Business Credit Risk: 5 Ideas to Boost 2017 Performance
It’s that time of year again.
Are you ready for 2017? A New Year always brings a fresh start, and an opportunity to improve on the past year, and make a better plan for the next one.
So as December speeds to a close, it’s a good time to take stock of the past 11 months. Now’s the time for reflection, learning, and planning, to gain clarity about where to focus efforts in 2017.
In that spirit, here’s a three-step process to get started.
Review the credit challenges of the past year
In 2016, we certainly faced plenty of credit challenges. Reflecting on these big-picture themes may reveal some important insights:
- Uncertain economic conditions:
2016 was dominated by a tempestuous US election, global trade doldrums, interest rate uncertainty, and unexpected events like Brexit.
What developments caught you by surprise? What new global business risks do you need to be prepared for in 2017?
- A glut of high-profile business bankruptcies:
Throughout the year, new companies filed for bankruptcy each week. We saw the collapse of global supply chain giants like Hanjin Shipping, scores of oil and gas firms, and retailers such as Sports Authority and American Apparel, to name just a few.
Did any of your key customers or suppliers file for bankruptcy? How good were you at spotting financial distress in advance?
- The need to “work smarter, not harder”:
2016 undoubtedly brought more demands on your risk management resources -- more data to crunch, more information to make sense of, and more risks to mitigate. At the same time, credit and collections budgets haven’t budged.
How can you make the credit risk analysis workload easier to manage, and focus your team on the risk management activities with the biggest payoff?
Review the year’s major accomplishments, as well as any losses that might have occurred. Also consider where performance could benefit from more time and focus.
An honest assessment will help to provide clarity on changes needed, as we enter a new year.
Decide your most important credit goals
When it comes to goal-setting, this one question from the best selling author Gary Keller helps to add focus:
"What’s the ONE thing you can do, such that by doing it, everything else will be easier or unnecessary?”
2017 may be the year to identify risks sooner, in order to reduce bad debt or bankruptcy exposure. Or, perhaps there’s a pressing need to make better credit decisions, and overcome time challenges. Maybe a closer collaboration with sales would finally help you to play a more pivotal role in helping your company achieve topline sales growth.
The primary focus will surely differ for every credit professional. But if you give this question some thought, we’re sure you’ll come up with one key area that is more critical to your credit management success than any other.
Develop an action plan
Now that you’ve taken some time to reflect, you’re ready to develop an action plan to achieve your stated goals.
On that note, here are 5 suggestions that we hope you will find helpful:
1. Take a good hard look at your processes and procedures:
If resource constraints and workload area concern, take a good hard look at your processes and procedures.
After all, a recent survey of financial professionals names “outdated processes,” and “insufficient tools” as two big reasons for inefficiencies. The obvious goal, then, is to pinpoint inefficiency, and identify new tools or processes that would allow your team to work smarter, not harder.
Review your operation, and ask: where are the roadblocks to getting important tasks done? What processes can we automate to save precious hours, or tools can we add?
For instance, when it comes to spreading financials for credit decisions, it can take three hours just to manually collect and standardize the data you need to do your analysis.
Consider investing in timesaving tools, such as a reliable financial risk score, access to a comprehensive database with quarterly financials and ratios at your fingertips, or ready-to-go financial risk reports based on your own trade data.
All of these technologies will help you to focus your efforts and target risky customers more efficiently.
2. Identify big risks sooner:
If 2016 taught us anything, it’s that anything can happen. While the source of financial risks may vary, 2016 showed us that no industry is immune to financial stress, and an early warning is key.
In today’s volatile economic environment, it’s essential to get an early ‘heads up’ for a customer or supplier’s deteriorating financial health. The right tools will help you to mitigate risk ahead of time, and keep you from being blindsided.
The real question becomes: As interest rates begin to rise, or a strong dollar and new trade policies add fresh financial stress to your global counterparties, what tools do you need to have in place, to see the signs in time?
That’s where credit risk monitoring, combined with a reliable financial risk score, can earn its keep.
3. Add data insights to your ‘to-do’ list:
If you are like most corporate credit teams, you are sitting on a mountain of data ... but may be ignoring the opportunity it provides. If you haven’t already, 2017 is the year to put your trade data to good use, by applying the right tool to identify the risk in your receivables with our Trade Contributor Program.
By contributing your trade files, you gain a deeper insight to where the dollar risk lies within your portfolio. Specifically, your accounts receivable data can be used to:
- Reduce Days Sales Outstanding (DSO)
- Improve cash flow
- Monitor serial late payers who are paying you on time but others late, signaling potential trouble
- See a unified & detailed view of your risk across business units and divisions
Best of all, you don’t have to be a CreditRiskMonitor subscriber to benefit. Contact us, to learn how you can receive timely, actionable data insights and reports, absolutely free.
4. Closer collaboration with sales or procurement:
Your counterparts in these other areas see and hear what you can’t. By pooling your unique insights and building a more holistic picture, you’ll be better equipped to keep your company target its most profitable sales opportunities, vet suppliers, and stay ahead of risk.
Taking the lead on forging stronger partnerships is a sure way to boost 2017 performance.
5. Learn from your credit peers … and help them learn from you:
The collective brainpower of the credit community is more powerful than any individual credit team. There are two easy ways to tap into this:
- The National Association of Credit Management (NACM) is heading to Texas in June 2017 for its Credit Congress & Expo. Meanwhile, the Credit Risk Foundation will be hosting three separate credit and accounts receivable forums in 2017. There are many others opportunities to share best practices and be surrounded by cutting-edge industry knowledge. All it takes is a little effort for a potentially big reward.
- Plug into the power of credit crowdsourcing. A crowd-sourced financial risk score is the most reliable predictive bankruptcy score there is. Tapping into this powerful technology is one more way to stay ahead of public company risk.
Never miss an opportunity to learn from your peers, and contribute your knowledge to the credit community. It's an easy way to ensure that all reduce business credit risk in 2017.
Goodbye 2016, Hello Opportunity
In 2016, we helped thousands of your peers predict and monitor public company bankruptcy risk. Here's an easy way to get 2017 off on the right foot.
Before you ring in the New Year, schedule your personalized risk assessment. It's one tangible way to solidify your 2017 plans and goals, and make the next year one of your most successful yet. In 12 months, time, you’ll thank yourself for it!
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of more than 56,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $150 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.