Risk management is such a fascinating process once you understand how it applies in a business environment and provides another insight in world of commerce. One of the more interesting aspects of risk management is how it actually helps to increase sales, identify slow paying customers before they receive your goods and/or services, and reduce bad debts.
One of the core principles of sales is whether to extend credit, seek part payments, or even insist on payment upfront or cash sales. Today, there are too many risks in extending credit to your customers, unless of course, you have properly completed due diligence and have a reasonable assurance you will be paid within agreed terms. After all, an invoice is not a sale until the funds have been in your bank account six months and one day after receipt of the funds.
The fact which is also quickly forgotten is that an unpaid invoice is not a sale if not paid within agreed terms. The unpaid invoice in this situation is always a profit draining liability. It can be however, a valuable lesson if not paid, a lesson, that unfortunately is often forgotten, or not learnt.
A professional credit manager operates as a risk manager in their work by helping to identify which customers are likely to pay within terms, and those that cause problems or may be already operating insolvently. The difference between these extremes, is the difference between operating a profitable business and one that isn’t or fails to reach its full potential from a profit perspective.
The economic and business environment these days is fraught with many risks not encountered to the same degree pre-COVID. It behoves all business owners and managers therefore to understand the problems that negatively affect their business(s) and seek a positive solution. As a consequence, a professional risk manager and/or credit manager is one of the essential managers that should always be consulted and included within all aspects of business development, marketing and sales processes.
This construct or suggestion will be at odds to many in their respective business organisations based on their past operational perspectives of business. However, in today’s world creditors are regularly denied the right to make a profit or to protect their assets at a reasonable cost. Knowing how, when, and why to extend credit to customers is therefore more important than ever.
At the end of the day, professional risk or credit managers are also sales and profit aware professionals. As such, they are aware they cannot just say NO anymore to a customer of doubtful integrity. They need to be able to articulate if a customer is worthy of credit, or to liaise with marketing and sales to create other new selling strategies.
Want to know more about this topic, contact Kim at kim@creditmatters.com.au, or on Mobile 0411 649 261. Alternatively, have a look at what we offer via our website at www.creditmatters.com.au
