More Risk Management Tips

Companies take risks every day.  Some risks are easy to see, and others are more subtle and harder to spot.  Some credit risks are worth taking.  Other risks are not. 

Progressive and forward-thinking credit professionals are willing to consider and ultimately to implement a much broader range of tools to monitor and manage credit risk across the entire portfolio of customer accounts in order to better control uncertainty about the size and scope of risk their company faces.  Here are ten ideas to help you better manage credit related risk:

1. Carefully analyze the customers you currently sell to and quantify the risks to which your company is exposed
2. Develop tools that allow members of the credit team to quantify credit risk going forward and on an ongoing basis
3. Use these tools to determine the risk associated with extending credit to each customer by rating each customer
4. Create a complete organizational credit risk profile
5. Develop a process for determining which risks are acceptable, and which accounts represent an unacceptable level of credit risk
6. Make certain this process is robust enough to identify customers that become higher risk or become an unacceptable risk at some later date
7. Create a list of active customers that require some form of active risk mitigation
8. Develop a number of risk mitigation options to choose from
9. Implement those risk mitigation tools by starting with the customers representing the highest credit risk
10. Make certain that any process you put into place is capable of being changed as your organization’s appetite for risk increases or decreases.

© 2011 by Michael C. Dennis.  All Rights Reserved