Credit is a necessary evil in distribution trade. Distributors have to extend credit to retailers for sales growth and brands have to offer credit to distributors, sooner or later. Refusing credit to credible partner means loss of opportunity. When competitors are offering credit for sales growth, refusing credit means simply giving in to market pressure. Sensible thing seems to be offering credit to increase sales and earn customer loyalty.
At the same time – giving credit has many downsides. There’s not only threat of default and bad debt – but several other downsides like negative impact on cash flow, finance required for balancing account receivables, additional resources for monitoring credit accounts etc.
What’s The Middle Path – Giving Credit Or Cash-And-Carry ?
Running cash and carry business in India is a tough challenge, especially for small and medium businesses. Risk of opportunity loss is simply too high to ignore. Only very big companies like Metro or Walmart can afford to run pure cash and carry business despite chances of losing some business. They can afford it – but can small and medium business ?
So, the middle path is to adopt smart credit management. Offering credit as calculated risk rather than gamble. This is done through intelligent use of technology to assess creditworthiness beforehand. There’s always risk in any business transaction, one must learn to manage the risk. For example, driving car has always risk of accident, but one can manage the risk by following traffic rules and regular car servicing.
Businesses can manage credit risk by collecting financial information, especially payment/ default history of customers before offering credit. This information is already available with credit bureaus – one only needs to know how to access that.
Credit Bureau – Credit Information Source
Credit Bureau is an organization or agency that collects information about credit related information from banks, credit card companies, financial organizations, creditors, lending institutions, public record offices, debt collection organizations etc. covering all credit related activities like borrowing, bill payments, debt information, payment history etc. Researchers then analyze all this information and make credit reports that summarizes financial status of an individual or business entity, also called credit report. This information is then used by financial institutions for grant of loan, credit card etc.
This is an extremely important tool in assessing credit worthiness of an individual or organization. Any business can access credit report of an entity before deciding on creditworthiness or not, and even extent of credit that can be offered.
In India, there are 4 credit bureaus – TransUnion CIBIL, Equifax, Experian and CRIF Highmark.
TransUnion Credit Information Bureau (India) Limited or CIBIL. CIBIL is a comprehensive credit bureau which was established in 2000. They are by far the largest and most important credit bureau in India. Other credit bureaus operating in India are Equifax, Experian and CRIF High Mark.
Credit rating information being personal and confidential – there’s restrictions on their use. Banks and financial institutions have unhindered access to credit bureau information.
Recordent – A New Age Credit Bureau
Recordent ( https://www.recordent.com ) is a technology platform helping businesses improve collections by credit profiling their customers; and reducing risk by providing insights into the payment history of prospective customers. Recordent’s data aggregation engine helps businesses in making informed decisions before offering credit or a loan by providing credit reports on individuals and commercial entities. These reports provide information on customer’s payment behaviour towards loans and credit availed in the recent past. Recordent’s platform has access to 700 million+ reports of individuals and businesses through its network of partnerships in India and USA with well known credit bureaus. For more information – please visit their website.
What, If I Have Bad Credits ? How To Recover Bad Dues
Recordent has a new age collection service that helps businesses collect dues smoothly using technology. Recordent’s platform enables businesses to submit their customer dues/ invoices on a regular basis to collect payments faster and on-time. Inspired from the Credit Bureau model, Recordent informs customers on how their positive payment track record can be viewed by other businesses & lenders to offer better terms on credit or a loan; thus, motives and creates urgency to pay dues sooner than later.
Credit management is an extremely important task for growth of any business. Fortunately, technology has made credit management easier today than it was 15 years back. Smart entrepreneurs should take advantage of such technology tools and platforms and leave competitors behind.