As we start a new year, we suggest reviewing and strengthening your written credit policy as a best practice. It’s a great time to reassess your risk appetite and tolerance, bringing these factors in sync with your forecasted sales and potential credit losses. If you don’t have a written credit policy, you should consider creating one; even if it’s simple, it still provides a road map.

Has your credit policy become outdated in today’s environment? Now is a great time to review your written credit policy and reassess your corporate risk appetite, ensuring both are aligned with current market conditions. Take a close look at your existing credit policy and identify any areas where it may be outdated, unclear, or ineffective.

As your business evolves and economic climates fluctuate, the amount of risk you are willing to take on and the amount you can handle may change. With this in mind, it is important to reassess regularly and ensure your credit policy reflects your current stance.

Good information is essential for managing credit risk. Securing financial and credit data is a crucial first
step. Due diligence doesn’t end once you source this data, either. Neglecting risk monitoring can lead to
accumulating bad debt losses or surprises. Your customers’ creditworthiness can change over time, so it’s
important to review them regularly and adjust their credit limits accordingly. Higher-risk customers should be reviewed more frequently than lower-risk customers. Credit limits should be set, reviewed regularly, and exposure managed to those limits. This is a common area where firms fall short.

Remember, a well-maintained credit policy is a vital asset for any business. You can’t manage credit risks if
you don’t have a system or policy in place to measure and monitor them. We also note your credit policy is not a set-it-and-forget-it document. It’s important to review it regularly and make changes as needed.