The mission of the credit manager is to contain the negative impact of late payments or unpaid payments while preparing for the future in securing new trade; all without losing customer confidence so as not to increase the slowdown in turnover growth.
How to adapt? With which model?
These credit management experts know that in the coming months, despite government support, the number of business failures will increase, regardless of the sector of activity. The whole question is, what are the new reflexes and behaviours that the credit manager must adopt in securing the customer position?
To answer this question, we will discuss in this article certain practices which seem to emerge in the evolution of the assessment of solvency risk.
After three months of lack of turnover for entire parts of certain sectors of activity, it is difficult to interpret the solvency of enterprises by analysing social accounts. This reality, in a gradual recovery of the economy, raises questions about the ability of companies to finance their activities in the short and medium term. It also raises the question of the credit analysis model to put in place an effective assessment of the solvency of customers in order to ensure that commercial stocks are as secure as possible.
How did the company enter the crisis? What is the impact of the crisis on the sectors of activity?
The knowledge of risk through the analysis of social accounts is still relevant in the granting of credit. It allows us to know how the company entered into the crisis. Did it have sufficient liquidity? Was it solvent and/or profitable? Knowing that cash is more than ever the nerve of the war of the survival of companies. It seems obvious that an already fragile company before the crisis will have more difficulty in financing its business, especially if its sector has been heavily impacted by the crisis.
After this initial assessment, we must then look at the impact of the crisis on the customer’s branch of activity. We know that outside the catering-Hotel sector virtually at a standstill, certain sectors during the period of confinement have had a decrease of more than 70% in their activity such as the automotive industry, the Furnishing, the Textile, the Aeronautics, the BTP and the Immobilier, the Air and Road Transport, the Interim…
But there are also sectors that, on the contrary, have benefited from the crisis such as large-scale distribution, local food trade, agri-food industry, health, chemistry, paperwood, water, energy…
This knowledge of sectoral risk provides additional support to the credit decision.
This balance sheet analysis process, complemented by a sectoral approach to the granting of outstanding amounts, can be generalized to the entire customer portfolio and to the company’s credit policy in order to:
- To protect against discontinuity of activity,
- Measuring the likelihood of late payment,
- Anticipate the level of positive or negative vitality of the enterprise ecosystem.
The fundamentals remain the basis of the credit decision
In this new approach to solvency analysis, the credit manager should not forget the fundamentals of customer risk management such as:
- Change in payment behaviour
- Payment incidents and privileges
- Legal events of collective proceedings that can alert him to a difficult situation of a client.
Beyond the risk analysis, the credit manager must also give priority to dialogue with its customers in order to exchange their financial situation and collect recent information such as the financial support of the state through in particular the “loans guaranteed by the State” or the carry-overs of charges obtained…. This information is crucial in the decision-making in the customer credit authorisation.
Control your risks and have confidence in business
Already complex, the management of the customer post has become with the crisis, an imperative issue of securing cash where some companies will not recover, especially the most fragile ones.
Many companies already feel the effects of these late payments on their liquidity. In this liquidity race, which is already under way, the credit manager must be more vigilant than usual in the processing of the debts due and the allocation of the outstanding amounts granted. He will also have to interact with different actors both internally and externally to find the right combination in a controlled risk-taking.
This equation is based on customer knowledge, elimination, prevention and protection in relation to the risks to be taken. Knowing that cash and turnover growth are more than ever, in an environment of confidence in business, the nerve of the war of the survival of companies and their armor against default.
