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Would you credit it?
Page 44
Page 45
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Telling a haulier about risk management may conjure up the phrase Teaching your granny to suck eggs'. but there are a number of dangers lurking in the vast ocean between the islands of invoice and payment, and complacency is just one of them. Whether you are nurturing relationships that have lasted longer than the average marriage or are courting new customers, there has never been a greater need to beef up your approach to credit monitoring
Those firms who have been friends as well as customers for 20-odd years may be the next commercially sound businesses to be dragged into administration because their bank has shied away, and you can't afford to go with them because familiarity made you too trusting.
Tony Pullen, managing director of Experian's Business Information division. says: With all organisations now feeling the impact of a tougher borrowing environment, businesses need to choose their customers even more carefully. based on insights into their risk profile how promptly they pay and, for small firms, by gaining a better understanding of the people behind the business.According to Expenan's figures. in 2008 more than 781 firms in the transport sector (which would include freight transport, for instance) failed. a 25% increase compared to 2007. Pullen says an initial credit check is no longer enough.You must -continue to monitor customers' and suppliers' commercial integrity against financial performance, credit risk information and payment behaviours". peed it up
you make a dellvery for a firm, you have effectively • nt it money, and with payment delays becoming ore common, you can be 'lending' substantial ounts for extended periods at no return This means that getting payments in much quicker ekes perfect sense, whether through creative Ilection, invoice factoring or discounts for 21-day rnarounds on invoices.
Don't be afraid to put customers on stop at the first gns of reluctance to pay promptly. If they are putting at the bottom of the list, they will quickly rethink, d if they really can't pay, the last thing you want to • is keep carrying their goods. Remember not all isiness is good business.
hat to took for in a business credit report
ullen says there are very specific things companies ould be scanning reports for He adds: "Be on the look out for adverse indicators. heck payment trends of potential and existing stomers before extending them credit. Bills being -filed later each month is a clear indicator of a -tenorating cash position within a business Expenan's :yment performance information, derived from a :tabase that tracks 20 million transactions per month the equivalent of E12billion of transactions — is corporated into risk management tools such as -dger360 and The Risk Report and can be used by isinesses to identify good and poor payment trends" Late filing of annual returns and financial accounts can so be a warning. Experian's statistical analysts shows at firms with poor trading results tend to delay bmitting their accounts as long as possible, hence late ing of accounts is often a sign of bad news to come he analysis also indicates that late filing of the Annual eturn, which is a statutorily required list of directors and areholders, is a characteristic of failing companies At
e very least, late filing of accounts and returns can ow a level of management inefficiency in the business, INVOICE FACTORING
The Road Haulage Association has recently launched its own invoice factoring venture with the company wk5.com in response to the cashflow difficulties experienced by members. Wk5 will act as a broker and seek the best factoring company for your business. It provides a range of financial advice including recovering debts from insolvent customers; and your invoice factoring account can include a reserve fund, which contributes to your financial standing undertakings to TCs, When interviewing a new customer, you will need to get consent in writing to apply for a credit check and for a bank reference.
Make sure you have all the relevant information — trading names. Invoice addresses, directors, company number, and at least two trade references so you can check suppliers get paid. It's worth checking out firms on Companies House through its WebCheck service (http://tiny.ccio3UGf)— basic financial data costs just £1 a report.
There are lots of credit reports available out there, from the simple to the very sophisticated The managing director of Experiar's Business Information (www experian,co.uk) division Pullen says: "Basic online business credit reports are available for around £5 and will provide instant access to statistically reliable recommended credit limits, credit ratings and basic payment information to help businesses reach decisions on whether or not to grant credit to a customer, how much and under what terms
More sophisticated risk management tools offer premium credit information, including access to detailed credit and financial information, including cashf low, profit and loss and company ratios, detailed director information, legal and payment behaviour data, comparative industry and risk data, corporate tree information as well as potential fraudulent activity alerts.
Prices for such tools vary depending on the mix and number of reports.
ADVICE FOR COPING WITH THE RECESSION
• Monitor your own credit business report and those of your existing and potential customers for early indicators of potential difficulties ahead • Watch out for late payments • File annual returns and financial accounts on time and monitor how timely your customers are filing theirs • Avoid County Court Judgements • Register with a credit reference agency or a directory such as Yell or Thomsons (If you're not registered, then you may fall below the radar, so credit reference agencies may not be able to assign you a rating or risk profile, which could restrict your access to credit) • Screen out poor performers from any new business activity County Court Judgements should also be a big red flag, unless you get a satisfactory explanation It's worth noting that CCJs can run counter to some credit insurers' policies meaning they will automatically back off, so they can make the company in question very vulnerable even if the CCJ itself didn't arise from anything serious.
Pullen argues that personal information on directors can also be valid. He explains: "Don't forget about the people behind the business. !Ike smaller businesses they often are the business.
"For small and newly formed companies. it's worth using a business credit report that cross-references consumer and business information, to give a picture of the personal and wider business interests and the track records of those running a company. Where financial data is scarce, this can often be the best indicator of the likely commercial integrity of the business." •