Credit freezes and limit reductions

To most companies, a limit reduction seems like a sudden event. Yet the changes paving the way for a reduction are usually visible in the figures months in advance; what is sudden is noticing them.

Why are limits reduced?

• A marked decline in repayment capacity.
• The debt burden becoming too heavy relative to carrying capacity.
• Existing limits being used continuously at their maximum threshold.
• Slowing collections and an extended cash conversion cycle.
• A volatile, unpredictable picture from year to year.

Spotting reductions in advance

All of these factors can be seen in the company's own report before a reduction takes place. A company that regularly measures its score spots the weakening before the counterparty does — and gains a window of a few months to take action.

The value of this window is substantial: it takes far longer for a correction made after a reduction to be reflected in the result than the exact same correction made before a reduction.

Restoring your limit

The sequence is the same as improving your score. First, identify which factor is dragging down the result. Next, make an adjustment specific to that area; reviewing maturity structures and shortening collection periods are adjustments of this kind. Finally, measure again and see the change reflected.

A meeting held with an improved financial picture proceeds very differently from repeating the same request with an unimproved one.

Monitor your financial picture

To protect your limit, measure your financial picture regularly. Registration is free, and your first report is complimentary.