Risk managament

What is risk management?

Risk management means identifying potential dangers early and dealing with them in a targeted way. In receivables management, this primarily involves the question: Is there a risk that an outstanding invoice won’t be paid?

Whenever a company delivers goods or provides services, a receivable arises against the customer. That receivable always carries a certain amount of risk – for example, that the customer doesn’t pay or becomes insolvent. Risk management helps to identify such situations early and stay prepared.

It’s not a one-time task, but rather an ongoing process. Information is collected regularly, analyzed, and incorporated into decision-making. The goal is to reduce uncertainty as much as possible. Those who know their risks can plan more effectively and respond in time.

In debt collection, risk management helps distinguish between solid cases and hopeless ones and ensures that measures are targeted appropriately.

What are the goals of risk management?

Risk management has a clear objective: to avoid payment defaults or at least keep them to a minimum.

Outstanding invoices are part of everyday business. But depending on the customer or situation, the risk level can vary. Some debtors pay quickly and reliably; others miss deadlines or are in financial distress.

Good risk management helps identify these differences. This allows the company to better assess which outstanding amounts are likely to be paid and which are not. That creates planning security, especially when dealing with large sums or many open claims.

Other goals include:

• Detecting early warning signs, such as changes in payment behavior

• Improving internal workflows, as risks become traceable and measurable

• Creating transparency, for management or external partners

Ultimately, risk management helps businesses operate more calmly – with fewer surprises.

Who is responsible for risk management?

Responsibility for risk management depends on the size and structure of the company.

In smaller businesses, this task is often handled by management or accounting. Decisions about how to handle certain cases are typically made during day-to-day operations.

In medium-sized and large companies, there are usually dedicated departments that deal with this topic – such as controlling or receivables management.

External service providers can also take on parts of the risk management process. These include, for example, debt collection companies that analyze debtor data and provide risk insights, or credit agencies that perform credit checks.

Despite external support, responsibility always remains with the creditor. The creditor decides whether to secure a receivable, initiate a judicial dunning process, or hand a case over to a collection agency. Risk management provides the basis for these decisions.

What types of risks are considered?

Various risks can arise during the receivables process. They affect whether an invoice is paid in full and on time—or whether problems occur.

The most important risks include:

• Payment default risk: The claim is not paid at all or only partially

• Credit risk: The debtor is in poor financial condition or over-indebted

• Address risk: The debtor’s contact details are incomplete or incorrect

• Legal risk: There are uncertainties in the contract, deadlines, or legal requirements

• Information risk: Key data is missing, such as the debtor’s identity or the exact amount of the claim

• Communication risk: The debtor is hard to reach or doesn’t respond

These risks do not always appear in isolation. Often, they are interconnected. Comprehensive risk management takes all of these aspects into account – both individually and together.

When is risk management used?

Risk management is not only relevant in problem situations. It often begins well before a claim even arises.

Even when selecting a new customer, a company can assess whether a risk exists. This might be done through a credit report or signs of previous payment difficulties.

Situations can also change during an ongoing business relationship. A customer who has always been reliable may suddenly experience financial difficulties. That’s why the risk is regularly reassessed.

After an invoice is issued, risk management becomes particularly important. If a payment is missed, the company needs to assess whether the receivable can be collected easily. If not, legal action might be required.

Risk management is therefore a continuous process—stretching from the first customer interaction to the final payment.

How is risk management carried out?

The risk management process is usually broken down into several steps:

1. Identifying risks

   The first step is to determine whether a risk exists. This may involve collecting past payment data, retrieving credit scores, or observing payment behavior.

2. Assessing risks

   Next, the level of risk is evaluated. A scoring system may be used to convert various pieces of information into a single score or category—such as low, medium, or high risk.

3. Defining measures

   Based on the evaluation, specific actions are planned. If the risk is high, for example, advance payment may be required, or the receivable may be handed over to a debt collection agency.

4. Monitoring risks

   Even after the initial assessment, the issue remains current. The debtor’s situation can change at any time. A good system will detect these changes and automatically update the assessment.

Many companies today use digital tools to carry out these steps efficiently and reliably—especially when managing a high volume of receivables.

Where does risk management take place?

Risk management isn’t a single task. It’s a cross-functional topic that runs through many areas of a company.

It often begins in sales, when new customers are screened or contracts are drawn up.

In accounting, it helps monitor outstanding invoices and respond early to payment issues.

In receivables management and debt collection, it’s used to prioritize cases or implement targeted measures.

External partners—such as credit agencies, factoring providers, or collection agencies—also access risk data or contribute their own assessments.

The goal is to ensure that all parties involved are working with the same information. That way, they can make sound decisions—internally and externally, before invoicing and throughout the collection process.