Turn credit management red flags into green flags

Turn credit management red flags into green flags

We have all had it; THE deal that would make the business and take the company to the next level, however, all too often the dream deal turns into the worst nightmare that can sink your business faster than the Titanic. In this blog we will discuss how to turn credit management red flags into green flags.

For entrepreneurs and established businesses alike, making sure you vet your customer is probably the most critical part of doing business today. All too often, company management is focussed on making sales and achieving targets rather than establishing some sort of credit history of the potential customer or client. Whilst we agree that sales are the engine that drives the machine, all too often the company to whom you are selling to, does not have the necessary financial resources to actually pay for what they have purchased from you. So how do you avoid this kind of risk and turn credit management red flags into green flags by protecting the interest of your business and ensuring any opportunities you pursue are worthwhile?

Engage with the Credit Bureau Association of South Africa

The Credit Bureau Association (CBA) is a voluntary body that promotes fair and equitable services. It ensures the confidentiality, accuracy, relevancy and utilisation of data in accordance with international best practice and relevant legislation. The CBA’s mandate is to provide a framework for a sustainable and well-functioning credit information system, by facilitating fair practice within the credit bureau industry and to promote transparency, accountability, high quality credit reporting and sound business practices. The Credit Bureau Association (CBA) is committed to promoting equity, social justice and growth within the credit market by ensuring that credit information is reliable and accurate at all times. A credit bureau is a vital tool to enable responsible access to credit. A credit bureau provides lenders with information about how you manage your credit commitments so that they can quickly and easily assess how you pay your accounts so that they can make fair, consistent and responsible decisions about granting credit

Make contact with other companies that your potential customer has had dealings with

This is quite easily done. When you are in the initial stages of dealing with a potential customer or client, ask them which companies or individuals they have dealt with. They should provide you with some information upon which your financial director or manager can follow to get a better feeling of their business and if they are good payers and have a good credit history.

Become a solution partner to customers who are slow payers

All businesses go through stages where they are strapped for cash and are unable to timeously repay some of their financial commitments. Always monitor the payments of customers. If you find they are short paying or missing payment deadlines, schedule a meeting with their financial manager or CEO to see how you can structure repayments so that they are better able to meet their commitments. Work with them to find a solution. Most times this approach is far better than threatening with listing them at the credit bureau or any other heavy handed tactic. This being said, if they still continue to not pay, sometimes this is the only option prior to going down the legal route, which in itself is a very costly exercise.

Engage the services of an experienced financial executive

Companies should make sure that their financial manager or financial director has the necessary skills and experience to properly benefit the business. Experienced financial managers will be able to detect irregularities and identify credit management red flags before they impact negatively on the business and develop ways to turn credit management red flags into green flags. For smaller companies this type of experienced financial manager is unaffordable for the business BUT there are companies that specialise in providing the necessary financial talent on a part time or interim basis. These part time or interim financial managers and directors outsource their services to companies that either don’t need or cannot afford a full time resource. They are able to quickly asses any financial situation and advise the company leadership on how to best resolve or manage potential red flags for the business. Often, engaging with these highly qualified and experienced financial executives can make the difference between success or failure of your business.

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