Even Sellers must manage Credit Risk like Banks

Every sale made by a company of any reasonable size that is done on some extended payment terms is a credit decision.   Whether a company has a dedicated process for credit lines with their buyers or does it in some haphazard fashion, the receivables are exposed, particularly the longer the sales terms.  It’s not rocket science that payment terms can be used as a carrot to induce a sale (ie, extend terms for buyers to induce the sale) but it comes with extended Days Sales Outstanding (not good for your Treasury KPIs) and potential higher receivable losses.

These simple facts alone should wake you up to the risks of extended credit:

  • First, on average, inter-enterprise credit is five times more than the total volume of short-term bank credit.
  • In Europe, more than 25% of business failures are the result of customer defaults.
  • Companies spend a great deal of time and resources focusing on bank credit when the real risk to bottom line performance is customer credit.

There are many software companies that offer specialist software to provide you with detailed intelligence on the financial health and credit worthiness of customers.  Today, there are cloud based SaaS software companies that can help companies.  One of the companies is Paris based Tinubu Square. They offer real-time credit risk intelligence reporting and a risk advisory service.

Tinubu Square recently issued its Top Ten Tips for Managing Credit in 2014 on the Business Information Industry Association web site.  It’s worth a look.  These days more and more companies are recognizing the value in protecting their Accounts receivables.  Credit risk solutions are just another way of doing so for organizations with buyers spread in different geographies.

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