CREDIT
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WITH
• When an economy starts to slide into recession, a large number of small firms inevitably go to the wall. But in recent months the list of commercial casualties calling in the receiver has included such household names as Coloroll and Lownes Queensway. And when large, prestigious companies hit the skids, they take a lot of other people with them, including haulage operators.
So what can an operator do to save himself if his main customer goes bust? Rob McHugh, managing director of Owner Operators UK. admits: "There is little you can do when your biggest customer goes into liquidation except join the queue of unsecured creditors and hope to get some of your money back. But there are a lot of stages before that final one and it is here that you can take the necessary steps to protect yourself."
Many operators, McHugh points out, are "too intimidated" to ask large companies for references and details about their trading before they start to do work for them. "You must make sure the company you deal with is credit-worthy," he advises, "and you should ask for bank references and trade references."
AGREED RULES
If, after this preliminary check, you are satisfied with the arrangements, you should still get it all confirmed in writing, McHugh urges. "Write a letter setting down when each payment is due and what your terms of settlement are. If a company is unwilling to confirm basic trading arrangements in writing, then you have to ask yourself whether they are going to be worth working for."
Once you have started to work for a firm you must make sure they stick to the agreed rules: "If you said you would invoice by the 5th of the month, then make sure they are in by that date," says McHugh. "If they said payment would be there by the 28th, make sure it is. If it isn't remember, he who shouts loudest gets his money first, and get on the
phone. As soon as the debt becomes due chase it up."
Roger Wapson, manager of the Road Haulage Association's south eastern district office, agrees: "A lot of hauliers are afraid to knock on a customer's door and talk about payment, but the customer will respect those that do. People who don't will get pushed to back of the queue when the customer has his cheque book out and is paying bills."
A prudent haulier will never allow credit to mount high enough to cause him a financial disadvantage if a customer goes bust, adds Jonathan Lawton, solicitor with Chester-based Aaron and Partners. But he also recognises that some hauliers do not want to exercise credit control against their major customers in case they lose them altogether. "It is a real dilemma," he agrees, "but the only answer is to exercise the kind of control which involves agreeing a time limit for payment of invoices and enforcing that time limit from day one of the relationship. If you become aware that it is being stretched by your customer, you must do what you can immediately to get them back onto the original timetable."
In extreme situations operators may also exercise 'carriers lien' Lawton points out. "You have the right to sell any of your customers' goods which you are holding to defray monies owned to you in the course of your business. You can threaten that these goods will not move out of your yard until you get paid."
This might cause problems, warns Liam Boyle, deputy manager of the RHA's eastern district office: "You might detain a trailer loaded with your defaulting customer's goods, but can you guarantee that this property is owned by your customer? You may lay yourself open to counterclaims of unlawfully holding on to someone else's property. If you use lien you must be aware of the pitfalls."
Stephen Law, manager of the Ipswich branch of chartered accountants and insolvency practitioners Grant Thornton, also cautions against using lien. "Suitable action to take against a customer who may be heading for liquidation includes ap plying for a 'walking possession order' or issuing writs, he advises.
Under a walking possession order, a bailiff would be instructed to go into a company, after agreement with the company's directors, to have certain of the company's assets charged to the haulage company for seven days. If the debt had not been paid within this time the haulage company would be able to sell the assets.
Large hauliers might also like to consider credit insurance, adds Dugale GrahamCampbell of insurance brokers Bain Clarkson. "Providing the haulier exercises reasonable credit management it may be possible to arrange credit insurance which could be comprehensive, to cover his top 10 customers, or specific to one customer," Graham-Campbell explains. "This insurance will cover credit arrangements in the event of the unexpected insolvency of your customer. We paid out several substantial cheques, including one for over Elm. on behalf of the insurers of suppliers to Coloroll."
But, although there are ways in which operators can do something to cover their backs should their major customer have to call in the receiver, most professionals advise that good cre dit management is the best way to avoid the pitfalls in the first place.
Business information company Dun and Bradstreet can provide full reports on companies throughout the UK and Europe. "We can give a credit rating for any company, together with details on how quickly, or slowly, a company pays its bills," says a spokesman. "It is one thing getting a report saying a company can pay its bill, but another to know how long it takes to do so."
Hauliers subscribing to this system can be sure of the most up-to-date information, he continues. "Accounts would have been issued by most companies in 1988 but a lot has happened over the past two years. One of the indicators of a company on the verge of financial collapse can be that they now take longer than usual to pay their bills or they might have an increasing number of County Court judgements against them. Our information can put you in a position to consider whether this business is worth taking on, if you are not going to be paid for a long time and you are already operating on a very low margin."