Credit checking and monitoring is a full-time job requiring external expertise

Every successful company has a unique strength, which makes them good at what they do and sets them apart from others.

Take the case of a shoe manufacturer. The company will know everything about the tools of the trade, the various types of raw material, as well as the best and most cost-effective ways to source them, and the process of creating a finished product that appeals to buyers. But, in order to thrive over the long term, it’s not enough for the shoemaker to merely focus on only producing and selling a great product. Among other things, it’s equally important for the company to have a coherent credit management strategy, and especially so in an uncertain economic environment where payment default risks are on the rise and set to spike further. While credit management is a crucial function, trying to keep it all in-house can significantly stretch a company’s resources.

Measures companies should consider when establishing a system of credit checking and monitoring include:

Tracking payment behaviour

Keep your bookkeeping system up to date to ensure you know which customers are paying on time and which have failed to pay. This lets you follow up appropriately.

Regularly monitoring a customer's financial health

It is important to monitor customers constantly since conditions can change without warning. This should include reviewing a company’s financial accounts including its debt level, profits and cash flow. Other sources of information include the local Chamber of Commerce and third-party data providers.

Maintaining accurate data

It is essential that customer data is kept up to date in a central repository to help prevent unauthorised changes. Having an accurate record of any special arrangements also allows your company to send invoices without errors, execute collections with the correct approach and manage disputes effectively.

Understanding industry sectors and market risks

Detailed knowledge of the sectors and geographies in which a customer operates will also better position your company to conduct an accurate credit assessment. Industry performance and the economic outlook for markets depend on a number of factors including government policies, consumer sentiment and supply chain security.

Ensuring new customers are genuine

Before accepting orders from a new buyer, you should run through a checklist of questions to highlight any anomalies. Things to be aware of include how long has the business been established? What is the legal form and does that really match the type/size of business you are being led to believe it is?

The argument for professional credit management

But how can companies carry out an effective credit check assessment without diverting much-needed resources away from their primary business? This is where the core competency of a credit manager comes to the fore. To further strengthen the effectiveness of this crucial resource, you can consider a trade credit insurance company that will function as an efficient and relatively low-cost supplement to support sound in-house credit management practices and mitigate risk.

Access to extensive resources

First and foremost among the reasons to rely on a trade credit insurance company is access to their in-depth knowledge and resources. These include highly trained and experienced underwriters who are located on the ground, speak the customer’s language, have a sound grasp of local regulatory requirements, and specialise in risk assessment.

Credit insurers also have access to a range of tools that aid the continuous monitoring of a client’s customer base. These include extensive databases containing information on millions of companies around the world, complete with buyer rating systems, allowing companies to balance risk and opportunity through informed decision-making. Such a system can help you avoid risk, allowing you to focus resources on growing the business through customers who pay their bills on time. Moreover, when payments are overdue, a credit insurer will often help you with debt collection as part of your coverage.

Global trade credit insurers, with their broad footprint are capable of investigating a company first-hand, which is even more crucial in places where financial reports are not easily accessible. For instance, an advanced economy like Germany requires all companies, regardless of their size, to file their financial reports online, which are then available for easy access, and companies operate within the guardrails of a strong legal system. This, however, may not be the case in many countries in Asia – a key difference that will matter if your company is trying to recover money from a customer or seeking redress in the event of fraud.

Finally, a credit insurance company brings a degree of impartiality that enhances the effectiveness of the credit management process. An unbiased, unsentimental approach provides a realistic view of a customer’s standing in the market and its future prospects, in turn helping your company avoid the hassle of bad debts and focus on building a robust client roster.

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