Manage customer credit risk

Two years ago, a new customer from Eastern Europe began to contact the overseas market department of Galanz Enterprise (Group) Company, hoping to buy microwave ovens in bulk from Galanz. The overseas marketing department immediately started the customer credit review process. From the information provided by the customer, it can be seen that this is a large-scale importer and retailer with considerable strength. Its sales range covers three or four countries in Eastern Europe, and radiates to some countries in Central Asia and the former Soviet Union. Afterwards, the two sides further contacted face-to-face, and the salesman in charge learned from the customer's words, marketing network and brands used, etc. that the other party did have a considerable scale and should be a potential buyer. This customer passed the company's first level of customer credit review.

Immediately after, the overseas marketing department reviews the issuing bank of the other party. It was found that although customers are located in Eastern Europe, they mostly use well-known and reputable banks in Germany, Switzerland and other places when opening letters of credit. This passes the second pass of the credit review.

The third step of the review - the information obtained by the third-party institution (bank) shows that it has a disgraceful history of cooperating with many Chinese companies, especially the payment reputation is not good: the customer has repeatedly claimed the inconsistency of the letter of credit For this reason, many Chinese companies suffered heavy losses due to delayed payments and even haggling prices.

Galanz takes this very seriously. So proceed to the third step of the review: using my own network in the shipping company, I found out that, due to the discrepancies in the letter of credit, the customer often stranded the goods at the port. After the customer's "bad deeds" are confirmed, the customer is automatically rated C-level. When negotiating with the other party, Galanz took a tough attitude, abandoned the payment method of letter of credit, switched to T/T, and shipped the goods after receiving the full payment. At the same time, in order to avoid risks, the other party's order of 10 containers at a time was rejected, and the quantity of each order was required to be reduced.

Three points + three faces

As one of the parties, Huang Zhenbin, the business manager of Galanz's overseas market department, still has a fresh memory of the above events. Huang said, "If it had been a few years earlier, we would have been stuck with this customer. But now, our credit review system will filter out those low-quality customers." Thanks to this system, Galanz's export volume has maintained a high rate of 50% every year. While growing, the bad debt rate has continued to decline. In 2002, the export volume was 300 million US dollars, and the bad debt rate was almost zero.

When Huang Zhenbin first joined Galanz Group, the company had a small export volume and few customers, and adopted very extensive management of customers. Judging customer credit depends entirely on the subjective inference of the salesman. A lot of time is spent on document review, especially the documents under the letter of credit. Despite a lot of effort, delinquencies and bad debts still occur. With the increase of customers and exports, the company realized that it must strengthen the management of customer credit, and this management needs to be based on scientific processes.

Galanz has worked out an effective process. Huang Zhenbin introduced that the customer credit review is generally completed through "three aspects + three points". The three aspects refer to information about Galanz itself, customers and third-party institutions, while the three points refer to the country where the customer is located, the bank used by the customer and the customer company itself.

Specifically, when negotiating business with any customer, it is necessary to review the background information provided by the customer, the information that Galanz knows by itself (for old customers, the historical data of both parties needs to be examined), and the intelligence obtained by third-party agencies. After that, it is also necessary to understand the risk assessment of the country or region where the customer is located, the credit level of the bank used by the customer, and the customer's own business and financial status. After these standardized and complex reviews, the customer's credit rating is obtained. With this level, companies can have a certain degree of credit and flexibility when working with customers. When the clerk operates, there will be evidence to rely on, and on this basis, give full play to the individual's subjective initiative.

Objectivity + Science

Customer credit review needs to be based on detailed data. Extensiveness and objectivity of the data are important prerequisites for determining the accuracy of the review. Therefore, export enterprises must open up channels, collect data from multiple sources, and then process them. Huang Zhenbin said that enterprises should use three-dimensional intersections to obtain information.

The first is the organization of historical data. The previous transaction records of the old customers and the payment status of the other party need to be centralized, and the cooperation with the old customers in the future needs these first-hand information. These data are often the most authentic and direct, and the acquisition cost is small. This is not taken seriously by most Chinese companies.

Obtaining data from third parties is important. Including: banks, insurance companies, shipping companies, specialized market research institutions and even peers. Huang Zhenbin said that, as far as Galanz is concerned, banks have provided the most help. Banks also serve numerous export companies and have extensive networks at home and abroad. They have a certain understanding of the credibility of buyers, especially those of a certain size who have worked with Chinese companies. The above-mentioned Eastern European client avoided the export risk through the information provided by the Bank of China. In addition, some insurance companies have export credit insurance for export enterprises, some financial institutions carry out factoring business, and some companies such as Dun & Bradstreet conduct company surveys specifically for regions. Some background information on buyers may be obtained from these agencies.

Searching through the Internet is another well-established method. Regional or industry websites (especially some interactive communities) have blacklists specifically for buyers and sellers. Of course, these materials are not necessarily full of confidence, but at least they can be used as a reference.

Huang Zhenbin especially reminded that customer information is dynamic, so the process of information collection must also continue. Therefore, Galanz has also launched a system of regular visits to customers. The business teams in each region visit customers at the appropriate time and conduct research on the local market and sales format according to their own regions. This kind of visit and research can get the latest and most direct information about customers, and then submit standard reports and enter the database system.

Galanz is now cooperating with a professional foreign trade software company to jointly develop a foreign trade software system. Huang Zhenbin introduced that this system incorporates all processes of foreign trade business such as order management, document management, contract management, payment records, and after-sales tracking into computer management, and customer credit review is one of the important modules. Once the system is activated, the drawbacks of previous manual operations will be completely avoided, real information sharing will be realized, and business efficiency will be greatly improved.

Policy + Institutionalization

Deng & Bradstreet's statistics show that in 2002, the bad debt rate of Chinese enterprises was 2%-3%, while the average foreign enterprises was only 0.25%-0.5%, and more Importantly, 90% of foreign sales are credit sales (credit sales), compared to less than 20% domestically. These statistics are enough to show that Chinese enterprises still have a considerable distance in credit management.

Liang Bo, Manager of Business Consulting Department of Dun & Bradstreet International Information Consulting (Shanghai) Co., Ltd. has been dealing with export enterprises for many years. He feels that most of the customer risk management of domestic enterprises is still at a very preliminary tactical level and operates locally. Many companies hand over customer information to business personnel for decentralized management and do not establish a sharing system. When Liang Bo was consulting with companies, some general managers couldn't even summarize customer information, because the business personnel worked independently, so how could there be any sharing? Due to the poor management of customer credit, the collection cycle of Chinese export enterprises is very long. According to Dun & Bradstreet's statistics in 2002, the period of export enterprises is longer than other enterprises, and the bad debt rate of export enterprises is higher.

Liang Bo believes that companies first need to formulate their own credit policies, including how to collect information, how to evaluate customers, and how to set up institutions. On the basis of the credit policy, the enterprise needs to develop a specific and detailed credit system, which mainly regulates the specific operation level, such as how to review the documents, how to execute the transaction, how to deal with the collection and so on.

Liang Bo further pointed out that customer credit management needs to be considered as an export enterprise strategy. It is all-round, involving all departments of the enterprise, and the departments need to cooperate closely; at the same time, it is a whole process, which runs through the entire process of enterprise operation. The improvement of customer credit risk management can ensure that the risk is minimized and the maximum profit of the enterprise is guaranteed.