Do you know that your reported profits for the Financial Year end 31 December 2018 might never materialize? Why? Because, your company has reported a huge profit yet actually most of the money is not received from the debtors. The company recognizes such debtors or receivables yet they might never pay.
Traditional provisioning for bad and doubtful debts falls below the thorough provisioning criteria in IFRS 9. You must review all your debtors one by one to assess their ability to pay. And that is not enough. You must undertake business intelligence and proactive research about your clients so as to reduce the probability of default.
How do you fair on the following issues:
- Have you trained your credit staff to improve on their credit risk assessment beyond tradition five (5) C’s of credit criteria to a more practical model that requires detailed on-going engagement with the client?
- Have you trained your HR team to recruit brilliant staff in the credit risk management department so that the quality of the clients they bring on board improve?
- What strategies are you putting in place to support your customers to improve their reporting and efficiencies so that you develop deep and close working relationships?
- How do you get on going updates from clients to avoid surprises? What changes are making in your IT systems to facilitate ease data collection, analysis and reporting?
- How much is IFRS 9 compliance costing you? Who is the independent expert validating your model to confirm your assumptions?
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