News & Resources

Credit risk management for franchisors

Dec 10, 2012 Walt Wojciechowski

In the years following the Great Recession, credit risk management has been a much more difficult responsibility for enterprises. Financial situations of consumers, as well as businesses in virtually every sector, have been turbulent, with fluctuations ranging from mild to extreme. This puts pressure on credit managers when it comes time to make decisions. However, the national economy has posted more marked - and consistent - gains throughout 2012, giving investors and businesses new cause to expanding operations. Those who do not feel comfortable with the ins and outs of credit risk management should consider outsourcing the duty to a company that specializes in the responsibility. Credit risk management in franchises
The franchise industry has been among the best performers in the years following the recession, with several segments being viewed as almost crisis-proof. Among these are the quick service restaurant franchise industry, which has continued to grow despite widespread financial hardships in virtually every nation. The Franchise Magazine recently listed several tips for franchisors in need of assistance with credit risk management. According to the news provider, communication is the most important component of credit risk assessments and subsequent decision-making. Companies should focus on cultivating strong lines of interactions with all franchisees and lenders. To have strong communication, the source said that attention to details regarding performance information and open book accounting can keep decisions accurate and manageable. Open book accounting would require franchisees to send either monthly or quarterly assessments of performances and finances to the franchisors. The Franchise Magazine suggested franchisors have stringent policies in place regarding all contractual obligations of payments from the franchisees. Regularly monitoring these processes will keep accounts payable and receivable tight, and will often lead to better results at the end of the year. Finally, the news provider stressed the importance of always looking at the facts and making decisions with these truths in mind. Once a risk manager begins to focus on only the potential outcomes and not the hard facts, threats will proliferate. Outsourcing for better results
While having an internal team of experienced credit risk managers is ideal, this is not always feasible for businesses. Executives who do not feel entirely confident with all responsibilities regarding credit risk management should consider outsourcing the tasks to a company that can ensure the best decision-making and least chance of incurring financial losses.