B
usiness has always been about tak- ing chances. Inspirational business leaders such as Virgin’s Richard Branson and Microsoft’s Bill Gates
have built large organisations by taking risks, while smaller, entrepreneurial companies take chances daily in terms of the orders they prom- ise to fulfil and the suppliers with which they deal. Times are tough these days though. The economy has contracted and risks, no matter how they are measured, have an added element of danger.
According to John Price, head of direct sales at trade credit insurer Atradius, there has been a general trend to remove all unnecessary risk. “As a society we are very risk-averse at the mo- ment,” he says. “The desire to mitigate risk is stronger now than it has ever been. People want to be insulated and that pervades to commerce. Risk managers are becoming more prevalent in business and there are more controls to mitigate risk - not just credit risk.” However, to progress and prosper, businesses should be encouraged to take measured risk.
Those who play safe may be unlikely to suffer, but they are also less likely to thrive and, in turn, generate growth in the economy and create jobs. Putting in place sound credit management is vital to expansion and success. Researching both existing suppliers and new providers on a con- tinuing basis is a sensible strategy under any conditions but particularly when the economy is faltering. Here, a clearly formulated credit policy is in- dispensable in creating guidelines that define what is to be executed by individual, organisa- tional and departmental units. An unambiguous contractual framework will help resolve poten- tial legal problems with customers. It will out- line, for example, the period of payment, the nature of order forms and all terms and condi- tions that apply.
It is essential for firms to acquire and main-
tain accurate and constantly updated customer data, including precise billing addresses, legal forms of business, and information regarding client-company owners and managing directors. Granting credit terms to customers without ad-
equate or up-to-date creditworthiness informa- tion is very risky. Depending on business vol- ume and risk assessment, firms should be informed about customers’ credit ratings ade- quately and on a regular basis.
There are variations within the broad range
of payment terms that enable a firm to influence its risk exposure. Payment options include pre- payment, down payment, payment on delivery of goods or services, period of payment/due dates, discounts and date upon which bank ac- count is effectively credited. Each of these al- ternatives should be taken into consideration for every individual case. It is advisable to supply goods or services to new or unknown customers only against cash or down payment. Collecting cash in a timely manner is just as important as making a deal. The secret of timely collections is in systematic and consistent credit management practices that underpin the rela- tionship with every customer. As mentioned, running a credit check on prospective customers is advisable. However, these may not help when trouble arises with past buyers.
New European Economy
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