FINANCE: Credit Risk High Over Xmas
Recent Western Cape Business News
International credit insurer Coface South Africa says the annual spike in debtor defaults that generally occurs in March is the result of collections not being properly managed in the December and January time frames.
During this period, when many companies operate with skeleton staff, processes may be cut short and quality control relaxed.
“Customers may exceed their credit limit as a result of suppliers not monitoring credit limits, and the likelihood of parties obtaining credit through fraudulent means increases. During this period credit applications may not be as strictly scrutinised as they normally would,” says Jacqui Jooste, operations director of Coface SA.
More and more suppliers are beginning to realise that by granting credit terms they are in effect lending money to allow their customer to trade.
Companies therefore need to be more selective in providing credit, as it is still at the discretion of the supplier. Companies are not obliged to give credit.
Good receivables management, where clients pay on time, is vitally important for cash flow management and continued month-on-month profitability. The more reliable the company’s cash flow, the better positioned it is to take advantage of business opportunities.
With the continued change in the business environment, organisations need to be focused on the credit they provide. The potential risk remains high.
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