and Summary
NCI credit risk

Managing credit risk during COVID-19

April 1, 2020
By Daniel Mackintosh

As the globe enters trading uncertainty, businesses will face unprecedented challenges when it comes to managing credit risk.

More than likely, some of you would have already experienced a slow-down in demand for products and services as events are cancelled and new restrictions are enforced in Australia and New Zealand.

Credit Managers and businesses can look at certain aspects of their credit management to reduce risks and exposures when trading on credit. This applies to existing and new customers.

So, what can businesses be doing to help reduce their risk of non-payment moving forward?

  1. Meet with clients – whether this is via Zoom or conference call, considering the Government’s social distancing recommendations. Business is a ‘people game’ and this does not exclude the relationship that client should have with their supplier’s credit teams. Building and maintaining good rapport allows Credit Managers to have an ‘awkward discussion’ (if needed) regarding late payments or understand their business better to help them through tough trading conditions. Clients are likely to keep you in the loop if they have a personal attachment.
  2. Conduct credit reviews – now is the time to be reviewing your largest exposures. Consider your clients and the impact on your business if they are unable to pay their current outstandings. Constant review of a client’s ability to pay should be done on an annual basis, as a minimum requirement, and with tough economic times ahead, this process can’t wait and should be completed immediately.
  3. Monitor clients against adverse information – as an extension from periodic reviews, having a ‘third eye’ on your debtors through a monitoring tool can help with early alerts in your ability to react to potential non-payment. There are many tools in the marketplace such as bureaus, mercantile agents and the Drinks Association Liquor Licence database, which can support third-party alerts.
  4. Review your security – in many industries, seeking security from your client may reduce your competitive edge. However, seeking personal guarantees or registering your security interests on goods supplied may allow your business to provide more ‘free credit’ to your clients, plus may assist your business in getting paid before others and gain recoveries in the event of an insolvency.
  5. Listen to your colleagues – although this is not always an accurate or a guaranteed source of information, word can travel fast in industry when a business is paying late and provide the tell-tale signs that something more serious might be happening.

In these unprecedented times, information is crucial to making business decisions that will have a favourable outcome. Identify areas that need addressing, find the right information, talk to the right people in your networks and make the decisions.

Daniel Mackintosh is Marketing Manager at NCI Trade Credit Solutions. NCI is a valued Associate Member of the Drinks Association.