How to Mitigate Risk When Extending Credit

Credit Group Membership and
Your Company’s Bottom Line

In today’s unpredictable business environment, extending credit is often a necessary risk.

Companies of all sizes put their financial futures on the line by offering credit to customers. Yet, without the right tools and information, this practice carries a high risk, which can lead to significant losses. Credit groups, however, are a vital yet often overlooked resource that helps businesses navigate these challenges and can make all the difference.

What Exactly Are Credit Groups?

Credit groups are comprised of industry peers who gather to share essential information about business customers, discuss ongoing legislation impacting the industry, and network with other professionals. Organized since 1902 by the National Association of Credit Management (NACM), these groups operate under guidelines that ensure compliance with federal antitrust laws and confidentiality standards.

We recently interviewed Jim Bessenbacher, president of ICE Credit Exchange (see sidebar, “About ICE”) and a seasoned credit and collections professional with decades of experience. He helped us better understand the purpose and importance of credit groups.

“Credit groups provide a platform for businesses to share critical information about customers’ payment behaviors,” Bessenbacher explained. But, he noted, they “aren’t just about protecting your own business; they also foster a sense of community among companies within the same industry.”

Every meeting we administer is directed by a certified NACM representative, ensuring that discussions are both productive and legally sound. Credit groups are common across many industries, from agriculture to industrial supply, offering an invaluable space for credit professionals to exchange insights and make more informed decisions when extending credit.

Why Credit Groups Matter

For most businesses, extending credit sometimes feels like a leap of faith. However, with the right information, that leap becomes a calculated decision. Credit groups are instrumental in turning guesswork into informed decision-making.

Here are some key benefits:

#1. Access to Current, Actionable Information

As professionals share their experiences with various business customers, a crucial exchange of historical and factual information occurs. According to Bessenbacher, “The value of being in a credit group lies in the ability to access real-time data that can protect your business from potential risks.”

#2. Essential Networking Opportunities

Building connections with other professionals within an industry can unlock resources and insights that you might not access otherwise. As Bessenbacher pointed out, “In today’s economic climate, it’s more important than ever to have a network of peers who can provide insight into the financial health of mutual customers.”

#3. Improved Decision-Making

A primary purpose of credit groups is to sift through the noise and focus on facts, helping members make better credit decisions. As one NACM representative stated, “I would say that there is not a single meeting that goes by where someone in that room doesn’t leave thinking, ‘If that’s the only thing I get out of the meeting, it made it worthwhile.'”

#4. Staying Ahead of Industry Changes

With legislation and credit practices constantly evolving, staying informed is critical. Credit groups offer a forum for discussing the latest developments, ensuring that your business remains compliant and competitive.

“Being part of a credit group means you can identify red flags early on and take proactive measures to mitigate risk,” Bessenbacher said. All businesses involve risks, and credit groups empower companies to properly control their credit investments, providing much-needed security. Bessenbacher adds, “The collective intelligence of a credit group is invaluable, especially when navigating uncertain financial landscapes.”

Credit Group Impact: A Hidden Gem

The impact of credit groups extends far beyond the meetings themselves. Participating businesses consistently experience reduced receivables delinquency and fewer write-offs. As Bessenbacher stated, “One of the key benefits of credit groups is the ability to collaborate with others to ensure that everyone is dealing with reliable and creditworthy customers.”

When your business works with creditworthy customers, risk decreases, and the willingness to invest in reliable customers increases, enhancing long-term customer relations and trust.

This collaboration doesn’t just improve decision-making; it creates a community of professionals working towards a common goal—to make informed, sound credit decisions. As Bessenbacher explains, “Credit groups play a crucial role in maintaining the overall health of an industry by encouraging responsible lending and borrowing practices.”

Should You Join?

Whether or not you’ve ever considered joining a credit group, the benefits they offer are clear. These groups provide an invaluable opportunity to gather insights, make better credit decisions, and build lasting professional relationships. Isn’t the impact they can have on your company’s bottom line worth exploring?

For any business, Bessenbacher suggests, “the decision to join a credit group should be a strategic one, aimed at enhancing your ability to manage credit risk effectively.”

To learn more about how a credit group could benefit your business, contact ICE or consult with us at BARR Credit Services. We’re here to help strengthen your credit decisions and secure your financial future.

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ICE Credit Exchange