There will be no “business as usual” in credit management
Every crisis is different. And even if there are serious differences between the financial crisis 2008 / 2009 and the current corona situation, all crises have one constant: uncertainty.
CFOs and their credit management teams are used to making decisions under uncertainty. However, COVID-19 has ruthlessly exposed the weaknesses of traditional – often manual – credit management processes and financial risk management.
Currently, many companies in Germany and Europe are still under the positive influence of rescue packages and aid programmes. But what happens after these financial injections have expired? The information situation is even more uncertain by international comparison. Do you have important customers in Asia or in the USA? Do you know if and which aid programmes exist in the individual countries and how they influence the local economy?
Where navigation instruments such as past payment behaviour, credit agencies and company balance sheets have helped you to make long-term forecasts, these instruments are unfortunately losing a great deal of their significance in this opaque, rapidly changing situation. Companies that are still solvent today may already be insolvent by the next lockdown. The payment behaviour of a company in “standard mode” says little about how it will act in an economically uncertain situation.
What can credit management do to counteract this?
You reduce external dependencies, rely more on your own abilities and bring credit management back into your own company. But how do you do this best? Here are our 5 tips on how you can steer your company safely and proactively through 2021:
#1 Think outside the box when looking for information.
In the current volatile economic situation, your usual sources of information unfortunately fall short. Therefore, you should use additional sources that help you to get as accurate a picture as possible of the current situation on the ground. Browse news sites and industry portals, and if possible speak personally with local employees, colleagues or acquaintances. Be creative! The current corona statistics of a country can be more meaningful than the annual balance sheet of a company if you can assess the risk of a renewed lockdown and the associated economic impact on your customer.
#2 Don’t rely only on backward looking data.
Your customer’s payment behaviour over the past year says little in the current economic situation. The balance sheet from 2019 is just as meaningless for your future credit decisions. Search for current information and include other sources in your search. Current country analyses by rating agencies, updated data from credit agencies or a call to a colleague on site will give you a deeper insight into the current situation in the country or company than your usual sources of information.
#3 Talk to your insurance broker, trade credit insurance or factoring company now.
You are responsible for several large customers in a risk area. Take the initiative and talk proactively to your insurance broker, your WKV or your factoring company, even before they can reduce your insurance limit or cancel it in the worst case. Put all your information openly on the table, outline different entry scenarios and think about possible solutions even before the meeting. This will not only strengthen your business relationship, but may even provide you with more favourable conditions.
#4 Keep your customers on a short leash
In volatile times such as these, intensify contact with your customers. You want to receive all the information about the company that will help you to become aware of risks at an early stage. Telephone your contact persons regularly. And not only from Credit Management, but also with other functions such as sales colleagues or with the management. Talk openly about possible scenarios if the company were to become insolvent tomorrow. An advantage for you: If you, as a supplier, are the first to call the customer, you may receive even better conditions and your outstanding receivables will be settled first.
#5 Broaden the information flow in your company.
You have had problems with one of your customers recently, but you lack the idea of what a solution might look like. Get different perspectives in your company and talk to colleagues from the sales department, for example. If you have problems with a supplier from a high-risk region, discuss whether you could possibly move to another country.
You may now think: Fine and good. But how am I supposed to research and analyse this additional information in my day-to-day business? In the current situation, the alternative of creating additional positions for this is hardly a solution that you would like to discuss with your supervisor. So what can you do? Find out about the opportunities offered by a digital risk and credit management system. The digitalisation of credit management gives you a decisive knowledge advantage in data research and processing alone.