Prevention is better than cure! How can KYC help?

In credit management, the golden rule of “prevention is better than cure” applies. Estimating the risk of late or non-payment is of great importance. To calculate this risk you need to know your customer. The principle of ´Know Your Customer` (KYC) can help with this.

Credit Management & KYC

To avoid the risk of late- or non-payment, you have to be able to estimate your customers. Preferably in as many fields as possible. It is best if you know the answers to general questions like:

• Who is my customer?
• Who are the owners, managers and directors?
• Where is my customer located?
• Contact information: how can I communicate and with who?
• Where is the customer dealing? Also abroad?
• Who is their final target?
• Is there growth potential or are there struggles?
• Is there an overtake going on?
• …

The most important thing within credit management is the financial position of the customer. To determine this, you have multiple options.

Financial risk analysis

You can do the screening yourself. Much (financial) data is stated online. Think about the ´Kruispuntbank` for Enterprises (KBO) or the National Bank of Belgium (NBB). With help of the liability, solvency, and profitability ratios, you provide a certain score or rate. This provides an estimate of the possible risks. These ratios are only applicable to professional customers. A risk analysis for a private corporation is more difficult because the information is not publicy known.

Minimize risks

Is the risk of non-payment bigger than expected? You can cover for yourself and create certainty. You can for example ask for a warranty, prelimenary payment or implement interim invoices. Besides this you also have the option to insure the risk through a credit insurance.