Crush the conflict between risk management and business strategy

Put your hand up if any of these business risks sound familiar to you:

• Your customers make their payments on time but can't expand their business with you because of their initial credit limit.
• Your customers are behind on payments but still have open lines of credit.
• Your current credit policies aren't keeping up with changes in your business.

If you have your hand up (or if there are other risks on your mind that we didn’t list), you’re not alone: 65% of organizations agree that the number and complexity of business risks are increasing, according to North Carolina State University’s (NCSU) Poole College of Management 2022 State of Risk Oversight Report.

Even more worryingly, the NCSU report found that 81% of organizations had recently experienced an operational surprise due to a business risk they just weren’t prepared for.

Unfortunately, a magic bullet that will help you avoid risk entirely doesn’t exist. What we have instead are three tactics that will help make managing risk more tolerable and less likely to cause permanent damage to your bottom line.

From invoicing to reconciliation to onboarding new customers, you know that in-house financial departments are often overloaded with work, especially during busy seasons.

It might be tempting to allow lapses in the credit review process for existing customers, but financial risk management needs to be a continuous and ongoing task.

For example, review payment behavior on a monthly or quarterly basis. And conduct credit reviews for existing customers every year. The information you find will uncover trends or red flags so you can take swift steps to mitigate risk and maximize the organization’s financial assets.

A holistic risk mitigation approach requires communication between departments. Your managers and sales leaders need to have access to information such as credit application status and customer account receivables that are often siloed within the finance department’s spreadsheet.

Why? A sales department employee who knows that a customer is delinquent on payments could work with them to get their account current, or they could refuse future purchase orders. Tools that provide visibility can help teams work together to protect and grow the business.

When you work with numbers all day, it can be easy to forget there are people behind those figures. Building relationships might seem like a job for salespeople, but credit professionals also work directly with customers.

Risk mitigation strategies can drive business strategies through account coverage decisions. Organizations may decide to segment the credit application and management process by business size, type, or industry. And automation reliably helps remove friction from the payment process.

According to the S&P Global Market Intelligence Report, 50% of credit and risk management professionals are looking for ways to better estimate probabilities of default. That may be a timeless challenge, but especially in an uncertain economy, holistic risk management procedures can collect insights that will help improve operations and enable faster decision-making.

The smartest thing you can do right now is put a risk mitigation plan in place that’s in lockstep with your business strategy. Whatever the economy, it means you’ll be able to better serve your customers while protecting your bottom line.