Learn how good credit management helps prevent late payment and detects potential non-payment before it becomes a problem. Atradius China +8621 61608022.
The way you approach credit management can determine whether your business thrives or fails:
- Overly cautious - you may miss out on important sales opportunities and your business may fail to grow
- Too lax - 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 money is collected when it becomes due. Good credit management promotes dialogue between finance and sales teams to create a balancing act where risk is minimised and opportunities maximised.
Chinese corporations are becoming more aggressive in expanding in the domestic market. Companies start to realize effective and efficient credit management measures to mitigate risks such as overdue payment is critical for the company's survival and expansion.
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.
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.