Cash is King - a continuing story. Part 1: How to reduce the risks of payment defaults
Purchasing on account entails risks for SMEs. To minimize the risk of payment defaults, structured risk management is helpful.
Anja Berchtold (42) is the managing director of Holdener Maschinenbau AG, an SME specializing in the planning and implementation of machines and systems. This work is becoming increasingly complex due to the increasing complexity of automation solutions. Now the company has received a major order from Papierwerk AG for equipment for finishing roll material such as paper and metal foils. Despite the apparent seriousness of the inquiry, Anja Berchtold wants to reassure herself.
Adequate risk assessment
She asks herself what risk such an order poses to her company's liquidity. And what happens if payment is delayed, only received in part or not at all? Martin Honegger, Director Sales & Business Development at Intrum Justitia: "For the economic prosperity of any company, it is crucial to realize outstanding payments quickly and without losses. Customers who are too risky can be rejected on the basis of a credit check, for example. We also recommend offering secure payment methods, such as an adequately sized advance payment."
Identifying risks at an early stage
If you want to prevent risks such as payment defaults, which in some cases can even threaten the existence of the company, you have to recognize them at an early stage. Martin Honegger: "That's why companies should use risk management as early as the bidding or customer acquisition phase. Those who proactively set up protective mechanisms need to take fewer downstream measures such as reminders or legal action."
Martin Honegger, Director Sales & Business Development at Intrum Justitia (Image: Intrum Justitia)
Risk management instruments
This is exactly what Anja Berchtold is doing: she is having clarifications carried out on Papierwerk AG by means of risk management, as its order volume amounts to a higher six-figure sum and thus may reach a system-critical size. This includes the following tasks:
- Address verification: Does the address of Papierwerk AG exist at all? Is the address given correct? What about the means of payment used? If this comes from another country, for example, this can already serve as information for a possible case of fraud.
- Company and identity verification: What is the previous company history? Does the contact person actually work at Papierwerk AG?
- Credit check: With the manual solution, the Credit Decision database provides information about companies around the clock, such as debtor lists from courts, debt collection information, information on past payment history, business reports and authorized signatories.
- Scoring: This process is a statistical procedure to calculate the probability of default of a payment.
- Fraud Pattern Detection: The credit card companies' "3D-Secure" security procedure is particularly helpful here. This shows whether the cardholder has been correctly identified. In addition, known fraud methods are to be ruled out, such as anonymizing proxy servers that want to prevent recognition of the user's IP address.
Design contract correctly
Anja Berchtold would like to sign the work contract with Papierwerk AG in the coming days. However, she is also considering formulating the GTC more precisely. You will soon find out how Holdener Maschinenbau AG and other SMEs are drafting the clauses on data protection and the place of jurisdiction correctly, in particular, in order to protect themselves better - in the second part of this continuation story.
Contact for more information: Intrum Justitia AG, sales.ch@intrum.ch, +41 44 806 85 57, www.intrum.ch
