Ensure Clients Keep Their Promises: The Essence of Credit Management
The phrase “Ensure clients keep their promises” captures the essence of credit management in a few short words. At its core, credit management is about the management of trust and commitments between parties in financial transactions.
In any financial transaction there is an exchange of value. One side provides goods, services, or money now in the expectation of receiving something of equal or greater value later. This transaction is a promise to fulfil an obligation in the future. In a credit transaction you are providing something of value to your client now and the basis of their promise to pay at an agreed time in the future.
Trust is the invisible currency that allows these exchanges to happen. Organisations trust that their clients will adhere to the terms agreed upon. However, the risk of a broken promise or a default is always a possibility. That is where credit management professionals are required.
Credit management exists to minimise risks and ensure that this trust isn’t misplaced. It encompasses a broad range of activities designed to ensure that clients keep their promises. From conducting initial credit checks and setting credit limits to monitoring payments and following up on arrears, credit managers serve as the sentinels of financial trustworthiness.
The initial risk assessment is critical. By examining a client’s financial history, current economic standing, and market conditions, credit managers can estimate the likelihood of default. Based on this assessment, credit terms are agreed. These terms should be designed to meet the needs of the client and your own while staying within limits you are comfortable with, and you believe your client can meet.
Credit management does not end once the terms are agreed, now we have to make sure our client keeps to the agreement. Ongoing monitoring is important to identify any changes in the client that might affect their ability to fulfil their agreed terms. If necessary, we may need to take action to adjust the credit terms or to secure the outstanding payments.
Communication plays a vital role in this process. A client may not even realise they are straining their credit limits or missing payment deadlines until alerted by a credit manager. A proactive approach in communication often prevents a small oversight from escalating into a broken promise. It also makes sure the client is aware you are serious about them sticking to the terms that were agreed.
Beyond monitoring and communication credit professionals have to look to other tools to ensure compliance. Thes may include late fees and interest, freezing the account, third party collections agencies and legal action as a last resort. However, the goal is to support clients in fulfilling their obligations rather than penalise failures to meet them.
Ensuring that clients keep their promises is the principle that guides the complex activities of credit management. It is a constant process that goes beyond calculations and algorithms. In a world of increasing financial complexities, the need for effective credit management is more important than ever.
