Trading on credit remains one of the most powerful growth tools in business – but also one of the riskiest.
Speaking at the latest Debtsource Academy, Frank Knight, CEO of Debtsource, shared practical insights on how companies can balance risk and growth by building resilient credit policies, managing fraud and strengthening customer partnerships.
“Credit facilitates sales. The role of a credit department is not to stop business but to ensure it is done safely. Risk management is about balance, not barriers,” Knight emphasised.
For new customers without sufficient references, a starter limit can work well. “If no negative information exists, extending a small limit – say R20 000 – allows you to build a trade history. From there, you can increase exposure with confidence as the relationship deepens,” Knight said. This approach, he added, ensures consistency, reduce wasted effort and supports long-term partnerships.
Fraud, Knight warned, remains one of the greatest challenges in credit management. “Criminals often bypass formal applications and mimic legitimate customers with fake purchase orders or altered delivery details. Fraud detection is everyone’s responsibility – from sales and credit to order capture and logistics.”
Red flags include last-minute applications, unusual collection requests or orders inconsistent with usual patterns. “If you haven’t faced fraud yet, it’s not a question of if but when. Training and vigilance across the business are critical,” Knight cautioned.
Knight emphasised that credit information is not a box-ticking exercise. “Every element – bank codes, trade references, payment history, adverse listings – forms part of a bigger picture,” he said.
Bank codes, now limited to Standard Bank and Nedbank, are useful when available. Where they are not, bank statements are increasingly valuable. “Three months of bank statements can reveal minimum and maximum balances – a powerful way to assess capacity,” Knight explained.
Trade references, often restricted under POPIA, also need new approaches. “Workarounds include supplier statements, consent letters or automated references from uploaded age analyses. With automation, what took days can now take hours,” Knight noted.
Once reports are compiled, Knight said, they must flow through clear approval structures. “Lower values can be delegated, but higher limits should escalate to senior management or the board. Ultimately, credit is a business decision – not just a credit department responsibility.”
Insurance approvals, while useful, should not replace due diligence. “Insurers may approve a limit without checking director details or company structures. A full information report remains essential under ‘know your customer’ principles.”
Monitoring and reviews
Approvals are only the starting point. “Credit limits are checkpoints, not barriers. If volumes grow, reassess exposure. If prices rise, limits may need adjustment. Seasonal peaks of up to 50% must also be planned for with sales teams,” he said.
Behavioural changes are another early signal. “When customers start paying later or in round amounts, take notice. These are often the first signs of liquidity strain.”
He strongly cautioned against increasing limits to cover arrears. “Never extend a facility to solve overdue debt. Instead, structure repayment plans with signed acknowledgements.”
Inactive accounts should also be managed closely. “If a client hasn’t traded for a year, set the limit to zero. When they return, request a fresh application to ensure compliance and updated information,” he advised.
While securities can support exposures, Knight stressed that they cannot convert a bad risk into a good one. “Understand the difference between a personal surety and a personal guarantee. A surety is incidental to the original credit agreement, while a guarantee is independent – similar to a bank guarantee.”
As businesses digitise, guarantees are increasingly preferred, as sureties can complicate electronic processes.
Knight highlighted how digital applications are transforming credit processes. “Traditional signatures are easy to forge. Digital tools that use ID verification and facial recognition against Home Affairs records give far more certainty.”
He also called for streamlining documentation. “Much statutory and registration data is already available via integrated systems. Focus on essentials: financial statements where needed, bank statements for smaller clients, and relevant licences. The goal is to reduce friction without reducing safeguards.”
Knight closed by reminding businesses that trading on credit is not a one-off decision but an evolving partnership.
“Credit risk management is about enabling growth safely. By applying safeguards, monitoring continuously and using modern tools, we can reduce risk without slowing business down. At its heart, credit is about trust – and trust must be managed, renewed and protected every day,” he concluded.