Recommendations

Best practice will include businesses considering the following actions:

• Periodically reviewing accounts receivable to ensure all transactions are accounted for, and any delayed/irregular payments are flagged swiftly — ideally automatically.
• Establishing a constant communication flow between business leaders and finance departments.
• Developing and implementing robust documentation practices to gather clear records on acceptance of contractual payment terms and proof of delivery of goods or services.
• Erecting systems that store customer information in a systemised manner, while being easily accessible to the relevant stakeholders.
• Introducing multi-faceted approval processes for the distribution of new lines of credit and amendments to existing credit agreements.
• Reviewing and diversifying existing customer bases to help avoid overexposure to a single customer or industry — spreading and diluting credit risk can minimise the magnitude of potential losses in case of defaults of a singular company, or several companies from a specific industry.
• Taking immediate action if investigation finds a customer who appears at risk of non-payment. Furthermore, for the foreseeable future, closer supervision of this account is imperative.
• If a customer enters financial difficulty, engaging with them to explore restructuring options for debt, potentially also adjusting credit terms by reducing limits or requiring additional collateral.

These standard operating practices — when supplemented with trade credit insurance — gives you access to timely and detailed information on your current credit agreements. Subsequently enabling you to identify any possible threats, whilst insulating your business against potentially devastating payment defaults.