Overview of enterprise credit risk management
The credit risk management of enterprises refers to the comprehensive supervision and control of customer credit investigation, payment method selection, credit limit determination, payment and other links through the formulation of credit policies to guide and coordinate the business activities of various institutions, so as to ensure the safety and timeliness of accounts receivable, so as to achieve the expected goals of expanding sales and reducing costs.
Before the specific implementation plan of credit risk management is launchedEnterprises should clarify the current credit risk and conduct a comprehensive investigation and assessment of their own situationChoose reasonable operational, management, financial and other strategies, so as to reduce their own credit risk and improve their credit level.
Enterprise credit risk management is a risk that occursBefore, during and after the systematic management, pre-event control, in-process tracking, and post-event summary. The following will mainly focus on ex-ante control and introduce the infrastructure of enterprise credit risk management.
Infrastructure for enterprise credit risk management
1. Design of the internal organizational structure of the enterprise
(1) Establish an independent credit management department
Generally, there are two directions for enterprises to divide the functions of credit management:One is that it is managed by other departments (i.e. finance or business).The second is to set up an independent credit management department.
But in actual operational managementEnterprises that have established independent credit management departmentsWhether it is in the bankruptcy rate, bad debt rate, sales profit, or the speed of enterprise developmentare far better than "concurrent" enterprises. For example, when a business unit (sales department or marketing department) is responsible for the credit management of the enterprise, although the business personnel of this department can intuitively understand customers through the front-line business and grasp the information required for credit risk managementHowever, it may also over-accommodate customers' credit requests due to the expansion of sales volume, resulting in a large number of high-risk accounts receivable. If the credit right is still unsupervised, there will even be improper collusion, resulting in a serious loss of enterprise assets.
Therefore, the internal structure of a more successful enterprise credit risk management should be a unity of mutual independence and mutual checks and balances. Enterprises should set up credit departments, finance departments, and sales departments in parallelto ensure the objectivity, impartiality and independence of credit managers.
(2) The internal setup of the credit management department
Credit management departments shall have a clear division of functions and a complete management system. First of all, it is necessary to set up a credit manager, as the core of enterprise credit risk management, whose functions need to be familiar with the field of credit management and have basic skills such as financial accounting, law and marketing; Secondly, it is necessary to set up customer management personnel, credit analysts and debt collection management teams, etc., whose functional division of labor can be detailed into groups, respectively responsible for data collection, credit analysis, contract review, management of accounts receivable and customer files, etc.
To guide enterprise credit management, it is necessary to establish a complete set of credit risk management systems.
First, establish a credit investigation and evaluation mechanismThat is, to establish a credit investigation system and credit files for new and old customers, and adopt a credit evaluation model that conforms to the characteristics of the industry and the enterprise, so as to truly grasp the credit risks faced by the enterprise as much as possible.
Second, establish a creditor's rights protection mechanismFlexibly use bond protection tools such as poly, credit insurance, letter of credit, mortgage, guarantee and so on to transfer credit risks.
Third, establish a mechanism for account management and collectionThrough the establishment of a creditor's rights confirmation system, a customer monitoring system, a quality confirmation system, a management system before the maturity of accounts, a pressurized collection system, etc., to maximize the protection of payment**.
Source: pixabay
2. Credit policy formulation
The formulation of the credit policy is to enable credit management personnel to achieve "credit equality" in accordance with the norms of a set of "Basic Law" in the complicated procedures of different businesses, so as to better improve work efficiency and reduce labor costs of enterprises.
Credit Policy,Broadly speaking, it is a credit management policy, and its content needs to be formulated according to the actual situation of the enterprise itselfIt generally includes content such as the work objectives, organizational structure, credit authorization, credit limit mastery, credit assessment procedures, debt collection policies, credit management reports, and credit department performance assessments. In a narrow sense, the content of a credit policy refers to the accounts receivable policyIt includes:The total credit quota of the enterprise, credit standards, credit conditions, and debt collection policies, which is closely related to sales and financial content.
(1) Credit limit
The total credit limit refers to the overall credit limit issued by the enterprise to the customer baseIt's a businessIt is determined based on its own financial strength, sales policy, optimal production scale, inventory and other factors, as well as under external competitive pressureThe amount of credit that can be issued to customers. The confirmation of the total credit limit of the enterprise must be within the scope of the enterprise's risk tolerance, and the total credit limit of the enterprise is generally controlled by budget.
(2) Credit standards
Credit standards are the basic requirements for enterprises to provide commercial credit to customers. Generally, enterprises with a foundation in credit management can make judgment criteria based on the credit files or credit transaction records of old customers, and new users can make judgments based on credit rating results. When choosing a credit criterion, compare the profits and costs that come with several alternativesThis includes testing the impact of changes in sales volume on profits, changes in the opportunity cost of accounts receivable, changes in the cost of bad debts, and changes in administrative costs.
(3) Credit terms
Credit conditions refer to the conditions under which an enterprise requires customers to pay on credit, which mainly include:
Credit term: the maximum payment time of the customer;
Discount period: the time of payment for which the cash discount is available;
Cash discounts: A benefit given when paid within the discount period. For example, "2 10,n 30" in the bill indicates a credit term, which indicates a 2% discount if the payment is made within 10 days of the invoice, and can be paid within 30 days if the invoice is not discounted. Here, 30 days is the credit period, 10 days is the discount period, and 2% is the cash discount.
(4) Debt collection policy
The debt collection policy refers to the debt collection strategy that the enterprise should adopt when the credit conditions are violated, including internal collection, commercial debt collection, debt collection cost control, bad debt declaration and other practical operations. If a company adopts an active debt collection policy, it can reduce bad debt losses, but the collection costs are larger. On the contrary, the adoption of a more passive policy may increase the loss of bad debts and reduce the cost of hand accounts.
When enterprises take the narrow credit policy as the implementation direction, they should comprehensively consider the impact of changes in the above four aspects on sales and costs. It is necessary not only to consider the tightness of the credit policy, but also to be related to the industry in which the enterprise is located, the fierce competition in the market, the credit policy of the main competitors, the characteristics of the product, the production scale of the enterprise and other factors.
3. Customer credit assessment
When an enterprise encounters a new customer or when there is a certain risk in the transaction, it should adopt a process-based credit decision to ensure that the credit risk management of the enterprise reaches a more effective and controllable state in advance. First of all, it is necessary to conduct surveys and collect customer credit information; Then, scientific assessment techniques and methods are used to objectively analyze various data according to the importance of credit elements to assess whether there is a risk and the degree of risk; Finally, decide whether it is enough to give the customer credit and credit limit.
The management of the credit decision-making process can be divided into three links: customer credit investigation, credit analysis and credit decision-making.
(1) Customer credit investigation
The contents of enterprise credit investigation mainly include:
background and history of the business;
the situation of the operator;
Labor status, and the personnel structure and salary level of the employees of the enterprise;
operating conditions, including natural conditions, social conditions, plant conditions, equipment conditions and technical conditions, etc.;
Affiliates; operation and management, mainly involving three aspects: business organization, planning and arrangement, and internal statistics;
bank transactions, including deposits and borrowings;
industry situation; Business status, including production status and sales status.
In order to obtain the above information, you can first directly request the credit grantor and ask the customer to provide the necessary credit certificateUsually at least the information included is: business license, list of shareholders, list of main responsible persons, financial statements for the last 3 years, etc. Secondly, the required information can also be obtained through indirect queries, including inquiries from industry associations, customer banks, industrial and commercial departments and other relevant institutions. In addition, enterprises can also entrust professional credit investigation agencies to conduct investigationsThen, based on the credit rating results and comments of the respondents in the credit investigation report they provide, the credit risk is judged and the credit line is determined.
(2) Credit analysis (credit evaluation).
Credit analysis, also known as credit assessment, is an activity in which the credit grantor uses various evaluation methods to analyze the performance trend, solvency, credit status, and feasibility of the other party in the credit relationship, and conducts fair review and evaluation. Credit assessment plays an important role in regulating the credit market, evaluating the operating conditions of enterprises, and analyzing the value of investment.
There are two main methods of credit evaluation of enterprises: one is the financial evaluation method; The second is the credit rating method.
Financial Valuation MethodIt is a traditional valuation method for enterprises, which generally evaluates the changes in various financial data and determines the credit line according to the situation reflected in the financial statements of the enterprise. When applying for a credit limit, customers are required to provide information that can prove their credit level, including balance sheet, profit and loss statement and cash flow statement for the past 3 years. According to the materials provided by the customer, financial analysis can be carried out to reveal the customer's solvency, operating ability, profitability, development ability and cash flow status, etc., so as to evaluate the customer's credit level.
Key indicators of financial evaluation:Corporate credit analysis needs to focus on the customer's ability to repay debts in the short term, which can be more broadly a kind of liquidity analysis. The general liquidity analysis mainly looks at whether the working capital of the enterprise is sufficient, that is, the amount of current assets minus current liabilities can be turnover, and how the current and future solvency of the enterprise is.
The main financial indicators for evaluating the mobility capacity of the stream are:
1) Current ratio
Current Ratio = Current Assets Current Liabilities x 100%.
This indicator reflects the ability of a company to liquidate its current assets to repay its current liabilities. Short-term creditors can determine whether the working capital of the enterprise is sufficient according to this indicator, and the higher the ratio, the stronger the ability of the enterprise to repay its current liabilities, and the greater the repayment guarantee for its current liabilities.
2) Quick ratio
Quick Ratio = Current Assets - Inventories Current Liabilities x 100%.
This indicator indicates a company's ability to repay short-term debt without relying on slow-to-liquidate inventory. Generally, the higher the indicator, the stronger the company's solvency, and if it reaches 100%, it means that the company is in good financial condition. However, it should also be noted that the difference between the current ratio and the quick ratio should not be too large, otherwise it means that the enterprise has too much inventory, which is not conducive to the credit enterprise；When the quick ratio is relatively good, the accounts receivable turnover rate and the survival turnover rate should be examined at the same time to determine the authenticity of the quick ratio.
3) Cash ratio
Cash Ratio = Cash + Bank Deposits Current Liabilities x 100%.
This indicator reflects the ability of an enterprise to repay its current liabilities with monetary assets, that is, the ability of an enterprise to repay its current liabilities reliably in the short term. The reasonable range is 20%-40%, and this indicator is usually used as an aid to the quick ratio. In general, the higher the cash ratio, the more liquid the asset and the stronger the short-term solvency, but at the same time, it means that the company holds a large amount of cash that cannot generate income, which may reduce the profitability of the company.
4) Accounts receivable turnover ratio and closing open period (DSO).
Accounts receivable turnover ratio = sales accounts receivable x 100%.
Sales open period = accounts receivable sales for the same period x 100%.
Under normal circumstances, the smaller the number of days of accounts receivable turnover, the better, indicating that the fewer days spent on capital turnover and the higher the level of capital utilization; When the number of accounts receivable turnover is larger, it means that the enterprise has a better level of capital utilization, and the enterprise can recover the payment in the short term, and the stronger the ability to use the funds generated by business activities to pay short-term debts.
Source: pixabay
Credit Rating MethodIt refers to the overall evaluation of whether the bond issuer or other debtor can repay all the principal and interest due to investors on time in the future, legal responsibility and willingnessThe rating result can be an alphanumeric representation of the debtor's credit rating.
For example, the internationally accepted rating grades are specifically divided into:AAA rating indicates excellent credit；AA indicates good credit; A grade indicates good credit. BBB rating indicates average credit; BB indicates poor credit; A grade of B indicates poor credit. CCC rating indicates poor credit; CC indicates extremely poor credit; A grade of C indicates no credit. A D rating indicates that there is no credit and that they are on the verge of bankruptcy.
Credit rating is a relative measure of a company's financial position, and a company with a higher rating is more likely to repay its debts and has broad development prospects than a company with a lower rating, and uncertainties have little impact on its operation and development.
The key to a credit rating is twofold, first identifying the elements of credit risk, i.e., what factors change that will lead to a change in the default rateThe second is to determine the importance of these risk factors in the rating, that is, the change in the unit quantity of any element, and the change in credit level.
At present, due to the establishment of China's market economic system, the importance of credit rating has become more and more prominentThe main performance is as follows: providing reference for investment; building a social credit system; Improve the awareness of enterprise competition; It is conducive to strengthening supervision
(3) Credit decision-making
Credit decision-making mainly refers to the credit management personnel who obtain a score or grade of the credit level of the enterprise after completing the credit analysis of the enterprise applying for a credit line. Subsequently,The credit management personnel may determine whether the credit limit should be granted to the customer based on the credit standards specified in the enterprise credit policy
When determining the credit limit,Generally, the operating asset model is used to determine the maximum upper limit of the credit line - the credit limitand then give the customer the corresponding credit limit based on various factors. The formula for calculating the credit limit is as follows:
Credit limit = percentage of operating assets x appraised value
Operating Assets = (Working Capital + Net Assets) 2
Among them, working capital = current assets - current liabilities; Net assets = assets – liabilities.
Valuation = Current Ratio + Quick-Freeze Ratio – Short-Term Debt to Net Assets Ratio – Debt to Net Assets Ratio
The higher the value, the better the liquidity, the more funds are available to repay debts, and the less risk there is.
4. Standardize contracts and creditor's rights protection
In addition to credit policy, credit evaluation, credit decision-making and other more quantitative credit analysis methods in the pre-control of credit riskenterpriseThe industry can also make full use of the role of contractual constraints, especially when it comes to international contractsto prevent hidden credit risks caused by contract defects. At the same time, it is also necessary to actively adopt various means of creditor's rights protection to prevent credit risks and ensure the safety of creditor's rights, so as to eliminate the risk of losses caused by one's own negligence before the occurrence of creditor's rights relationship, and control credit risks to the greatest extent.
(1) Standardize the contract
Standardize the form of the contract, the content of the contract, the review of authorization and the credit risk management of the international **, including the contract terms, the quality clause of the goods, the packaging clause, the shipment clause, the insurance clause, the payment clause, the inspection and compensation clause, the force majeure clause, the arbitration clause, etc.
(2) Creditor's rights protection
When the customer's credit level has not yet reached the credit standard stipulated in the corporate credit policy, or the credit limit and credit conditions required by the customer exceed the credit analysis results, but the credit business is profitable or has more important strategic significance, the credit risk can be transferred by means of creditor's rights protection. In general, the commonly used measures are: debt guarantee, factoring and credit insurance.
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