What is credit risk management?

Understanding credit risk management 

4 best practices for managing credit risk

1. Don’t focus only on new customers

   - Most business owners believe that long-term business relationships are stable and built on a foundation of trust. However, bad debt can come from old and new customers alike. Therefore, it is prudent to treat credit risk management as a continuous process. And all entrepreneurs must appraise the credit risk for their suppliers, vendors and customers on a regular basis, and keep an eye on trends in business credit profiles that indicate imminent trouble.  

2. Trust technology

   - A manual credit risk review process may seem cheaper and something that can be done just by pulling in data from multiple reporting sources and examining it. However, this method may end up causing more harm than good as you may end up either missing or misunderstanding crucial information.



3. Trust your team members

   - Sometimes, your people in sales, marketing, customer service and even the executive suite may come in useful while assessing your credit risk. For instance, a customer may let out to a salesperson that they are downsizing their office and may have problems with slow payments.



4. Take fraud seriously

   - Most small businesses are anxious to build relationships with new vendors, suppliers, customers and other business partners, and may overlook signs that a business relationship may not serve their best interests. Hence, it is important to apply risk management practices to all work relationships.

Authors

Neha De

Neha De is a writer and editor with more than 13 years of experience. She has worked on a variety of genres and platforms, including books, magazine articles, blog posts and website copy. She is passionate about producing clear and concise content that is engaging and informative. In her spare time, Neha enjoys dancing, running and spending time with her family.