In an uncertain economy, one of the most important things Kiwi business owners can do is take steps to manage and minimise their credit risk. Credit risk is another way of saying the overall amount of money owed to you by people or businesses who you trust to honour agreed payment terms.
With the right credit strategy in place – and knowing the red flags to look out for – Kiwi business owners will be in a much better position to succeed.
Here are our top 6 tips for managing risk for your business in less than certain times:
1) Credit check all new businesses and customers to understand and mitigate the risk of unpaid, overdue invoices. You can also look at existing customers to understand if their financial positions have changed.
2) Review your terms of trade to ensure you have appropriate consents in place to perform credit checks, as well as the power to act if things go bad (such as referring to a collection agency).
3) Review your invoicing process to make sure it’s as fast and robust as possible – the sooner you get invoices out, the sooner the repayment clock starts.
4) If customers are struggling with making repayments, work with them to develop an alternative repayment schedule – it’s better to get paid eventually than not at all.
5) Smart sales forecasting can help safeguard against overinvestment in unnecessary inventory or human resources – review business expenses and spending where possible to help reduce your operating costs.
6) Stay in close contact with your own financial advisor and flag potential financial pitfalls as soon as possible.
Unfortunately, credit risk is an ever-present consideration when it comes to running a business. Taking the time to understand the risks, adopting the right checks and balances, and having the information on hand to make informed business decisions can make a world of difference.
Centrix has a wealth of resources available to help you ensure you can manage your risk no matter the economic climate. You can access them all here.
By Monika Lacey, Chief Operating Officer