Tuesday, 30 December 2014 15:05

Make 2015 your year to resist financial risks

Risk is an unavoidable part of business, particularly if you provide credit to your clients - even in the sense of invoicing for work done only once it has been delivered, let alone more complex credit arrangements that involve the lending of money.

The new year is always a good time to take a fresh look at things; for many companies it is the start of a new financial year too, while those whose accounting is aligned with the tax year have the first quarter of the new calendar year to put processes in place.

Credit risk software developer Tinubu Square is suggesting a smarter approach to financial risk culture for UK businesses as 2015 gets underway - and that means a company-wide focus on minimising financial risk exposure, from the moment orders are placed (and even before) right through until payment is received.

Jerome Peze, CEO of Tinubu Square, said:

"It might sound surprising to associate the notion of culture with risk management, but to have an efficient risk management policy, companies have to properly identify what drives different risk behaviours, especially during an economic slump.

"In fact, the global financial crisis drew attention to the decisive importance of such a notion and has prompted an increasing number of businesses to put a smart risk culture at the very heart of their financial processes."

Six steps to prosperity

Tinubu Square's 'six-step programme' is an effective basis from which financial risk can be minimised, so if your New Year's resolution is to avoid unnecessary risk, here's one possible strategy to adopt:

1. Tackle existing client debts. Tinubu Square say these typically amount to about a third of any company's balance sheet, so anything you can do to bring that money in sooner should be good for your cash flow.

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2. Involve your entire organisation. Whether you're on your own and just need to change your mindset, or you head up a large enterprise, widespread engagement should help minimise your risk exposure.

3. Choose customers carefully. On this point, Tinubu Square say: "Carry out detailed analysis of the organisation and the market they operate in. Qualify prospects, make credit checks and implement robust financial negotiations. Create guidelines that enable you to decide between the benefits of a commercial relationship and the risks involved."

4. Linked with the point above, you should also continually check on the financial health of your existing customers, and be ready to take any necessary action if their risk profile increases.

5. Credit insurance. Tinubu Square suggest outsourcing your client debts in their entirety, via a credit insurance policy which means the insurer becomes responsible for chasing overdue debts. Remember though, purchasing an insurance policy could be costly compared with the money it saves you. These days you can charge debt recovery fees to the customer, making it arguably smarter to continue collecting client payments yourself, with a good debt recovery agent on your side for those that go overdue.

6. Finally, be alert to outside impacts, especially in export markets; changing economies and specific market factors; and alterations to terms and conditions.

By incorporating all of the above into your day-to-day credit risk and payment cultures, you cover many of the common bases.

As 2015 gets underway in earnest, this should translate into a slicker, more businesslike way of operating for your whole enterprise - and should have a positive impact on your bottom line too.

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