Written by Alice Payne
Posted on 09/05/2016

Eight ways to excel in credit management

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Credit management is constantly evolving, with new technologies, techniques and tools to help you make informed and incisive decisions. At the same time, some fundamental elements of credit management remain as relevant today as they were 20 years ago. We’ve collated our top tips to excel in credit management – fusing old and new techniques to create a holistic approach. 

Want to learn more about how to safeguard your business? Download our Dummies guide on Understanding Credit Risk.

Keep on top of new legislation

Hindsight may be a wonderful thing, but foresight is certainly better. As regulation around risk, compliance and credit management continues to change, it’s critical that you stay one step ahead; knowing what’s on the horizon and how your company can anticipate and accommodate change is a vital part of good credit management. 

So, how to stay abreast of changes? Credit management associations often provide education on legislation and related topics. For instance, the Chartered Institute of Credit Management provides members with news about changes to current legislation, updates on new legislation and other important topics through publications, training and a range of resources.

Know your clients

Credit management extends far beyond the initial line of credit you extend to a customer. Naturally, any business’s circumstances can change for better or worse, whether influenced by external or internal factors. It’s important to research your clients’ performance on a regular basis, including an evaluation of their future prospects. The purpose of this isn’t only preventative to safeguard your business’s financial security, it also ensures you’re aware of potential opportunities to capitalise on. For example, a customer may recently have gained a lucrative contract or demonstrated better-than-average profits.

Maintain customer contact

Building on the theme of knowing your clients, it’s key to maintain regular contact, ensuring you have a frank and open line of communication. Not only does this build a stronger relationship, it makes difficult discussions easier on both sides. Keeping in regular contact also helps you to spot early warning signs that potential problems could be on the horizon. 

Ask around

One of the oldest techniques to avoid credit risk, as described in the history of credit management, is to harness local knowledge for insight. While previously, this meant drawing on your physical community, nowadays you can access a myriad of sources to get insight. And that even involves asking the competition: they may have personal experience of working with a client that can inform your own decision to extend credit. Remember, sharing experiences benefits everyone. If you advise a competitor about the impending failure of a business, they’ll likely reciprocate when they have the opportunity. 

Credit circles and forums can also be excellent sources of information and advice about best practice. However, always ensure the forum has the right credentials, follows strict guidance and adheres to legislation, particularly the Data Protection Act and the Competition Act.

Update your paperwork

Along with accommodating external change to ensure your organisation’s practices remain current, it’s important to check your internal resources also remain up to date. Changes in legislation may leave your credit application forms out of date. Ensure all your paperwork is relevant and meets current legal specifications. Where possible, have legal experts review your paperwork.

Monitor the press regularly

While annual reports and press releases are an excellent and, indeed, vital way to research a company and its financial health, the independent press is also a powerful tool. Business journals, newspapers and trade magazines provide up-to-the-minute information reflecting a company’s performance. And, by the very nature of its independence, the press often provides a more balanced view than corporate literature. It also sets this information within the wider industry context – offering a different benchmark to inform your credit management decisions.

Defend yourself against fraud

Fraud is one of the greatest threats to successful credit management and, in some cases, can even ruin a business. Putting in place effective due diligence processes provides you with the strongest protection, so don’t become complacent. Ensure detection methods are in place. An external credit information provider like Graydon UK Ltd can provide you with the support of a specialist fraud-detection team – offering expertise and insight gleaned from diverse industries to protect your business.

Monitor customers with a Customer Identification Programme

Leading on from this, credit specialists like Graydon UK Ltd offer advanced customer monitoring systems for clients’ use. These systems can automatically alter a customer’s rating based on an event change – perhaps the filing of new accounts or changes in directors. Using that system can let you know if the credit limit you set for a customer six months ago is still relevant. 

Weaving these tactics into your credit processes will help you in your quest to deliver excellent credit management and support your business’s growth. For more insight on the topic, listen to our webinar ‘How to avoid bad debt and maximise profit ’, which covers topics including analysing customers throughout the credit life cycle, setting credit checks to grow your business, spotting and preventing fraud and handling sales pressure.

Interested in more information regarding Credit Risk?

Download Understanding Credit Risk for Dummies here