Managing Customer Credit to Reduce the Company's Risk and Overdue Credits

Handbook of Research on Entrepreneurship, Innovation, and Internationalization - Advances in Business Strategy and Competitive Advantage ◽

10.4018/978-1-5225-8479-7.ch021 ◽

2019 ◽

pp. 561-585

Author(s):

Inês Lisboa ◽

Teresa Costa ◽

Nuno Teixeira

Keyword(s):

Credit Risk ◽

Credit Policy ◽

Risk Models ◽

Recovery Method ◽

Pros And Cons ◽

A Company

Most companies give credit to customers when selling products or providing services. It has advantages as more customers may be willing to negotiate with the company, but it increases the company's risk. Therefore, the company must analyze the pros and cons of giving credit. This chapter summarizes all information needed for a company to establish credit policy for each customer or group of customers. First, credit risk and customers' credit risk are explained to call the attention to the need to manage it. Then it shows how a company can manage credit to maximize its value and reduce its risk. The inputs needed to determine a customer credit policy are explained. Credit risk models are presented. And finally, a recovery method to collect overdue credits is presented. This chapter aims the help the company to solve liquidity and solvency problems and to stablish long-term relationships with customers.

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Hidden “holes” in the capital of banks and the supply of credit to the real sector of economy

Voprosy Ekonomiki ◽

10.32609/0042-8736-2018-5-49-68 ◽

2018 ◽

pp. 49-68 ◽

Cited By ~ 1

Author(s):

M. E. Mamonov

Keyword(s):

Credit Risk ◽

The Other ◽

Real Sector ◽

Capital Management ◽

Loan Loss ◽

Short Term ◽

The Real ◽

Ex Post ◽

The One

Our analysis documents that the existence of hidden “holes” in the capital of not yet failed banks - while creating intertemporal pressure on the actual level of capital - leads to changing of maturity of loans supplied rather than to contracting of their volume. Long-term loans decrease, whereas short-term loans rise - and, what is most remarkably, by approximately the same amounts. Standardly, the higher the maturity of loans the higher the credit risk and, thus, the more loan loss reserves (LLP) banks are forced to create, increasing the pressure on capital. Banks that already hide “holes” in the capital, but have not yet faced with license withdrawal, must possess strong incentives to shorten the maturity of supplied loans. On the one hand, it raises the turnovers of LLP and facilitates the flexibility of capital management; on the other hand, it allows increasing the speed of shifting of attracted deposits to loans to related parties in domestic or foreign jurisdictions. This enlarges the potential size of ex post revealed “hole” in the capital and, therefore, allows us to assume that not every loan might be viewed as a good for the economy: excessive short-term and insufficient long-term loans can produce the source for future losses.

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