 tips to better protect your business:
1- Establish a direct contact with the company beyond the salesperson
Sales management and credit management are two separate functions.
We also advise you to establish clear policies for extending credit to customers, including credit terms, credit limits, and payment deadlines. And communicate these policies to customers upfront to avoid misunderstandings.
You could also consider offering discounts or other incentives for customers who pay their bills early. This can help encourage timely payments and improve cash flow.
2- Investigate the company
Before agreeing on credit terms, you should check their creditworthiness by reviewing their credit history, credit score, and payment history. This can help you avoid customers who are likely to default on payments.
If you don't have the resources to do that, Coface does it for you. Check our Business Reports, our Credit Score or Coface's Credit Opinion solutions to manage your credit risks.
3- Stay informed by talking with your peers
By joining a trade association or professional federation in your sector, you can keep a regular watch on your business partners by discussing with people also working with them.
4- Insure your business transactions
Protect your business with credit insurance: this is a way to outsource the evaluation and monitoring of your portfolio, get guaranteed payments and benefit from debt collection services.
> More on Coface's credit insurance solutions
5- Do not grant credit overruns easily
If a customer is late on a payment, follow up with them promptly to remind them of their obligation. This can help you avoid prolonged delinquencies and potential defaults.
And remember, your lack of forcefulness at the beginning could come back to haunt you.
6- Retain or request proof
Keep or ask for documents stating that goods have been delivered or purchased services provided. You need to ensure the customer has no excuses to later withhold payment.
And be vigilant. When agreeing to special payment arrangements, be reasonably flexible, but be sure to fully document all arrangements, and follow up diligently.
7- Monitor credit with dedicated tools
Consider using technology to automate credit management processes, such as credit checks, invoicing, and payment reminders. This can help streamline operations and reduce errors.
Regularly monitor your customers' credit to ensure that they are meeting their payment obligations. It makes it easier to identify potential problems early and take corrective action.
Coface offers efficient monitoring solutions to be notified whenever the situation of one of your client changes.
bonus tip: Seek professional advice
If you are unsure about credit management best practices: seek advice from a financial professional or credit management expert like Coface. We can provide guidance on how to effectively manage credit and avoid business risks. > Contact us now!
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Regional Communications Manager
Central and Eastern Europe
Tel: +43/1/515 54-540