Introduction of Enterprise Credit Risk

1. Introduction

Enterprise credit risk management, also known as enterprise credit management, is a special technology for scientific management of credit sales of enterprises. The most basic goal of setting up credit management departments of enterprises is to avoid risks arising from credit sales and increase the success rate of credit sales (Fraser and Simkins,2010).

In the face of the current market, it is impossible for enterprises to sell only by credit, and only by strengthening the management of sales departments. The management of credit sales in enterprises needs to introduce management methods which are very different from traditional methods, and must break through the tradition of sales management by sales departments, and even need to establish a new department to support credit sales. In other words, the credit sales activities of enterprises should be managed by the newly established credit management department, including coordinating among several relevant departments, introducing credit products and credit management services from outside the enterprises, and technically supporting the sales department. The credit management departments of enterprises use the credit products and professional services provided by the credit management industry to effectively manage the credit sales activities of their enterprises. As a result, the credit risk of enterprises to customers is reduced.

(source:YouTube,2019)

As for the research of enterprise credit risk management system, the research of credit management theory in developed countries has a history of more than 100 years, and has formed a relatively perfect theoretical system including credit evaluation, credit risk transfer, credit monitoring and so on. In most developed countries, such as the United States and Britain, there are credit management research centers, and the state has specially set up credit research funds for the research and development of credit management. And most foreign enterprises have established their own credit risk management departments. However, in some developing countries, the theoretical research on credit management has just started or not yet started, and there are no specialized research institutions and no specialized courses in universities. Only a few scholars are doing some theoretical discussions, which have not yet received corresponding attention.

In the world economic system, about 400 million small and medium-sized enterprises are the main sources of job creation in the world, accounting for more than 95% of the total number of companies and 60%-70% of the employed people (Djemaa, 2018). In addition, some data show that in the past 20 years, American high-tech companies have represented more than $400 billion in M&A transactions, accounting for 20% of all M&A transactions (Irwin et al., 2021). This series of data shows that small and medium-sized enterprises and high-tech enterprises are very important in providing jobs, knowledge innovation, economic development and national income. However, at present, small and medium-sized enterprises and high-tech enterprises are faced with various difficulties that restrict their healthy development, such as financing constraints and lack of credit, which always restrict the healthy development of small and medium-sized enterprises. Among them, the management of credit risk is the most important, which is directly related to the actual interests and future development of enterprises.

Therefore, how to strengthen credit risk management and reduce credit losses caused by poor credit risk management has become a key concern of small and medium-sized enterprises and high-tech enterprises. Finally, it is expected to provide a feasible suggestion for enterprises to prevent and control credit risk, which is also the ultimate goal of this study.

Author: Ziwei SONG 

Date: 10.10.2021

 

 

 

 

Reference：

Djemaa, H. (2018). Islamic financing options for SMEs- role of Islamic banks. Global Journal of Business, Economics and Management: Current Issues, 8(3), pp.109–120.

Fraser, J.R.S. and Simkins, B.J. (2010). Enterprise risk management. Hoboken, N.J.: Wiley.

Irwin, K., Gilstrap, C., Drnevich, P. and Tudor,  C. (2021). From start-up to acquisition: Implications of financial investment trends for small- to medium-sized high-tech enterprises. Journal of Small Business Strategy, 29(2019), pp.22–43.

Vizo Financial. “Introduction to Enterprise Risk Management.” YouTube, 25 Feb. 2019, www.youtube.com/watch?v=PTXexxUckIM. Accessed 25 Apr. 2020.