Credit Risk Management: A Vital Tool for Businesses
Ever since the days of medieval Europe, when the wool market between English monasteries and Italian merchant societies used forward contracts stipulating that cash loans would be repaid in wool, businesses have depended upon access to credit. Business requires an investment, and rare is the business owner who has enough cash to capitalize a venture or underwrite a new product. But with the availability of credit comes associated risk. Accounts may pay late or they may default entirely. To minimize risk, business owners who extend credit to clients and other partners must engage in credit risk management. This is where Credit Risk Manager comes in: you can order reliable online credit reports with only three clicks.
The risks of extending credit to a business partner are very real, and mistakes can be costly. Let’s say that ABC Company, a manufacturer of computer chips in the United States, is approached by XYZ Ltd., located in India, which wants to order ten million dollars’ worth of chips for a new project. The managers of ABC Company are delighted, but they are also prudent. They don’t know much about XYZ Ltd. They have no history with XYZ, and they have no way of knowing whether XYZ will honor its contract and pay its bills. ABC is faced with two options. They can demand payment in cash - perhaps a down payment and the balance upon delivery. In a cash transaction, if the client doesn’t pay the balance they lose their deposit and ABC gets to keep the chips to sell elsewhere. But in the real world of business, cash transactions are rare. Credit is the norm, and for a good reason. XYZ Ltd. intends to add value to the chips, sell the finished product, and make a profit. It is from these profits, not available cash, that XYZ intends to pay its suppliers.
Credit Reports Are Key to Informed Decision-Making
It is likely that ABC Company will extend credit to XYZ Ltd. There may be a down payment, and then terms of -net 30- or -net 60- due after delivery. Typically, the creditor - ABC Company - will not demand interest on accounts that are paid according to the terms of the contract (30 or 60 days after delivery), but interest may be charged on late payments.
But how can ABC Company evaluate the risk associated with extending credit? The most effective tool for credit risk management is to obtain the account’s credit report. A business credit report includes financial and payment-history information that would be otherwise unavailable, and is a key element in making the right business decision.
To be useful, the business credit report must provide accurate and up-to-date information on not only the credit history of the company, but also background information including the identities of major shareholders, names of top management, a balance sheet, bank information - in short, everything that is needed to fully understand the financial strength of the potential account.
Every business needs access to credit, and most companies work hard to maintain a good credit rating. This will help them when they seek credit from a vendor. It’s a process that enables both parties to come out winners - the ABC Company, which seeks reassurance that it is extending credit to a creditworthy client, and XYZ Ltd., which because of its favorable credit profile can obtain the credit it needs from its vendors.
Reliable, Fast and Easy Credit Risk Management
Credit Risk Manager was initiated by Graydon International, one of the subsidiaries of the Graydon group. Graydon's history of more than 120 years in credit management is reflected in a global database, which provides access to 130 million credit reports. Credit Risk Manager offers both personal customer service and access to a large, global database. Credit Risk Manager makes credit risk management easy, fast en affordable.
Effective and reliable credit risk management is only three clicks away. Just enter the name of the company as well as the country and the city it is based in to get immediate access to reliable business information from Credit Risk Manager.