• FREE RESOURCES
        • Accounts Payable
          Finally! The trick to securing greater T&E compliance
          Benefits
          Rooting out folks who don’t belong on your health plan: A 6-point dependent audit checklist
          IT
          3 costly misconceptions about biz email compromise
          Credit and Collections
          Collecting via email: 4 must-make moves in your subject line
          Accounts Payable
          5 Tough-to-spot signs that an invoice is fake
  • PREMIUM CONTENT
        • Staff management
          120 Proven Communications Tips for Today’s CFO
        • Payroll
          Handling Nonexempt Employee Pay: Stay Compliant and Avoid DOL Audits
          Accounts Payable
          T&E Best Practices: Complete Guide to Ensure Compliance
          Payroll
          Payroll Best Practices: 4 Ways to Save Time and Money
        • Staff management
          Email Best Practices: A 6-Question Quiz
          Staff management
          Innovative Communications Strategies: An Email Case Study
          Staff management
          A 5-part Framework for Successful Workplace Communications
        • SEE MORE
          PREMIUM RESOURCES
  • CORONAVIRUS RESOURCES
  • LOG IN
  • SIGN UP FOR FREE

Resourceful Finance Pro

  • FREE RESOURCES
        • Accounts Payable
          Finally! The trick to securing greater T&E compliance
          Benefits
          Rooting out folks who don’t belong on your health plan: A 6-point dependent audit checklist
          IT
          3 costly misconceptions about biz email compromise
          Credit and Collections
          Collecting via email: 4 must-make moves in your subject line
          Accounts Payable
          5 Tough-to-spot signs that an invoice is fake
  • PREMIUM CONTENT
        • Staff management
          120 Proven Communications Tips for Today’s CFO
        • Payroll
          Handling Nonexempt Employee Pay: Stay Compliant and Avoid DOL Audits
          Accounts Payable
          T&E Best Practices: Complete Guide to Ensure Compliance
          Payroll
          Payroll Best Practices: 4 Ways to Save Time and Money
        • Staff management
          Email Best Practices: A 6-Question Quiz
          Staff management
          Innovative Communications Strategies: An Email Case Study
          Staff management
          A 5-part Framework for Successful Workplace Communications
        • SEE MORE
          PREMIUM RESOURCES
  • CORONAVIRUS RESOURCES
  • Accounts Payable
  • Credit and Collections
  • Payroll
  • Accounting
  • Benefits
  • Finance Technology
  • Sales & Use Tax
  • More
    • Employment Law
    • Strategy
    • Policy and Culture
    • Fraud
    • Budgeting and Forecasting
    • Banking
    • Staff Management
    • Cost Control
  • Credit and Collections
3 minute read

How A/R can measure and limit credit risk now

expert strategies to better know and assess your customers
Alyssa Pedrick
by Alyssa Pedrick
June 29, 2021
  • SHARE ON

In a time of great uncertainty and lingering pandemic concerns, A/R must step up its game on assessing and reducing customer credit risk.

That’s one of the biggest takeaways from the National Association of Credit Management (NACM)’s 2021 Credit Congress & Expo Virtual Plus.

COVID-19 changed how companies look at credit risk. Sure, CFOs and A/R pros have used tools to measure risk in the past – but you’re in uncharted territory now. Post-pandemic recovery has been sporadic, and anything could happen still.

That’s why A/R will need to use more and different methods going forward to measure or hedge customer credit risk, explains Jay Tenney, Managing Director of Trade Risk Group. The No. 1 priority now, he says, is to know your customer and know if they have a well-run company.

How exactly can A/R do that? Check out six strategies Tenney offered during an NACM conference session on credit risk:

1. Keep customers within terms

One proactive strategy A/R can take is working to keep your customers within terms, regarding both payment terms and credit limits.

And it’s key to have these discussions before they become a big issue. With things like rising prices and inflation, if you haven’t seen issues already, you’re probably going to, Tenney warns.

2. Know your customers’ customers

Here, it’s important to focus on two things for credit risk:

  • Who are your customers’ customers? Your customer may be solid, but let’s say, for example, pre-pandemic, your customer was selling chemicals to dry cleaners (an industry that was hit hard by COVID-19).  That might make issues trickle down to you.
  • Where are your customers’ customers? Different parts of the world have radically different economies right now. Plus, recovery has been sporadic across the globe.

3. Look at financial statements

With this credit risk management tactic, Tenney often hears clients say, “That’s easier said than done.” But the good news for A/R is that the pandemic has changed the way people approach this method.

In fact, Tenney now has many clients that tell customers directly: “If you want X level of credit, we need to see your financial statements.” Or: “If you’re using credit insurance, you need to send them to the credit insurer because I’m basically giving you an unsecured line of credit, and if anything happens, I’m the one on the line.” Generally, customers can understand and appreciate this.

4. Try to secure other statements

As mentioned, COVID-19 changed people’s perceptions on how they look at credit risk and business relationships, so take advantage of it. It’s good if you can get financial statements, but what underwriters are focused on now – if you can get them – are cash flow statements, Tenney says.

Why it’s critical now: Your customer could be growing, processing lots of orders and making lots of money – but never look at that cash flow statement and realize they’re out of cash.

5. Talk with customers’ partners

See if you can talk to your customers’ banks, Tenney advises, since they can give you a lot of insight. And if it’s a good banker, they’ll shoot straight with you, since they don’t want their customer getting overextended either.

In addition, try to talk with your customers’ suppliers, or see if you can get involved in a credit group in that specific industry.

6. Set up automatic alerts

Lastly, Tenney suggests a more old-school method for managing credit risk: Set up Google alerts for your company, your customers, your customers’ customers, key employees at your customers, etc., so you can stay on top of any major business news.

It’s amazing the information that you can get just from a free Google alert service, Tenney adds.

Alyssa Pedrick
Alyssa Pedrick
Alyssa, a member of the Resourceful Finance Pro staff, has written extensively on business and finance for several years. She has produced content for accounts payable professionals and finance executives and has developed whitepapers and infographics for the finance and accounting industry.

Get the

Resourceful Finance Pro Logo

Newsletter

With Resourceful Finance Pro arriving in your inbox, you will never miss critical stories on accounting, benefits, payroll & employment law strategies.

  • This field is for validation purposes and should be left unchanged.
Resourceful Finance Pro Logo
  • ABOUT
  • CONTACT
  • WRITE FOR US
  • ADVERTISE WITH US
  • Accounting
  • Benefits
  • Payroll
  • Policy and Culture
  • Employment Law
  • Fraud
  • Finance Technology
  • Sales & Use Tax
  • Accounts Payable
  • Credit and Collections
  • Strategy
  • Budgeting and Forecasting
  • Banking
  • Staff Management
  • Cost Control

Resourceful Finance Pro, part of the SuccessFuel Network, provides the latest Finance and employment law news for Finance professionals in the trenches of small-to-medium-sized businesses. Rather than simply regurgitating the day's headlines, Resourceful Finance Pro delivers actionable insights, helping Finance execs understand what Finance trends mean to their business.

Privacy Policy | Terms of Service
Copyright © 2022 SuccessFuel

WELCOME BACK!

Enter your username and password below to log in

Forget Your Username or Password?

Reset Password

Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.

Log In

During your free trial, you can cancel at any time with a single click on your “Account” page.  It’s that easy.

preloader