Extending credit to customers can be a great way to increase the amount they buy, and contribute to develop strong relationships with them. However, if your credit management process is inadequate, you could find some customers are paying late or not at all, potentially impacting the company’s bottom lines.
With some customers, the risk of non-payment is relatively low and the benefit of offering credit is strong. However, even with customers who have a long history of paying in full and on time, there is always a risk that the next invoice is the one that doesn’t get paid. This can be due to external factors outside of the customer’s control; perhaps one of their customers hasn’t paid them or they cannot secure funding, or there are political interventions that have created a cash flow issue.
The key is to manage the risk with a strong credit management strategy. There are five key elements of a good credit management strategy:
The potential ramifications of non-payment by a customer can be catastrophic. However, with trade credit insurance, organisations will still get paid so any new sales will contribute to real growth, not just clawing back losses from bad debt.
Businesses should think of credit insurance as a way to safely grow their business, because it lets them test new markets, new buyers, and even extend more credit to existing customers. We have seen businesses grow by anywhere between $2 million and $30 million over the course of several years because they’ve had the confidence to take on new contracts and encourage growth because they were protected from payment default.”
Mark Hoppe, Managing Director – Australia and New Zealand, Atradius