So it is with debtor risks. Small debtor losses have virtually no impact on the continuity of the business. Very many small losses or a major calamity do again. It can even mean that the survival of one's own business is at risk. At the same time, offering credit to buyers is incredibly important. Indeed, for many companies, it is the lifeblood of doing business. Since the 2009 financial crisis, banks have become very reluctant to finance companies, especially in the SME segment. This has raised the importance of supplier credit enormously.
Safety net
But delivering on credit also means taking risk. You have to do that in a calculated way. So check every customer's creditworthiness and keep monitoring it continuously. Credit insurers have the most up-to-date information on the creditworthiness of companies and are often quick to signal if creditworthiness deteriorates or if there are payment problems. With credit insurance, you also have a safety net if things still go wrong, because that can always happen. We have seen many bankruptcies come by again recently, some you can see coming for a long time. And sometimes it happens suddenly, like a bolt from the blue. Either way, it can put your own business in immediate trouble.
Additional working capital
Providing credit to buyers also puts direct pressure on your working capital. You can manage this by extending your supplier credit. But you may also need to raise additional working capital. Factoring is a suitable product for this. At Xolv, we are constantly busy managing risks for our business relations and optimising working capital. Of course, our relations decide for themselves what risks they want to take, but it is good to continuously know what risks you are taking.
