|Service: Credit Control|
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Of course every business has procedures in place to ensure it remains on top of its fiscal comings and goings but are they as comprehensive as they could be? If not then Christopher Moore, Marketing Consultant for ICSM, the subscriber-based credit information specialist dedicated to the UK printing industry, shares his advice.
Since the credit crunch first began to bite, UK businesses have extended their agreed payment dates and terms as a form of short term funding. This means some businesses now face waiting for as long as five months for payment. And the average time it takes for businesses to settle their bills after agreed terms has also extended. In the face of this development businesses have to ensure their billing process is resilient and effective when it comes to overdue payments.
Unfortunately this is not always the case and despite companies realising the onus is on them to take appropriate action ICSM has been successful this year in recouping £7.5m in late payments while £880,000 has been lost as a result of companies not taking swift, decisive action when it mattered.
By addressing issues like cash flow or order book problems early enough, businesses can stop them from escalating. But what action should you take and when do you need to start implementing measures? Many operations are too wary of being over-zealous in chasing payment so as not to upset a long term customer but avoiding the issue could have a catastrophic effect. Time after time we also hear about how good the relationship has been but that does not mean the customer is not under pressure and if they are they are unlikely to share that information until it is too late.
Here are ten top tips on what to look out for and what steps to take:
Whether the customer relationship is new or long-standing, regular credit reports are essential. They are quick and cheap and enable you to be fully informed of any changes with the business. Perhaps you could use a particularly large order as a trigger to run a check or simply implement one every quarter or six months. As well as peace of mind it limits your exposure. Next stage is to identify and weed out any high-risk business prospects and ensure they are not among those featured in any new business activity.
Keep an eye on changes in payment patterns, times and delays as well as a move from BACS to cheques. These small factors can indicate something is happening behind the scenes. It doesn’t hurt to call the company and have an informal chat just to make them aware of your interest. These checks can also indicate how long you will be waiting for payment. Also be aware that bills being settled later and later each month is a key indicator of a business’s deteriorating cash flow.
Your customers may just have a culture of late payment but to combat this, steps should be taken to encourage faster payment such as direct payment methods or more creative collection strategies. Also monitor CCJs as these can be a trigger to exercise some caution and review the relationship before extending credit.
We recently had a case where a number of customers were drawing reports on a particular office supplies business, many of whom were suppliers themselves. When we contacted the businesses, we found it was on the back of a number of placements of orders, up to the value of £10,000.
We reviewed the reports and despite good accounts and a lack of CCJs there had been a recent change of address and a number of new board members appointed. We advised companies not to go through with the order and even stopped one sending out the lorry. However others went ahead and we were unable to help them recoup the losses that followed. Checks are vital and so too is cross-sector information sharing to help honest, hardworking businesses avoid less scrupulous operators.
Regular company credit checks will also highlight small but possibly significant changes such as who is on the board and any alteration in the addresses of those members. Also for smaller and newly formed companies, cross reference consumer and business information to build a picture of the personal and wider business interests and the track record of those running a company. Knowing what happened in the past creates confidence in future co-operation. When financial details are limited this can be the best indicator of a business’s commercial integrity.
The validity and worth of credit reports lies in their frequency which could be related to the value of business done, the importance of the account or in respect of the volatility of the market they are in. There is no point running one at the start of a working relationship and believing that will ensure there is no risk.
There is a danger that as employees get involved with minutia of day to day operations they fail to see emerging market and cross industry trends that can impact their business. Be mindful of external economic pressures because if you are feeling them you can be sure your customers are too. The warning signs these present can be more effective than any internal procedures and controls. There is help - use the credit community, it's what it's there for, share information about your debtors and listen to what other industry people have to say.
In fact it was our membership that helped alert us to a problem with a well know printer who went into administration recently. While credit reports showed the company to be healthy a number of people were requesting reports at the same time and this unusual activity prompted us to ask questions.
The answers highlighted some unfavourable experiences and so we immediately alerted our membership. When the company subsequently shut its doors, owing thousands of pounds, a number of our members avoided losses as a result of our up to the minute information.
Often businesses with poor trading results tend to delay submitting their accounts as long as possible. Experian research has shown the late filing of the Annual Return, which is a statutorily required list of directors and shareholders, is a characteristic of failing companies and at the very least can indicate a level of management inefficiency within the business.
This is why keeping communication lines open is so important. We find that as long as businesses are talking to their customer resolutions can be swiftly and easily achieved without the need for legal action that can prove a costly conclusion.
Don't delay. It is tempting to wait and hope the payment will be made but if the process is not started immediately resolutions will take longer, putting cash flow under greater pressure and leaving you more vulnerable.
While a business that can demonstrate a clear action plan is in place and was adhered to will more likely achieve the successful outcome desired, don’t be afraid to ask for help and advice. A quick chat with an adviser or one of our experts could help you identify the next most appropriate step. For example, we might suggest you use one of our legal letters, which are dispatched immediately requesting a prompt response. Often we find this enough to bring the matter to an end.
|Christopher Moore, Marketing Consultant||Catherine Carter|
|Tel:||(0)1454 322234||Tel:||(0)1489 572405|