Thursday, March 20, 2008

CFO Magazine on Credit Insurance

If you liked my posting, Insurance that Makes You Money, you'll like the article on managing the credit risk of your customers in the March edition of CFO Magazine, No Uncertain Terms.

In a nutshell, the article visits the issue of the trade-off between offering open credit terms to customers in an increasingly credit challenged environment versus leaving sales on the table.

As one CFO said, you can "have perfect DSOs and no write-offs, but that may mean you missed plenty of sales".

As I've said in the past, if a business is extending credit terms, you're really a lender. Not necessarily a good place to be if you don't know what you're doing. Good credit and collection policies are an absolute necessity as it becomes more likely that a recession and credit crunch will be having an impact on your customer's ability to pay your invoices when due.

The article makes a couple of other good points that I've made here as well. First, don't become too dependent on a limited number of clients. Second, a weak dollar may lead a number of companies to target overseas markets requiring a whole different degree of credit management oversight.

Credit insurance and standby letters of credit are a few of the tools mentioned in the article as ways to mitigate the risk of offering open credit terms. But don't become over-reliant on any of these - even the credit insurance providers will drop coverage if they start taking losses due to your sloppy credit and collections policies.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : credit insurance , CFO magazine , open credit terms , credit and collections

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