Credit Risk Management – Few Factors to Know
Companies and banks often face the issue of credit risks. This is a kind of risks that is deeply involved in any kind of businesses; especially with the financial sectors. Since risk is unavoidable in any kind of business, hence it becomes obvious to find out a system to manage the risk; especially when it is financial. plays an important role in the financial sector in terms of managing the risks that associated with any kind of credit and investment.
What is Credit Risk?
In case of banking or other financial sectors, the customer will be served with some certain financial products or services, e.g. loans. Though the customer is legally bound to pay the loan within the given time limit, but sometimes the debtor may not be able to do so because of his poor financial condition. In such case the bank or the finance company need to face the risk of credit. They have to make sure that this kind of risk is managed in a proper manner so that it would not affect their business in any way.
Proper Process to Manage the Risk:
In order to get a useful credit risk management system a company must have a proper framework. The financial company or the bank must practice some certain processes through which they can know their customers better and can estimate the risks of their credit before they have dealt with them.
Know Your Customers:
In order to avoid that kind of risks in business it is very important that you know your customers. This process should be set when you are preparing your marketing plan. A business must be acquainted with their target market and prepare their marketing plan according to that. If the company fails to set the right target then it probably loses its goal and faces the downfall. A company cannot expect to avoid the factor of credit risks without knowing their customers well.
The Duties of a Credit Risk Manager:
The CRM or the credit risk manager must work on the basis of the credit report of their customers. This credit report will help the company to understand the customers and also help them to take a prudent business decision about their clients and partners. Once they get the information now the CRMs will take their decisions about choosing the customers on the basis of their individual credit history. Generally a business credit report contains information such as:
1 Information related to banking, leasing and insurance.
2 Collection history including banking and trading information.
3 Information related to the clients’ business background.
4 Information about his corporate registration and business contacts.
5 Detail information about credit inquiries which are made in the last 8-9 months.
6 Credit risk factors.
7 Valuable financial information including the balance sheets of the business.
If you follow this process and have an experienced credit risk manager for your company then you can be sure about the right risk management system at your end. It is good to be prepared for the risk instead of trying to pay the loss.
Author Bio: Peter Smith is a well known writer. He writes on several topics including the financial ones.
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Category: Business
