Some Thoughts about Risk Management

• Use a risk assessment matrix to determine the potential for delinquency or default among your customer
• When available, use automated credit scoring models to manage, monitor and gauge credit risk.
• After assigning credit scores, develop a protocol that determines the level of review and follow up required based on the customer's credit risk score.
• Determine the frequency of credit reviews based on the credit risk score.
• Establish the level of supporting documentation [such as frequency of financial updates] you will require from the debtor based on their credit risk score.
• Base your account specific bad debt reserves, at least in part, on individual credit risk scores.
• Recognize there is risk associated with selling on COD terms - the most obvious being risk the customer's check will bounce. Therefore, even COD customers should be assigned credit limits based on your risk assessment.
• Risk management must be done in advance. A company cannot effectively manage credit risk retroactively