Key Trends in Credit Management
At CapAid, we're constantly focused on understanding the evolving landscape of credit management. Recently, I, Jawid Danish, had an in-depth conversation with Thomas Lundström, our founder, who brings over 30 years of experience in financial consulting, including working capital management, corporate financial risk management, and financial steering. In this discussion, Thomas shared his insights on the most significant trends in credit management today and their implications for businesses.
Q: What are the most significant trends you see emerging in credit management today?
Thomas Lundström:
"I'm not sure that these are all trends, but what I see and what people talk about is this: What is the right approach to take to credit risk management? Should you insure this risk, or should you bear it yourself? Another question is how much risk should you take? Should you bear a big risk on your balance sheet, or should you try to limit it? These are questions I've heard from different companies that they struggle with.
The trends are also driven by the companies that are selling services here. You have at least two very large players in this field. One is selling information about the credit risk for different companies. They analyze the company's balance sheet, profit and loss account, and payment history, and then give a credit rating. So one trend is that companies use this information to make more fact-based decisions. Some international Credit rating players access almost all countries, and then some local players specialize in certain countries.
Here in Finland, we have several players, like Alma Media or Suomen asiakastieto, which analyzes these factors and sets ratings for companies. Alma Media also use information from Intrum Justitia, a collection company, to get very fresh information if a company isn't paying its bills at the moment.
One trend is for companies to use this kind of information to make more fact-based decisions. Another trend is whether to insure against credit risk. Insurance companies, of course, push their products, arguing that it's a good idea because if a company doesn't pay its bills or goes bankrupt, you still get the money. However, there is a shortcoming because insurance companies only insure companies with low risk. If you have a strict policy that requires everything to be insured, it can limit your sales because you can't sell to companies with poor credit ratings."
Author - Jawid Danish