Networking Now

This is my latest Blog Post. I thought it might be interesting for some of the members here.. I have removed the company advertising section from the end of the post ;)
It was written for a mixture of trainee credit controllers and SME's with limited experience in credit control so hopefully some of it will be interesting for the members.

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When it comes to credit assessments there is always a challenge. You need to determine how you collect your data and where you collect it from. Is the data you are using accurate? How to quantify how much of a risk to take? Are you helping the company meet its sales and profit requirements?

With every credit transaction there is a risk of non-payment, a delay in your cash flow, perceived extra costs to your business of carrying out assessments, the potential legal implications (depending on the length and type of credit granted) and a risk that outside factors can hinder the process, such as the economic environment.

If you are unsure when granting credit just remember Sesame Street (for those that have never seen it, shame on you!)….. “Today’s program was sponsored by the letter…. C”

C is for: (listed in alphabetical order as the argument of which is more important is one for your individual company)

* Capacity
* Capital
* Character
* Collateral
* Conditions

C is also for:

* Country
* Culture
* Currency

Capacity;

* Do they have the ability to pay their bills as and when they fall due for payment?
* What current assets do they have available?
* What does their cash flow statement look like? And compared to last year?

Capital:

* What are their business trends?
* What is the equity of net worth situation within then company?
* What fixed assets do they have available and are there already any charges against them?

Character:

* What form of business is it? (limited company, sole trader or public etc)
* What history do they have? (What experience or abilities do the key personnel have?)
* What is their payment history like?
* What morals do they as a company or the owner have? (i.e. what would their willingness to pay be like)
* Any previous bankruptcies, litigations or CCJ’s?

Collateral:

* What assets do they have that could easily be turned into cash?
* What guarantees could you get and would they be worth anything? (parent or personal guarantee etc)

Conditions:

* Are they impacted by any local or national economic conditions? (it is harsh but are they impacted by any local conditions such as serious weather that impacts trading)
* Are they impacted by any industry specific conditions? (i.e. has a major player in the industry recently been in trouble such as the auto industry and is there a knock on impact)
* What terms do they currently buy and sell on?
* Are they a seasonal business?
* What operational changes have they gone through that could have an impact? (such as key personnel changes or mergers and acquisitions)
* What is the status of their property? (do they own or rent)

Even if you only sell within your domestic market your customer may not, do you know this? If they do or if you are selling out of your domestic market then;

Country:

* Where do they or you sell to?
* What is the economic situation there?
* Do you know what the local political situation is?
* Do you know the local rules and regulations?
* Are your terms and conditions enforceable there? Such as Retention of Title.
* Do you or they have the ability to communication correctly?

Culture:

Not all countries and cultures are the same and what is good in one will not work in another. Do you know if you should exchange business cards? Do you know if it is polite to accept or refuse an invitation for a drink? Do you know how business deals are signed? It would be worth taking some time to research the local market and customs.

A couple of examples would be payment terms and negotiations; In the UK, 30 days are considered standard. In Italy, the normal is more like 60-90 days. In Israel a payment received 90 days past its due date is common practice and a negotiation does not stop just because a contract has been signed.

Currency:

If dealing in foreign currencies or with a customer who is heavily dependent on foreign currencies you need to keep a close eye on any fluctuations. You also need to be aware of any local restrictions on how and how much currency can leave a country.

Now obviously not all of these C’s are practical for every business or business deal but should serve as a reminder of a need to be vigilant and always ensure you are securing you company’s future.

You should always try to build up an understanding of every one of your customers and knowing some of all of these things helps to fill any gaps left by a standard credit assessment as pulled from a credit agency. It could also help you decide on a specific collections model for one or a section of your customers who may need more attention than some others.

As your relationship with your customer develops and you have more information to being into the mix your ongoing reviews should become a simple process and the decision on how much credit to extend or the terms to agree should become a routine

C is for… Chance:

Do not take chances when it comes to credit management and do not be lulled into a false sense of security if things have been running well for a period of time. You may want to be wary of the following:

* Having a credit policy is great and a must, but do not thing that by writing one the job is done. You need to refresh it on an ongoing basis to ensure it captures all the current information required.
* Do not think because you have installed the latest system that all is done. You should not become reliant on technology you do not understand. “The computer says no” is not the answer. Do you know why it said yes or no? Software is good but unless based around a score card that you yourself wrote and update on a regular basis it is no more than a generalisation. If you are doing business in a foreign country remember even Dun & Bradstreet maybe using a 2 man company to give them local assessment information and therefore is not more in depth that you can get (it has happened in the past!)
* Do not get cocky! Your credit application process may be working perfectly and may have done so for the past 100 customers, but it only has to go wrong one and you or your company is on your knees. Treat every application as though it is your first and be vigilant.
* If you run a process of “they don’t pay, we don’t ship” great, you can keep any potential losses down to a minimum, however, can you keep customer who are profitable but a little in paying happy? If you know the C’s, you may know that they are a good customer but obviously having a one-off problem and therefore it is worth shipping to them again.
* If you use credit insurance and believe that you have nothing to worry about because if anything happens you are covered then good on you. However, don’t become lazy or sloppy and think you do not have to worry about anything else. What happens if your insurer pulls a credit line/limit, can you still take a risk? Do you know the customer well enough to know if you are important to them?

Credit management is about constant improvement of processes and skills. There are some things you can do to keep yourself in the game;

* All of the above has been about knowing your customer. However, just as importantly you need to know your own company inside out. What makes them tick? Are they a sales orientated company? Can you afford to turn away sales? What is the margin on each product line? What market share do you have? Are you running any promotions that you need to be aware of? Do you need to increase or decrease risk exposure for a given time frame?
* Network as often as possible. Speak to your competitors and other local businesses, what do they offer?
* Learn, learn and learn. Never stop. The world does not stop turning and the credit game does not stop evolving.
* If something goes wrong, it was not the laptops fault! Systems do not create problems, they only magnify them. A good process is a great process with the right system. A bad process is a terrible one with the wrong system.
* Common Sense!!!
* Be adaptable. Be willing to bend. Not everything is a yes or no answer. How about a “we may not be able to do that, but we could do…..” response. Keep the deal alive.
* Always communicate openly and honestly. It saves time and it could save your company. If you believe company X is stalling on a payment ask them why they cannot pay you to terms. Tell them you like to work with partners and partners talk to each other. People will let down suppliers easier than they let down partners!
* Always use your initiative. Do not wait for the paperwork to hit your desk saying a customer is in trouble. Know what is going on and deal with it.

These are just some items to consider and I wish everyone the best of luck with their credit management function.

I am waiting for the B is for Baseball Bat post now Sean, anytime soon? lol

Kip FX Design wrote:I am waiting for the B is for Baseball Bat post now Sean, anytime soon? lol

Quite possible ;) Doing a presentation in April and my trusty baseball bat will be making an outing to prove a point to people about the job...