The credit manager's mission is to contain the negative impact of late payments or unpaid invo ices while preparing for the future by securing new commercial exchanges; all this without losing customer confidence so as not to slow down the growth of sales.
How to adapt? With which model?
These credit management experts know that in the coming months, despite government aid, the number of company failures will increase, regardless of the sector of activity. The question is, what are the new reflexes and behaviors that the credit manager must adopt in order to secure the customer's receivables?
To answer this question, this article discusses some of the practices that seem to be emerging in the evolution of solvency risk assessment.
After three months of no sales for entire sectors of activity, it is difficult to interpret the solvency of companies by analyzing their social accounts. This reality, in the context of a gradual economic recovery, 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 be put in place for an efficient evaluation of the solvency of clients in order to secure outstanding commercial loans as well as possible.
How did the company enter the crisis? What is the impact of the crisis on the business sectors?
The knowledge of risk through the analysis of the company accounts is still relevant in the granting of credit. It allows us to know how the company entered the crisis. Did it have sufficient liquidity? Was it solvent and/or profitable? Knowing that cash flow is more than ever the sinews of war for the survival of companies. It is obvious that a company that was already fragile before the crisis, will have more difficulty financing its activity, especially if its sector has been strongly impacted by the crisis.
After this initial assessment, we must then look at the impact of the the impact of the crisis on the client's industry. We know that apart from the hotel and catering sector, which has practically come to a halt, some sectors have seen a drop of more than 70% in their activity during the period of confinement, such as the automotive industry, furniture, textiles, aeronautics, construction and real estate, air and road transport, temporary employment, etc.
But there are also sectors that, on the contrary, have benefited from the crisis, such as mass distribution, local food trade, the food industry, health, chemicals, wood and paper, water and energy.
This knowledge of sector risk provides additional support for credit decisions.
This balance sheet analysis process, completed by a sectoral approach in the granting of loans, can be generalized to the entire client portfolio and to the company's credit policy in order to :
- Protect yourself from discontinuity of activity,
- Measure the probability of late payment,
- Anticipate the level of positive or negative vitality of the company's ecosystem.
Fundamentals remain the basis for credit decisions
In this new approach to credit analysis, the credit manager must not forget the fundamentals of customer risk management such as :
- Changing payment behavior
- Payment incidents and liens
The legal events of collective procedures that may alert him to a difficult situation of a client.
In addition to risk analysis, the credit manager must also encourage dialogue with his clients to discuss their financial situation and collect recent information such as the financial support provided by the State, in particular through "State-guaranteed loans" or the deferral of charges obtained.... This information is crucial to the decision to authorize a client's credit.
Control your risk and be confident in business
Already complex, the management of customer receivables has become, with the crisis, an imperative stake in securing cash where some companies will not recover, especially the most fragile.
Many companies are already feeling the effects of these late payments on their liquidity. In this race for liquidity, which has already begun, the credit manager must be more vigilant than usual in the processing of receivables due and the allocation of outstanding loans. He will also have to interact with various players both inside and outside the company to find the right combination of risk management.
This equation is based on customer knowledge, elimination, prevention and protection against risks. Knowing that cash flow and revenue growth are more than ever, in an environment of business confidence, the sinews of war for the survival of companies and their armor against failure.
