3 Strategies to Achieve Effective Credit Risk Management
Effective credit risk management is critical to the growth and development of any successful business. According to Investopedia, credit risk is the possibility of a loss from a client’s inability to pay, also known as bad debt. For any service or solutions-based business, managing credit risk is a critical dependency for your bottom line.
By managing your credit risk, you can reduce the likelihood of bad debt, decrease your DSO (days sales outstanding), and increase the pace and quantity of your cash flow. In doing so, your business will be more efficient, profitable, and have more opportunities to grow.
Credit risk management is a broad term that encompasses all risk pain points, from initial credit decisioning to risk monitoring, reporting, and accounts receivable. But what goes into credit risk management, and how can you optimize your approach to ensure maximized efficiency?
An effective risk management strategy includes contextual credit decisioning, proactive risk monitoring, and clear communication and transparency with accounts receivable.
Contextual Credit Decisioning
Effective credit risk management starts with smart credit approvals. When determining whether to approve credit, businesses need to take a holistic approach to determine risk levels and the likelihood of delinquency. Businesses need a full picture of the risk environment, which means considering all data and context available.
Unfortunately, this can be an extremely tedious and constraining process without the right tools. With an automated credit decisioning solution, you can improve the productivity of your team 10 times over. Best-in-class solutions like CreditPoint software leverage automated data collection workflows to accelerate the decision-making process. Our highly configurable tool helps you create customized credit applications and credit scorecards to both enhance the customer experience and improve the accuracy of your credit decisioning process.
Proactive Credit Risk Monitoring
Credit risk management doesn’t end with a smart credit approval decision. Post-approval, businesses need to continue to monitor their outstanding credit and accounts receivable to ensure there are no changes in client behavior or circumstances that could result in bad debt.
Proactive monitoring includes daily awareness and visibility of your accounts, their dynamic behavior, and DSO status. Proactive monitoring not only minimizes risk but can also present new opportunities for increasing credit or new business for clients with strong paying history. Again, this is a time-consuming but necessary process, and many organizations rely on automation tools to do the heavy-lifting for them, allowing analysts to focus on high-priority items instead of daily monitoring tasks.
Clear And Frequent Client Communications
Clients and customers need reminders. A lot of reminders. And the process of notifying customers of an upcoming payment, checking in on late payments, and chasing clients down, is highly time-consuming. Many organizations try to cut back on these client communications in an effort to save time, thereby increasing their DSO and hurting their cash flow.
You can’t afford to pull back on client notifications and communications, but your analysts should ideally be leveraging automated workflows so that they don’t need to reach out to each and every customer manually.
An Automated Solution
Unfortunately, many businesses are losing money, wasting time, and drowning in inefficiencies because credit risk management is such a time-consuming, tedious process. The good news? You can optimize your entire credit risk management process, thereby increasing productivity and cash flow with CreditPoint’s automated software solution.
By implementing credit risk management software, you gain data-driven, contextual credit decisioning, which minimizes the risk of bad debt from the start. Further, our automated solution proactively monitors your accounts and alerts you of risky behavior, saving you significant time and providing exceptional visibility. Finally, CreditPoint software provides your clients with automated communication and due date alerts as well as a user-friendly interface.
If you’re looking to save time, reduce risk, and ultimately increase cash flow, our automated credit risk management solution could be right for your business. Schedule a consultation with CreditPoint Software to learn how you can leverage the efficiency and risk-reduction benefits of an optimized software solution.