The way you approach credit management can determine whether your business thrives or fails:
- Overly cautious - you may miss out on important sales opportunities and your business may fail to grow
- Too lax - you may miss the warning signs of a customer in trouble or even indications of fraud.
What is credit management?
Credit management is the function of granting credit terms and making sure money is collected when it becomes due. Good credit management promotes dialogue between finance and sales teams to create a balancing act where risk is minimised and opportunities maximised. Businesses in Singapore have reported credit sales are common practice. It is widely believed throughout the country that offering credit is important for nurturing business relationships and developing new ones. Many Singapore businesses also maintain it is more convenient to trade on credit.
Trade credit can be a valuable business tool. Companies that allow payment to be made 30 days after delivery can be more attractive to some customers than businesses who requirement payment immediately. However, the risk of non-payment grows greater the longer the credit period is extended and the size of the sum involved could mean the difference between life and death for the business offering credit. Credit management seeks to mitigate risk while helping to make a business as attractive as possible to potential customers.
The pitfalls of poor credit management
According to business intelligence experts Graydon, over half of all bankruptcies can be attributed to poor credit management. Indeed, even profitable companies can struggle if they do not properly manage their accounts receivable. Without the working capital to invest in the business and settle with their own creditors, a business can quickly spiral into debt. It’s not just the slow payers that can impact on the cash flow of your business. Fraudsters will take any opportunity to exploit the offer of credit.
To avoid slow-payers, businesses teetering on the edge of insolvency and crooks looking to commit fraud you will need to practise due diligence. This means thoroughly checking every potential new client before signing a deal with them, and then maintaining contact with a robust monitoring system.
When you take out credit insurance with Atradius you will benefit from the due diligence and finance background checks that we do on your customers. We recommend you combine this intelligence with your own research before commencing trading relationships.
Singapore payment practices
In June 2022 the Atradius Payment Practices Barometer report for Singapore highlights an alarming 50% increase in the number of debts written off as uncollectible in the market, particularly in the local agri-food industry. The report provides insights into payment terms, overdue invoices, the impact of late payments on businesses, and challenges to profitability. It also reveals that credit insurance is becoming increasingly popular to mitigate credit risks and ensure DSO stability. Learn more in the Atradius Singapore Payment Practices Barometer 2022.