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Liability risks means Managing Directors need safeguarding

Luis-Miguel Fernandez |

Liability risks means its important to safeguard managing directors from claims using risk management processes and monitoring accounts receivables.

In these uncertain times, Managing Directors can face increased exposure to liability risks, meaning they can be held responsible for an action that is deemed negligent resulting in a financial loss in the company.

Exposure to Liability Risks

The main reason why Managing Directors form a private limited company is to limit their personal liability for business debt. However, there are some cases where Managing Directors can be personally liable for their own assets. This means that not only can they be held financially responsible for business debt, but it can also lead to them being banned from operating as a company director in the future. In addition to this, if their actions are proved to be dishonest or fraudulent, Managing Directors may also be found to be criminally responsible,.

In the event of a company‘s financial loss, shareholders can claim that the management of a company was negligent if specific strategic decisions caused the loss. Also, during an insolvency proceeding, the insolvency practitioner may also be obliged to claim that the management was negligent if evidence for this is found during the process.

Keeping a check on Account Receivables

In order to protect your managing board from liability risks, it is beneficial to identify risk exposure and loss scenarios of the company as part of the preventive risk management process. One particular area in credit management that can cause losses is in Account Receivables, where there may be payment delays and customer defaults.

On average, Accounts Receivables represent up to 40% of company assets and therefore should be permanently screened as well as regular checks on creditworthiness of each customer to avoid bad debts. Payment failures from customers can lead to disruptions in the company‘s liquidity and even jeopardise its very existence. Failure to effectively monitor Account Receivables can expose Managing Directors to negligence, making them liable and in some cases, being banned from operating as a company director in the future.

Effective steps to safeguard from bad debts

There are some effective ways that can help protect the management from business liabilities.

  • Align sales with a predictive credit management and improve quality of accounts receivables.
  • Have a risk status overview of all business partners to forecast business failures in time.
  • Monitor the credit risk profile of customers using information reports from credit bureaus.
  • Monitor creditworhtiness of key performing suppliers to guarantee a working supply chain.
  • Activate a trade credit insurance to cover existential default risks by high revenue customers.
  • Transfer account receivables and default risks to a factoring institution
  • Reduce Days of Sales Outstandings and react prompty when overdues and disputes arise.

Ready4 Credit Mangement gives you added protection

Managing Directors from companies using SAP can benefit from the mobile platform Ready4 Credit Management powered by SOA People. The platform seamlessly integrates with the corporate financials and order processing in SAP and is directly interfaced with credit bureaus, payment pools, factoring institutions and trade insurers with global coverage in real-time.

Importantly, it gives the management a risk status overview of all business partners and the ability to forecast business failures in time. With the use of FIORI Applications, the platform is available in a variety of mobile devices such as Tablets and Smartphones to make sure everyone has accurate information when they need it.

Ready4 Credit Management ensures that the managing board is immediately notified of any threatening risks before it is too late, safeguarding it from liability risks in every case.

Discover more about Ready4 Credit Management

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