Credit management is the administrative and financial process to assess and control customer outstandings. Credit management allows granting payment terms while reducing the risk of default of payment. Credit management ensures that you receive your payments on time.
What is credit management?
What are the advantages of credit management?
Credit management has many advantages including:
How to improve your credit management?
Credit management is the administrative and financial process, which ensures that you receive your payment on time. Defaults of payment can be very detrimental for your company. Only a few uncollectible accounts can quickly lead to a situation jeopardizing your entire profit margin. That is why this is essential to map out and closely monitor the payment behaviour of your customers.
Screen the financial health of your customer
Your company’s focus lies on growth, but naturally, it has to happen safely. New customers might pose a risk of default of payment. By checking the financial health of your customers, you can grow your business with confidence.
Don´t hoard your invoices
Send invoices out on a regular basis, with partial amounts for long-running projects. Make sure that you send out the invoices right away after delivery of goods or services, so that the agreed payment period begins to run immediately.
Monitor unpaid invoices
An oversight? A dodgy financial condition? A disputed amount? Dissatisfied with the delivered services or products? Delays or non-payments can have very different causes. By paying close attention and promptly contacting the customer, you monitor the unpaid invoices.
Be clear and transparent
Make sure your invoices are readily understandable and ask for explicit approval of the general terms and conditions. Clearly define the payment and credit conditions, the latest possible payment date and the period to protest. Indicate how much the late-payment interest is if the payment is not on time.
Outsource your customer relations management
As a company, you aim for growth and your focus must be on your core business. Client portfolio management absorbs too much of your time and energy? Outsource it to an expert.
Take a trade credit insurance
A trade credit insurance screens the financial soundness and payment habits of your customers and covers the risk of defaults of payment.
Outsource your credit management
Self-insurance consists in building your own financial reserves to cover your losses in the event of a customer default. This is the simplest solution but this is also the most risky.
Unpaid invoices can have serious consequences for your company. They can strongly affect the financial health of your company and even lead your business to bankruptcy. Did you know that unpaid invoices are responsible for more than 25% of bankruptcies?
Using an external company for your credit management has many advantages:
- You focus your efforts only on your business
- Your credit management is managed by specialists
- You benefit from an international network
- You increase your chances of getting paid
- You maintain good relations with your customers
Which solution to choose for your credit management?
1. Factoring
A supplier of invoice financing purchases your invoices at an amount that is less than the nominal value (typically 70% to 85% of the invoice amount) and tries to collect them themselves. This gives you direct access to your money, but this is very expensive and you lose an important part of the relationship with the customer.
2. Letter of credit
If you receive a letter of credit from your customer, it means that the bank guarantees the payment. This kind of system is widely used in international trade. This provides you the certainty that you will be paid. Nevertheless, such a system is expensive and must be renewed for each transaction.
3. Trade credit insurance
A trade credit insurance offers protection against payment defaults. If your customer fails to pay you, your insurer indemnifies you for the insured amount. It also helps your business to grow with confidence. Your company’s financing options increase and you can offer more flexible payment terms than your competitors.
Towards a better credit management with a trade credit insurance
Protecting your company has never been so important than now. Especially in this crisis period, you are never safe from the default of payment or the insolvency of one of your customers. Very often bad payments and insolvencies lead to a snowball effect. This creates risks for the cash flow and profitability of your business. A large unpaid invoice can jeopardise the growth of your business or eventually lead you to insolvency.
A trade credit insurance protects your business against the risks of defaults of payment and insolvencies of your customers:
Information
We monitor the financial health of your customers
Collection
We take care of the collection of your unpaid invoices
Compensation
And we compensate you when your customers don’t pay
Do you want to improve your credit management? Feel free to contact our team for a tailor-made solution. We will be glad to help you.
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