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The Risks of Extending Credit During a Pandemic
6 months ago by Cynthia Gebeily

The Risks of Extending Credit During a Pandemic

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Credit risk management plans are a vital component for any business to thrive regardless of its industry or size, but recovery is one of the main issues facing businesses globally since the COVID-19 crisis. If you are used to dealing with customers who are late to pay invoices, you know that managing risk will always be an essential aspect of your business operations.

Following the economic turmoil of the COVID-19 pandemic, a large number of companies worldwide have been facing severe financial difficulties, and this is likely to continue in 2021. Indeed, filing for bankruptcy has increased for small to large companies, across multiple industries. And if you supply products and services to these companies, your chance to recover your money is very low. 

Therefore, it is more than ever necessary for companies to perform critical checks when conducting business with local and international customers, such as their ability to make payments, credit history, capital reserves, financial conditions, and collateral. 

Risk Management Plan Tips

In this context, the need for extending credit is more important than ever. However, a company must consider the potential credit risks before venturing into this situation. Below are some pros and cons of extending credit to customers in these current challenging times:

PROS

  • Increase business sales by attracting more customers. Extending credit will surely encourage customers to buy your product or services and start a partnership with your business. It represents a safer environment for the customer to be dealing with a company providing payment facilities.
  • Competitiveness. Extending credit is a big plus compared to competitors who are not providing credit facilities. This can be used as a selling point during difficult times.
  • Reputation: Offering credit facilities means that your company is stable enough to be providing such a service which is especially important during the COVID-19 crisis.

CONS

  • Risk of late payments or frozen payments. Extending credit could lead to late payments or no payment at all from customers especially when many businesses are currently suffering from the economic downturn.
  • Need of additional resources (human resources, money, time) for account receivables. Such as assessing receivables portfolio, renegotiations, and partnering with outsourced collection agencies.
  • Affects the company’s cash flow. When a company agrees to extend credit, it could itself suffer from a shortage in cash and will not be able to settle payrolls, new inventories marketing, and other business operating expenses.

At Cedar Rose, we provide a broad range of useful products and services to help businesses manage their credit risk better. These can either be downloaded from one of Cedar Rose’s ready-made reports straight from its database of over 150 million companies or can be ordered as a fresh investigation to uncover detailed information on new businesses. What is important to remember is that with a Cedar Rose credit check, businesses can rest assured all data is accurate and verified, giving them the information, they need to make better business decisions.

Downloaded reports from Cedar Rose are instantly available in HTML from as little as EUR 15, with clearly visible dates of data fields shown in the search results. With a fresh investigation, a company can get a 1 to 10-day turnaround with competitive pricing as low as EUR 60. This provides organisations and individuals with the most up-to-date information available, covering over 230 countries worldwide. Once onboarded, sufficient credit risk management involves maintaining updated information, conducting regular analysis, checking a company’s financials, and keeping track of payment behaviour.

For more information on how we can help you get started with a risk management plan, give us a call today on +357 25 346630 or email info@cedar-rose.com

  • risk management
  • credit reports
  • COVID-19