Credit aligned with the lender's financial health

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History shows that crises that start in the financial system can affect the so-called real economy, generating unemployment and a fall in GDP. The most recent example was the 2008 crisis, triggered by the collapse of a major financial institution. The channels through which financial crises affect production are confidence and credit. Without confidence and credit, few investments will get off the ground. This is why financial stability is such an important issue and one that deserves close monitoring by the monetary authorities.

One of the sources of instability is the underestimation of credit and liquidity risk. The correct assessment of the potential risks related to granting credit should be a critical concern for everyone who offers credit. The more efficient and effective the risk analysis process is, the more likely it is that the creditor will get their money back, that the borrower will be able to honor their commitments and thus guarantee their long-term sustainability.

And since the credit market is made up of lenders of all sizes, maintaining the financial health of businesses is an issue that applies to both lenders and borrowers who also act on the lending end, granting payment facilities to their clients.

In this broad context, credit bureaus play a fundamental role by contributing to transparency in the relationship between lender and borrower through their products and services. By managing complex databases with information obtained from multiple sources, credit bureaus assign and make available a Credit Score for each borrower, whether they are individuals or companies, helping to make the credit analysis process fairer, faster and more efficient.

Credit aligned with the health of creditors

The subject is complex, but it's worth remembering a few practices that are worth encouraging:

Efficient risk assessment: A good analysis of the risks involved always includes an assessment of the customer's credit history and their ability to pay. And there are many other aspects to analyze, including assessing the risks associated with the borrower's products and services, competition and macroeconomic risks that could affect their ability to pay, such as rising interest rates, inflation and a drop in economic activity.

Encouraging the responsible use of creditfinancial education plays a key role here, as it contributes to the formation of conscious consumers, capable of correctly assessing the benefits and risks involved in an operation. Anyone who grants or takes out credit needs to be familiar with basic financial concepts and be aware of the benefits of having a high credit score.

Offering credit lines on differentiated termsBorrowers with a good Credit Score can qualify for credit lines with favorable conditions, such as fairer interest rates and terms. Consumers who obtain credit under these conditions are more likely to honor their commitments, reducing the risk of over-indebtedness, especially when they manage to improve the financial health of their businesses and take out credit on a recurring basis.

Monitoring the financial health of borrowersThis can be done using various tools, such as the Credit Note, updating registration information and analyzing balance sheets. These actions allow lenders to make adjustments to their lending policies over time, increase or decrease limits or demand additional guarantees.

Although the above practices are more common to creditors, they also apply to legal entities that grant credit and receive their sales in installments. For these, some additional strategies can help:

Offer secure payment optionscredit and debit cards help ensure that transactions are processed safely and quickly. Confirming the identity of the cardholder can help prevent fraud.

Establish clear credit policiesIn addition to card sales, companies that offer direct financing need to go beyond the basics, such as using the Credit Note as a parameter, requesting CPF and ID and requiring proof of income. What's more, for any company, it's advisable to have clear credit policies that define credit terms and payment requirements. Here, the Credit Note helps a lot, as you can set different interest rates and payment terms for each category of customer.

Regular monitoring of accounts receivableThis practice is fundamental for identifying overdue accounts and implementing credit recovery actions. In any market, default prevention is the best practice.

GuaranteesThe right to demand guarantees or bank guarantees to protect against the risk of default may be necessary, and this is the right of those who grant credit, making it possible to offer better terms and interest conditions.

Investing in security and actions to inhibit fraudThe right to privacy : keeping credit applicant and transaction data secure throughout the process - collection, processing, use and storage - is also fundamental to keeping the business healthy. Privacy is guaranteed by law.

All these practices and precautions result in a responsible credit policy, which not only generates well-founded credit decisions, but also enables legal entities to remain attentive to the financial health of their clients and their own financial health.