How to Avoid Credit Risk?

The modern day finance team has many responsibilities, with the most important one being reducing the credit risk. When an organization extends credit, there is always an element of credit risk that needs to be carefully balanced to avoid falling victim to late payment or bad debt.

Here are a few tips your finance team can keep in mind to avoid credit risk -

Awareness is essential when it comes to credit risk

Through the use and implementation of various credit risk solutions available in today’s digital age, it has become easier getting data on an individual or a company. Being aware of the identity and financial condition of the client is a must before getting into business with them.

Leveraging expertise

Leveraging the right credit risk management solutions for more in-depth due diligence can give you invaluable insights and alert you to any potential red flags. You’ll be able to use the credit risk solutions to create a business profile and segment the client appropriately in terms of risk and credit allowance.

Get their financial statements

While determining the creditworthiness of a customer it is important to examine his/her financial statements of the previous three years.

Going through the balance sheet, profit and loss account, and auditor’s report can be of great help coming to a conclusion.

Execute a process to evaluate a customer's score

The credit risk solutions by D&B credit and other companies can be useful for evaluating your client’s creditworthiness. These tools help you in making smart credit decisions faster with industry leading relationship data and financial scoring models.

With this combined information, you should be able to score your customers effectively and minimize your credit risk.

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Created on Nov 5th 2018 10:43. Viewed 342 times.

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