Even financially sound and reliable customers can unexpectedly run into difficulties. Market conditions can change, margins can come under pressure, and key customers can be lost. And there are many other factors that can quickly undermine a customer’s financial position. For you, this means that outstanding receivables can mount up unnoticed and the risk of default increases. You wouldn’t expect this from your loyal customer, which means you’re more likely to notice the changes too late.
Tension
One of the first signs of financial strain within a business is a change in payment behaviour. If your customer consistently pays a few days later than usual, this may indicate liquidity problems. So it is precisely by actively monitoring payment behaviour and outstanding balances that you can identify these signs in good time and take appropriate action before the situation gets out of hand.
Requirements
Of course, you do this to keep your own risks under control. But it’s also important for your credit insurance. Credit insurance covers risks – that’s certainly true. But insurers set a maximum credit limit for each customer. If the outstanding amount exceeds that limit, the excess is often not insured. Credit insurers also set clear requirements for monitoring debtors and taking timely action in the event of late payments, whether the customer is a loyal one or not. The insurer periodically assesses your customers’ creditworthiness, but they do not replace your credit management. You are the one who first notices when invoices are paid late or when outstanding amounts are mounting up.
Keep track of all your customers
If you continue to monitor all your customers, you will not only reduce the risk of unexpected losses of turnover, but you will also increase the likelihood that credit insurance will actually pay out when needed.