Credit Risk immediately sounds like a term which should strike fear into business owners everywhere. Nobody wants to hear the word risk when associated with your business, but it needn’t be that way and today we are going to speak to you about managing your credit risk.
Credit risk can be simply defined as the potential that a borrower may fail to meet financial obligations on previously agreed terms. The main goal of the Credit risk management systems we will be speaking about today is too secure overall credit risk parameters and ensure that neither borrower nor lender suffer as a result of these risks. Managing your Credit Risk can have great benefits for your business including increasing cash flow, increasing credibility, better business development, and more secure trading options to name but a few. Having this backing may also give you peace of mind in terms of the security and longevity of your company.
Following the financial crisis, borrowing and lending became a financial minefield, and whilst things have since eased up and more options have recently become available for both parties, the need to be vigilant remains. 25% of all bankruptcies are caused by unpaid invoices, so you may be currently taking more risks than you were aware of. The risks associated with borrowing and lending have not eased as much as one might expect in recent years, and both parties must be aware of the dangers associated.
Some Credit Risk Management companies offer to advise and protect clients in order to allow safe trading, effectively insuring a company’s finances ahead of trading. The first step in Credit Risk Management is to gain a full and comprehensive picture of the company’s finances and position as well as having a solid idea of the company’s ability to lend to customers. Having this comprehensive picture then allows the creation of an appropriate action plan for managing your credit risk, having a simple plan in place will then pave the way for more sophisticated credit management solutions in your company’s future.
Credit insurance is one fairly simple way to manage your credit risk which may assist your company in growing profitably. Cash flow is the most important and also the most vulnerable aspect of business and credit insurance could give your company peace of mind against any bad debts. Credit insurance insures your company against the potential of your customer’s failing to pay their debts within your agreed parameters. This in turn ensures that your company finances and risk scores do not suffer when it comes to your own future borrowing. Non-payments are one of the top ways in which your business can be weakened, and Credit Insurance can be the ideal way to navigate this issue. In this way, you are assured that your company will reach its anticipated targets even if there have been some defaults.
If you find yourself in need of advice, support, or guidance in how to go about credit risk management in your business please don’t hesitate to contact us here at DCA Accountants where we are always happy to help.