Tinubu Square, the trusted source of credit risk software solutions for trade credit insurers and businesses, has outlined a best practice approach to help UK companies implement a ‘smart risk culture’ in 2015. These include taking control of outstanding debts, getting organisation buy-in to reduce risk, being selective about customers and controlling export activities.

Tinubu has based this advice on the findings of research and industry collaboration incorporated in its newly published whitepaper: Credit Risk Trends and Challenges: The contribution of new technologies to the deployment of best practices. The findings, based on the Institute of Credit Managers quarterly CMI Index, sponsored by Tinubu Square, and a poll of UK-based credit managers during the latter half of 2014, indicates that they are anticipating improvements in cash flow, reductions in bad debts and an increase in investment in credit management.

“It might sound surprising to associate the notion of culture with risk management,” said Jérôme Pezé, CEO at Tinubu Square. “But to have an efficient risk management policy, companies have to properly identify what drives different risk behaviours, especially during an economic slump. In fact, the global financial crisis drew attention to the decisive importance of such a notion and has prompted an increasing number of businesses to put a smart risk culture at the very heart of their financial processes.”

To implement a new culture of smart credit risk management, Tinubu’s guidelines start with improved practices, including:

• Take control of outstanding debts. Monies owed, on average, amount to one third of the balance sheet. This is costly, both in terms of the time spent chasing money and the effort to secure short-term financing. Look at adopting mechanisms that automate the credit management and control process.
• Get commitment from the entire organisation. The only way to effectively implement processes for identifying, analysing and managing your exposure to risk is by involving all staff with a connection to the process from credit controllers through to the sales team (the order-to-cash cycle)
• Be selective about customers. Carry out detailed analysis of the organisation and the market they operate in. Qualify prospects, make credit checks and implement robust financial negotiations. Create guidelines that enable you to decide between the benefits of a commercial relationship and the risks involved.
• Monitor existing customers. Ensure you track their financial health and implement a faster response to negative information to reduce exposure to risk.
• If appropriate, consider transferring risk to a credit insurer. By purchasing a credit insurance policy you will have access to data on your clients that will accurately outline your exposure to risk and allow you to make informed business decisions. The recovery of past-due claims is in the hands of the credit insurer, and you receive compensation regardless of whether the debt is finally paid to the insurer or not.
• Control export activities. Outside factors, whether political, commercial, financial, logistical or legal add to the risk environment. A credit risk management policy is useful for automating a significant portion of the most important processes, such as monitoring changes to the customer’s commercial environment, or even tracking changes in Terms and Conditions.

Adopting a strategic approach is also the priority of Chief Financial Officers, who, according to a PwC/DFCG study rank management planning amongst their top three priorities. More than 42% have decided to implement new criteria for monitoring performance, especially by improving the return on capital investment and by installing technology-based credit risk management tools. 58% also said that they thought the finance department should be more involved in the company’s transformation and decision-making process.