Companies in the Tech Industry are vulnerable to rapid deterioration in credit quality. Tech companies are frequently young and undercapitalized. As a consequence, they often fall victim to the disruptive innovation and new technology common in the Tech industry. This phenomenon is often referred to as “creative destruction”. It can pose a serious challenge to your company’s ability to manage credit risk, and remain competitive in a rapidly changing market place. Here are our suggestions for using credit risk management in the Tech Industry.
CREDIT RISK MANAGEMENT STRATEGY
There is no one-size-fits-all credit risk management strategy for the Tech Industry. Tech companies sell hardware, software and services. Channels of distribution can include B2B through distributors, partners and direct or to consumers via retail or direct. Transaction sizes can run from a few dollars to millions. The transaction cycle can be short or run for years. It is very important that you develop a credit risk management strategy, policy and procedures that fit the segment of the Tech Industry your company serves.
In addition to establishing credit limits that fit a customer’s profile, consider using variable credit terms depending on the credit risk. It is important to limit both the amount of credit, and the duration of the exposure. The likelihood of a collection problem goes up as the length of term increases.
Credit profiles should be updated on a regular basis. Changes occurs frequently in the Tech Industry. Innovations can be commercialized very rapidly. Your customers may be impacted very quickly by a change in technology. Frequent updates of credit profiles can help to mitigate your credit risk.
Use credit cards for subscriptions, software maintenance and small purchases. Ideally, use a self-service payment portal where customers can select credit cards and Fintech options such as PayPal to make their purchases. This will reduce your credit risk and the time required to process these orders.
PAST DUE ACCOUNTS
Past due Tech accounts should be monitored closely and contacted frequently. Close follow up increases your chances of being paid sooner or at all.
AUTOMATED CREDIT DECISIONS
Customers increasingly want to be able to pay online and apply for credit online with “instant” credit decisions. This may apply to some or all of your Tech Industry business depending on your business model. If applicable, it could free up your staff for other credit and accounts receivable activities.
AUTOMATED ACCOUNTS RECEIVABLE
Credit risk management in the Tech Industry can be handled much more easily and efficiently if you use the tools available in accounts receivable software. Online payments, automated reminders, invoice templates, online notes and work flow are examples of accounts receivable tools you can use to manage credit risk.
Automated accounts receivable, credit and collection software is available from Lockstep Collect, the leader in cloud-based software solutions made specifically for businesses selling on credit.
If you would like to learn more about how you can automate your accounts receivable, credit and collection system, please contact Lockstep Collect at www.lockstep.io.