The financial crisis of 2008 is considered by many to be the worst since the Great Depression. A number of large firms that had been in existence for decades went under with little warning that they were going to fail. Therefore, it is important for companies to be aware of credit risk (aka. default risk) management possibilities in the aftermath of such a calamity.
It’s Important to Be Proactive
There are never any guarantees that a client will pay his or her bills on time. In fact, there is no guarantee that a client will pay any portion of an outstanding balance. However, using credit risk management tools can help you predict which customers are likely to live up to their obligations and which ones are less likely to. This can help your company minimize its losses and create objective criteria as to what a quality client or customer looks like.
You Can Prepare to Make Claims in Bankruptcy Court
If you can predict ahead of time that a client is going to file for bankruptcy, you can prepare to make a claim to get paid in bankruptcy court. It may also be possible to take steps to ensure that you are a priority or secured creditor as opposed to an unsecured creditor. Priority and secured creditors are the first to receive cash or assets from a person or company that is going through a Chapter 7 proceeding.
Make Your Company Attractive to Buyers
The use of innovative credit risk monitoring technology can make your company more attractive on the open market. This is because buyers can feel better knowing that there is a way to vet customers and mitigate future risks. Furthermore, a buyer doesn’t have to spend time and money developing that system from scratch. Ultimately, it will help your organization stand out from others that may be up for sale.
Give Your Shareholders Confidence in the Company’s Future
If your business is publicly traded, using credit risk management tools can give shareholders the confidence to buy and hold shares. This can boost your company’s share price, which may also result in a boost to your net worth.
The use of credit risk monitoring should be considered essential or mandatory in the economic climate we are currently in. Doing so can strengthen your financial position now and in the future. Creating a strong financial position may be enough to hold off activist investors or others who think that they could do a better job leading your company.
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