Tips on Reducing Credit Risk

1. Recognize that the regular activities of the credit department introduce risk.  In other words, there is some risk associated with every open account shipment including sales to your top rated customeres. 
2. These risks include the risks of late payment (bad) and non-payment (worse).
3. Make certain that management is aware that these risks are ever present. 
4. Do everything you can to quantify the risk across the entire account portfolio, in addition to identifying specific customers that are especially worrisome.
5. Identify specific processes and procedures that will be effective in avoiding, reducing or managing the risk of slow payment or non payment.
6. Employ appropriate resources to monitor, mitigate and manage risk.  For example, you might allocate resources to periodically update customer credit files recognizing that this is one way o better manage risk.
7. Do not rely on any one single approach to monitoring risk.  For example, updating customer credit reports every year is one way to monitor risk but you might learn as much or more about high risk customers by attending a local industry credit group meeting.
8. Ask for advice from your manager(s) about how to monitor credit risk more effectively.
9. When a problem arises, ask your manager for their advice about how the risk can be mitigated
10. Make sure you understand the difference between credit decisions and business decisions, and that you limit your activities to making or recommending approrpriate credit decisions

© 2011 by Michael C. Dennis.  All Rights Reserved