With the effects of the credit crunch, it is increasingly becoming a challenge for resellers to understand how to make best use of the credit management services available to them in managing their cashflow.

Dealing on trade credit can be a risky business ­ the biggest fear for resellers is losing their business as a result of dealing with a customer that subsequently fails.

Most agree that it is impossible to trade without taking on an element of risk ­ so what steps can resellers take to defend themselves? As well as considering how to protect against worst-case scenarios, there are a number of options that can help VARs cushion the potential risks of trading on credit.

Low and falling margins are acknowledged as a key issue for businesses in the IT sector. So increasingly firms are looking at factoring and invoice discounting to improve cashflow management. Factoring lends against invoices and so provides a flexible alternative in times of cashflow need. Invoice discounting provides working capital by releasing funds held in outstanding debtor balances.

Should a reseller find that a customer cannot or will not pay, customised debt collection will take over the process of collecting money that is owed. By using professionals, VARs regain the time that they would otherwise have spent chasing payment.

Credit management services can help optimise cashflow in a number of ways:

• Credit assessments from business information reports help to make an informed decision about whether or not to trade with a potential new customer on credit terms.

• In the event of a customer becoming insolvent (or a reseller suffering from late/non-payment), credit insurance will pay up to 90 per cent of what has been lost or not been paid.

• Receivables financing provides funds on day one against the invoices issued.

Trevor Byrne is marketing manager at credit management service provider Coface