The foundation of your commercial business begins at the customer level. With that, you’ll need a clear picture of your account’s health to make the best credit decision. Having data such as the following at your fingertips could prove to be very beneficial…

•  Additional business affiliations – Is your customer affiliated to any other customer you have within your portfolio? What is your level of exposure with all associated businesses?
• Small business owner business affiliations and asset information – For small business owners who are late paying or have defaulted, do they have any assets that can help you recoup on your funds?
• Credit score/changes – Has there been a shift in your customer’s score positively or negatively?
• Credit limit extended – If the score has changed negatively, do you need to reassess the account’s credit limit?
• Legal filing/trade alerts – Has there been any recent legal actions filed on your customer? If so, what is the impact to your account?
• Collection activities – Before you review the account for a credit increase, are you able to see if there are any collections activities that have historically taken place on the account?

Knowing if customers can pay you, when they will pay you and how much they will pay you are crucial components to protecting your bottom line. And having a global view of an account can help you do just that. Look for future posts from me, and let me know if there are any specific topics about managing your portfolio that you’d like to see.

Periodic evaluation of your accounts’ payment behavior may help mitigate your financial risk. One good way to review your portfolio is to compare how your accounts are paying you vs. how they pay others. First, take a look at the average number of days your accounts pay you beyond agreed upon terms . Then, compare that with how promptly they pay other creditors. (This data can be obtained from vendors like Experian.) You may also want to review their financial statements to determine income and cash flow availability. Next, see if you can answer these two questions:

1)      Are there accounts that are paying other creditors more promptly than they are paying you? If so, this may be because these accounts are not getting the attention or the sense of urgency from you. It’s possible that they are paying the more persistent creditors first.

2)      Does your account need to get paid first before they can pay you? Have they overextended themselves? If this is the case, you may want to consider evaluating the amount of credit you are extending.

Once you’ve been able to determine which accounts have unfavorable payment behavior with you, but are positively paying others, you can then look for these trends in the future and create a segmented list within your portfolio to review these accounts in more detail and on a regular basis.

Look for future posts from me, and let me know if there are any specific topics about managing your portfolio that you’d like to see.

Many times businesses focus on customer accounts from an operational standpoint. They review their portfolios relative to the processes of origination, credit management, and collections. And so much emphasis goes into the operational side of the business that analysis of their portfolios for profitability to particular types of customers are often overlooked.

Here are a few things you may want to evaluate:

• Review your risk scores by industry. This will help you identify which areas tend to be high risk vs. low risk.
• Take a look at your balance amounts within specific segments to determine the amount each industry is spending with you.
• Analyze your portfolio by currency and delinquency. Can you identify any specific trends in how that industry pays you?

By performing this high level analysis on your company’s accounts, you’ll be able to get some ideas for a more target approach in acquiring accounts, preferably with the least amount of risk and expense, and the highest returns.

Look for future posts from me, and let me know if there are any specific topics about managing your portfolio that you’d like to see.

When you’re on a tight budget, you definitely want to get the best bang for your buck. One way to do this is to evaluate your commercial collection process. For instance, start with deciding which accounts you go after first. By prioritizing your collection efforts, you’ll save a lot of time and recover your money faster. Here are a few helpful hints to keep in mind when prioritizing your accounts:

•  Segment your efforts by the number of days delinquent. This will help you categorize the seriousness of delinquency within your collections list.
• Determine your dollar amount thresholds. You may want to work those accounts with higher dollar amounts first and work down to the lower dollar amounts.
• Review your accounts for repeat offenders – debtors who have been in and out of collections but have always managed to pay their debt. You may handle these types of accounts differently than your more seriously delinquent offenders.
• Apply a ‘propensity to pay’ scoring model to help assess the risk of your accounts within the early stages of collections. This type of model would predict the likelihood the account will pay the debt. You can have a custom model developed or you can submit a file of your accounts to a vendor (like Experian) that offers this kind of model.

Look for future posts from me, and let me know if there are any specific topics about managing your portfolio that you’d like to see.

Last time, I wrote about the importance of understanding your portfolio’s exposure. Let’s get a little more specific and evaluate things from a disaster perspective.  FEMA reported that there were 81 declared disasters in the U.S. last year. This year, we’ve already experienced 50 disasters. According to the American Red Cross, “as many as 40% of small businesses do not reopen after a major disaster.”

Since many businesses don’t have disaster recovery plans, you could be directly impacted if a power outage, flood or hurricane should strike the accounts in your portfolio. So perhaps, it may be a good idea to review these questions when evaluating your portfolio: 

• Which states are most of your accounts located?
• Are any of these states high risk disaster areas?
• For those accounts that have a potential risk of disaster, what is the amount of exposure you have with these companies?
• If a disaster should strike, would your company be able to recover?

Although you can’t prevent disasters from happening, you can come up with a plan to try to protect your business. Look for future posts from me, and let me know if there are any specific topics about managing your portfolio that you’d like to see.

Since fluctuations within the market or unexpected disasters can drastically impact your portfolio’s risk, it’s generally good practice to regularly review the level of exposure within your portfolio. Here are few evaluative questions you may want to consider:

• What is your exposure roll up by parent company?
• Do you have a high concentration of accounts by specific geographic locations that may be affected by common natural disasters?
• What is your estimated potential loss by industry if there is a downward turn in the market?
• Is there any noticeable credit limit or credit utilization trend within your portfolio?
• What is your average level of risk relative to the number of delinquencies and your aged accounts?

Evaluating your portfolio and answering the questions posed above can help you find unexpected risk as well as find ways to grow your customer base in more diverse industries or locations.

My grandmother was the great chef in my family. When she cooked, you always went back for more. Several times, she tried teaching me how to make one of her specialty dishes, Chicken Adobo. Mind you, I’m a ‘straight from the recipe book’ cook and my grandmother measured everything by taste.  Needless to say, I’ve never been able to get my Adobo to turn out right.

 Cooking up a collections campaign may possibly be much easier than cooking Adobo.  Like any good meal, there are several factors that contribute to a successful collections campaign.  Here are some cookie cutter tips to think about…

 1)      Consider your target audience – include debtors who are up to 60 days past due. There’s a 90% chance of receiving payment if you request it within the first 60 days.

2)      Make sure the language of the letter is appropriate for your audience – tailor your letters depending on the severity of the delinquency. Use a “friendly reminder letter” for those delinquent between 1-10 days past due and a more severely worded letter 30-60 days past due.

3)      Educate your debtors – some businesses do not know the severity of being delinquent. Not only would the debtor be turned over to a collections agency but they would also get reported to a credit bureau, affecting their chances of obtaining credit in the future.

4)      Include the contact information for scheduling a payment – make sure that you have a phone number that your debtor can call to make arrangements for payments.

Look for future posts from me, and let me know if there are any specific topics about managing your portfolio that you’d like to see.

Really, it’s a little of both. To get a good sense of your client base’s behavioral payment patterns and be able to successfully manage credit risk, you first need to understand your portfolio. The best way to do that is to slice and dice your portfolio into different chunk-size segments and identify any trends within those segments.

A few segments you may want to consider analyzing are: 

• Industry
• Geographic location
• Size of business
• Years in business

Next, evaluate some of the key payment attributes within each segment, such as days beyond terms and associated aging data to determine positive and negative trends in your portfolio with which you can build upon or take action on. Once you’ve reviewed your portfolio with an analytical eye, you can start to develop a strong business plan to increase segment profitability, as well as minimize your credit risk.

Look for future posts from me, and let me know if there are any specific topics about managing your portfolio that you’d like to see.

If you make decisions just by pulling credit reports, you may want to think about how you can manage your accounts proactively. Pulling a report is helpful in deciding whether you should offer credit to a business. But, consider these basic steps when looking for any negative trends:

 #1 Develop a policy for how you’d handle accounts that are current, delinquent, bankrupt, etc.

#2 Segment your portfolio by those accounts who pay within a particular range of time or who fall within a particular category, i.e. Current 1-30 days, 31-60, 61-90, 91 plus or filed bankruptcy.

#3 Review your accounts and apply your company policy to that particular segment.

By applying steps 1 -3, you’ll be able to proactively identify good candidates for increased credit limits, as well as those you’ll need to pay closer attention to because they may be headed for delinquency or collections.

BusinessIQ allows you to easily pull reports, segment accounts and submit them for account review. It’s easy-to-use…plus, the Portfolio Module is free! Here’s a demo on the application. Look for future blog posts from me where I’ll write more about managing your portfolio. And, feel free to comment and let me know if there are specific topics you want to hear about.