COVID-19 CREDIT RISK CONTROL
Pandemic Credit Risk Control
What is Covid-19 Credit Risk Control?
Covid-19 Credit Risk Control is an approach to minimize bad debt losses while maximizing revenue and cash collection from a financially weak customer base, during the next nine to twelve months while the economy suffers a severe downturn.
To avoid a catastrophic revenue decrease, you will have to sell to financially weak customers whose credit rating may be far below your current acceptable risk standards. Inevitably, you will suffer larger bad debt losses than in the past.
How to Deal with This Economy?
Speed and urgency are two attributes that will serve you well. The key actions to take are:
1. Your company must define its posture for dealing with the Covid 19 business environment thru a more accommodating credit policy – but how much more?
2. Renew/refresh identification of higher risk customers. Monitor alerts issued by credit bureaus (D&B, etc.), and watch payment performance closely. Secure feedback from Sales and Customer Service (your “eyes & ears”). Also, research publicly available information about their industry. Rank them by risk and Accounts Receivable exposure level.
3. Develop a treatment strategy (revised credit limit, collection timeline, etc.) for individual customers or groups of similar customers. Then use it intensively – this will require more frequent contact and muchmore time from your Credit & Collection team.
4. Use key Credit and Collection automation tools to free up time for more frequent customer contact. A customer portal to enable self-serve functions can help substantially.
5. Minimize time & effort devoted to other Credit & Collection functions (Cash Application, Dispute Resolution, etc.). An example is to raise the automatic small balance write-off threshold for deductions. One client raised the threshold to $600 and eliminated 42% of the deduction volume which comprised only 2% of total deduction value.
Conclusion
The right Credit Risk Control actions will enable you to survive. You may even emerge from this downturn stronger: more loyal customers, greater market share, and enhanced capabilities.
John G Salek
President
Revenue Management Associates, LLC
www.optimizear.net