Credit managers at the heart of customer risk management

Companies have always taken into account the risks they are likely to face. These can be grouped into four main categories: physical risks (fire, for example); technological risks, which have emerged with the computerization of most businesses; economic risks (war, pandemics, inflation, regulations). And relational risks, linked to an organization's interactions with its stakeholders, both internal (employees) and external (customers, suppliers, public authorities, etc.). Customer risks are particularly problematic because they are less controllable:

- there are many reasons for this,
- they evolve rapidly,
- they are difficult to anticipate,
- and finally, they are systemic and random, with possible chain reactions
(failures of customers of customers...).

Unfortunately, customer risks have not historically been considered by most companies as critical as physical or technological risks, which receive far more media coverage.
As a result, companies have different levels of maturity when it comes to customer risk management. While the largest organizations have set up credit manager functions, the majority of them (SMEs, ETIs and VSEs) are not always equipped to anticipate, detect and control these risks.

Customer risk: a multifaceted phenomenon

Customer risks have many causes.

Most are the result of errors in management, strategy, positioning or poor operational decisions. Some companies find themselves forced to stop paying their suppliers, or pay them late. This strategy is seen as an adjustment variable in times of difficulty, especially in times of economic crisis. And there's no shortage of them. In concrete terms, among the many reasons that lead to customer insolvency, we can mention the following:

• A lack or insufficiency of shareholders' equity, which can lead to early dissolution of the company, making it difficult for suppliers to recover their receivables.
• Late or non-payment by customers: this is the chain effect, when customers' customers are at risk. Especially for smaller companies. According to Ellisphere1 , the average payment delay is 18.1 days (at the end of March 2024). This chain effect also results from situations of dependency, for companies operating as subcontractors or group subsidiaries, or from the failure of a supplier to deliver raw materials or components essential to production.
• Difficulties in obtaining current bank loans, especially if the situation has already been fragile in the past, with a deterioration in scoring with financial institutions or in Banque de France rating2.
• Excessive reliance on debt to finance business activity, especially at a time of relatively low interest rates. In France, the corporate debt-to-GDP ratio is 82.8% (in 2021), higher than the eurozone average (63.6%), according to the Banque de France3.
• A slowdown in activity and a drop in sales, especially for companies operating in sectors highly exposed to cyclical fluctuations. According to Allianz Research estimates, a 1 percentage point drop in profitability would increase payment times by more than 7 days4.
• Management errors such as over-investment in relation to the company's financial possibilities; errors often due to a lack of maturity on the part of managers and executives, or a poor assessment of the economic environment. Examples: high fixed costs, poor inventory control and supply management, and a lack of rigorous management, leading to a loss of competitiveness.
• Inadequate staff skills, particularly in Finance Departments, with a preponderance of poorly-designed, manual processes for paying supplier invoices, and poorly-defined responsibilities. According to the DGCCRF (Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes), "the main causes of late payment are shortcomings in accounting organization and misunderstanding of the principle of co-responsibility, which stipulates that if the seller is obliged to deliver the invoice, the buyer is also obliged to claim it in order to pay it before the due date "5.

1 Les comportements de paiement des entreprises en France, Ellisphere, 2024.
2 "What is the Banque de France rating?" 
3 L'endettement financier des entreprises, Banque de France, L'Eco en bref, August 2022.
4 The cost of paying me later, Allianz Research, April 2024.
5 Bilan d'activités 2022, perspectives 2023, DGCCRF, July 2023.