The good news is that we have a system that will largely reduce the risk. Read on ...
KreditBarometer, KreditInform’s highly-regarded publication to the credit management industry, highlighted in its September 2007 edition that “...the effects of increasing interest rates and inflationary pressure only become tangible three to six months down the line.” Gavin Long, author of numerous articles in the KreditBarometer, succinctly pointed out the need for credit vetting and information gathering procedures, risk mapping and monitoring processes. He suggested that stringent rule-based collection prompters should receive increased attention over the next 12 months to ensure low bad debt levels are maintained.
It is becoming more and more noticeable that the predicted increase in overdue accounts is now becoming a reality. This is usually a precursor to an upsurge in Judgements and subsequently in liquidations. This trend is well documented, historically sound and a warning signal to tighten up their credit management procedures.
“During the next few months it is expected that judgments and liquidations will increase and that payment terms will be stretched,” says KreditInform MD Ivor Jones. “This has been confirmed by the credit and risk management industry through general discussions and verified by our KreditInformation Sharing System (KISS).”
Credit Managers are well placed to ensure preventative steps are implemented whilst a deteriorating credit climate remains in its infancy. KreditInform suggests the following steps to ensure potential bad debts are minimized.
“Firstly, begin with categorising debtors according to their unique risk profile, financial impact on your business in the event of default and finally the likelihood of default based on a KreditInform score process. We refer to this process as Mapping and consider it an excellent tool in determining or understanding where the greatest threats lie.
Once the Credit Manager has established where the high-risk, high impact debtors reside in their unique risk map, it is far easier to allocate both time and resources to these high-risk debtors. Collections will than have to be modified according to the risk factors involved and the payment history of the client,” emphasises Jones. “There is a need to become account specific in terms of collections and to look at which debtor has the greatest impact on your book, and therefore your own company.” Those debtors representing an unacceptably high risk may warrant the use of single debtor insurance, a product unique to KreditInform and branded as KreditCover. KreditCover allows for unique opportunities to spread the risk of dealing with areas of concern without the unnecessary expense of full book cover”
Through the KISS system, the credit manager can also look at how the debtor concerned pays other suppliers, and compare these payment trends to their own payment experience with a specific debtor. KreditUpdate on the other hand provides a continuous automated information stream of key events adversely affecting the credit risk of a debtor on your ledger.
Another vital source of information is ensuring that a new, updated report on the debtor is requested. “This will give one the most recent credit and risk report and allow for comparison and monitoring to take place,” says Jones.
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