Issue link: http://read.dmtmag.com/i/330408
48 | ZZZFHGPDJFRP | Construction Equipment Distribution | June 2014 Sector Check The Great Recession was one long morality tale about the value of risk management and the dangers of short-sightedness in credit decisions. Lenders failed to account for the risk that the people to whom they were lending wouldn't pay their bills, and in the interest of short-term profits, they stopped paying attention to the five Cs of credit: character, capital, capacity, collateral and conditions. These are five principles about a customer and a transaction that any business that extends credit must assess before making a sound financial decision for their company. It's the same in the consumer world as it is in the commercial world, and it was largely abandoned in the long run-up to the late 2000s financial crisis, as risk was merely accumulated and resold; rather than managed like the complex financial process that it is. Since the recession, however, risk management has become one of the corporate world's top priorities. A 2013 report by global management consult- ing company Accenture found that 98 percent of firms surveyed have placed a higher priority on risk management than they did two years ago, and that 81 percent of risk managers discuss risk regularly with their company's board of directors. However, in the same report, survey respondents also said that there remained a large gap between how focused companies were on risk and how capable they thought they were of actually managing it successfully. Only 21 percent of respondents think their companies were adequately capable of managing the market and economic volatility risks facing their business. Risk in the Construction Equipment Industry Though the report didn't provide industry breakdowns, it's safe to say that financial and credit risk, and having a staff that is able to properly manage it, is an even bigger priority for companies that operate in or adjacent to the construction industry. This is a business sector that possesses a unique set of risks, challenges and standard payment arrangements that can be especially treacherous for firms to navigate. Sales happen on credit terms in the construction industry that wouldn't happen on credit anywhere else, and the value of these sales can often exceed the market capitalization of the buyer. You Can't Beat Risk– So Manage It Go a step further than simply understanding your credit risks, and provide staff with proper training and tools to manage this area of your business. BY JACOB BARRON, CICP