When your company decides to extend a line of credit to any business, no matter the size, there is always risk connected to it. While it may be easy to monitor your business’s problem accounts, monitoring those who regularly pay or order infrequently is critical to keeping surprise payment issues at bay. Here is a breakdown of the basics when establishing credit monitoring within your business.
You can’t monitor everyone, but how do you know who to choose? Focus most of your efforts on your largest accounts with the largest credit lines. These accounts have the most potential effect on your cash flow. Proactively monitoring these accounts will help keep bad business debt away from your business.
Tip: While you should monitor all of your accounts through automated systems like Cortera and Experian, you need to do more in-depth monitoring on the top 20% of your client list based on credit line amount.
Now that you have your list of clients, you need to know what to look. When you monitor credit you are able to make educated predictions on the financial health of your clients, typically months before your business is negatively affected. If you start realizing that there could be potential financial problems with a client, address them with the client and consider decreasing their credit limit. On the other hand, if a client has continued growth it could facilitate a discussion to extend their credit limit and encourage increased spending.
The key areas to monitor include:
- Order and payment trends with your business.
- Payment and public records reported by third party monitoring sources, such as Cortera and Experian.
- Salesperson observations.
- Earning reports (if public company).
- News about the company.
- Rechecking parts of original credit application.
- Organizational changes.
Depending on the size of the company, monitoring can be a very time consuming job. We suggest doing regular company monitoring through automated processes to save you time and ensure that you are receiving the most up-to-date information possible. Companies like Cortera and Experian provide monitoring services and financial predictions based on the activity of the company.
Although we have already answered this, we will reemphasize our point. Doing credit monitoring by hand is no fun and completely unnecessary. We suggest using an automated tool through companies like Cortera and Experian.