Why credit management is important?

Your credit policies or the way you approach credit management can determine whether your business thrives or fails:

  • Too strict  - you may miss out on important sales opportunities and your business may fail to grow
  • Too lenient - you may miss the warning signs of a customer in trouble or even indications of fraud.

What is credit management?

Credit management is the function of granting credit terms and making sure payment is collected when an invoice becomes due. Good credit management promotes dialogue between finance and sales teams to create a balancing act where risk is minimised and opportunities maximised. Trade on credit is a common practice among B2B because beyond the convenience it offers, it is widely believed that offering credit is important for nurturing business relationships and developing new ones. Many businesses also maintain it is more convenient to trade on credit.

Trade credit can be a valuable business tool. Companies that allow payment to be made 30 days after delivery can be more attractive to some customers than businesses who requirement payment immediately. However, the risk of non-payment grows greater the longer the credit period is extended and the size of the sum involved could mean the difference between life and death for the business offering credit. Credit management seeks to mitigate risk while helping to make a business as attractive as possible to potential customers.

The pitfalls of poor credit management

According to business intelligence experts Graydon, over half of all bankruptcies can be attributed to poor credit management.  Indeed, even profitable companies can struggle if they do not properly manage their accounts receivable. Without the working capital to invest in the business and settle with their own creditors, a business can quickly spiral into debt. It’s not just the slow payers that can impact on the cash flow of your business. Fraudsters will take any opportunity to exploit the offer of credit.

 

To avoid slow-payers, businesses teetering on the edge of insolvency and crooks looking to commit fraud you will need to practise due diligence. This means thoroughly checking every potential new client before signing a deal with them, and then maintaining contact with a robust monitoring system.

How to benefit from credit control

When you take out credit insurance with Atradius you will benefit from the due diligence and finance background checks that we do on your customers. We recommend you combine this intelligence with your own research before commencing trading relationships.

Related content

What is business insurance?

Business insurance protects businesses from financial losses caused by customers who don’t pay, property theft or damage, liability, harm to reputation and risks affecting workers.

Types of SME insurances

There are many insurance policies out there for small business, some are a legal requirement and others provide vital peace of mind and can prevent a business from failing following an emergency.

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With Atradius Credit Insurance you can trade with confidence and explore new markets, knowing that your business is protected against credit risk such as the insolvency of your customers.

Disclaimer

The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person. Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.