What Is Credit Risk Management?

Let’s break it down....

What Is Credit Risk Management?

Let’s break it down. First, to understand what credit risk management is, we need to get our heads around the concept of credit risk.

Put simply, credit risk refers to the probability of the borrower’s failure to strictly comply with the terms of the credit contract - in other words, to make payments on any type of debt or meet contractual obligations. As a business, you could face situations where a customer is late in debt repayment, doesn’t fully pay amounts or fails to pay a debt when the principal and interest amounts are due, causing financial losses for your business and problems with cash flow.

Credit risk management, in which case, is all about the process of identifying and analysing risk factors, measuring the level of risk, and thereby selecting measures to manage credit activities to limit and eliminate those risks in the credit process.

So, what are some of the challenges you could be facing that are preventing you from having successful credit risk management?

  • Using the wrong tools. As the saying goes, a poor workman blames his tools, but when it comes to credit risk management, you really can get away with it. If your business is still using legacy, in-house tools that are overly complex, inflexible and rely on slow IT processes, then your credit risk management is bound to be just as insufficient. Without a robust risk solution, you can’t quickly identify any credit data changes, set credit limits or keep track of your performance.
  • Limited data sources. Struggling to find the right data when you need it most causes unnecessary delays that end up turning an easily solved problem into a bigger issue. Often, modellers in financial institutions want to make new data sources available to their modelling landscape (for example, bureau data, web data, centralised /pool data, market data.) However, any source that was not previously deployed will need to go through the process of being added to IT - which is as expensive as it is time-consuming.
  • Reports, reports and more reports. Often traditional credit risk management means painstaking manual reports-  and lots of them. When dealing with masses of data that relies on spreadsheet-based reporting processes, you’re bound to overburden your analysts and IT departments. That’s costing you time and money!

How do you nail your credit risk management?

Gaining an understanding of your overall credit risk at the individual, customer and portfolio levels is one of the first steps to nailing your credit risk management. The aim is to reduce loan losses and increase cash flow which you can do by implementing an integrating quantitative and automated credit risk solution. Basically, a tool that will do all the hard work for you.

Enter Invevo! We help you get more from your credit and risk data thanks to automated credit limit increases and reductions, real-time updates, integrated reports and more. Our unique data integration with Experian creates an automated workflow across your entire customer base, which is updated every single day so you can track credit risk in real-time.

Putting effective credit risk management processes in place is not only important to remain compliant in what has become a highly regulated environment, but if done correctly, can offer you some great business advantages!

Never miss an important credit data change that may impact your customer’s ability to pay. We help you work smarter, not harder, by replacing monthly and quarterly manual reviews with automated daily decisions.

Ready to start saving yourself time and money? Request a demo today!