In an excellent presentation at the AFP's Annual Conference, in November 2011, on managing corporate credit risk, Phil Burch, CFO Nichols Brothers, Inc. and George Garner, President CrediPoint Software, showed the huge impact of credit losses. Then they described how companies need to focus on managing their credit risk by concentrating on credit loss prevention, managing credit losses and risk transfer wherever possible.
Credit loss prevention is carried out by: having tight credit policy; productive use of credit scoring; efficient and error proof invoice processing; and then accurately measuring and reporting on all aspects. Optimum credit risk transfer is achieved by managing the terms and conditions of credit insurance, and the collateral involved. While successful credit loss management involves setting tight collection policy and having efficient collection processes combined with accurate measuring and reporting.
To implement a credit risk management programme requires a combination of systems, people and processes.
Their case study on how Flextronics transformed their credit risk management in four continents by setting up a global credit risk management programme was important. The major benefits of the project were:
- establishing a global Shared Service Centre reduced staffing costs by 85%
- total project savings of $10 million
- annual department costs reduced by $2 million
- 50% reduction in credit decision time
- 30% gain in customer credit checking
- management could quantify and segment the credit risk of their portfolio, and for the first time knew their total customer exposure
- enhanced risk analysis modeling.
This presentation showed how effective credit risk management programmes can produce considerable savings as well as improving customer relations.
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