Birmingham - Safer trading with Coface #2
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Bad debt can cause serious problems for any business but SMEs are particularly vulnerable to disruptions in cashflow. In the second of Coface’s advice articles for SMEs in Birmingham, we explain how effective credit management can help protect your business. Late payment was on the agenda in Birmingham last month. Addressing members of the Federation of Small Businesses (FSB) at their annual conference, leading politicians from all three main parties – George Osborne, Nick Clegg and Ed Miliband – pledged to act against the practice if their party wins the General Election 1 . Of course, this is not a new phenomenon: many business owners will recognise the sickening moment when they realise they have been hit by a bad debt, often swiftly followed by worries about cashflow, their ability to pay staff and meet other obligations. In fact, it is estimated that a quarter of business failures are linked to unpaid invoices and these insolvencies will have consequences for those further down the supply chain. The good news is that company insolvency rates across the country are going down as the economic recovery takes hold. According to the latest Insolvency Service statistics 2 , there were just over 14,000 company liquidations in England and Wales in 2014, down 6.3% on 2013 and continuing the downward trend that began in 2011. However, Coface’s experience shows that protracted late payment probably represents a greater threat to company cashflow. In 2013, we reported that 60% of claims notifications from our UK credit insurance clients in the previous seven months were made because of a customer’s protracted default and 40% because of insolvency, a reversal of the situation in the same period in 2012 3 . It seems some customers will do whatever it takes to hold onto their cash for as long as possible but this is a particular problem for small businesses where margins are usually tighter. Given the importance of SMEs to economic growth, politicians’ commitment to addressing late payment at the FSB Conference is welcome and yet SMEs who offer credit terms can also take steps to protect themselves. A rigorous and consistent credit policy can limit your company’s exposure to high- risk customers. If you do not have the resources to research and monitor credit risk in- house, consider working with an established specialist. For example, all Coface’s credit insurance clients have access to our CofaNet credit management system, which enables them to check the credit worthiness of potential and existing customers and apply for an appropriate credit limit. They can also use it to report losses, monitor cover on unpaid invoices and analyse their customer portfolio. Coface has developed two policies for SMEs with turnover of up to £10million. Premier Trader and SafeTrader (available online) have a fixed annual price which includes credit insurance cover against insolvency or protracted late payment by UK and overseas customers and payment collection. As well as peace of mind, this gives you the confidence to grow your business and could help you demonstrate your own credit worthiness to investors and suppliers. For more information call 01923 01923 478111 or visit www.cofaceuk.com References 1 Osborne, Miliband and Clegg at Federation conference in Birmingham, Birmingham Post, 26 March 2015 2 Insolvency statistics: October – December 2014, The Insolvency Service, 29 January 2015 3 Late payment now greater threat than insolvent customers says Coface, Coface press release, 6 November 2013 Safer trading with Coface Here are Coface’s top five credit management tips: 1. If you haven’t done so, assign responsibility for determining credit limits and tracking receivables to a trusted member of your accounts team. You could also agree a referral process for particular clients or sums over a set amount. 2. Ensure your contracts clearly set out your payment terms and the interest charged for late payment. Consider a retention of title clause, affirming your ownership of the goods until they are paid for. 3. Don’t be persuaded to increase a customer’s credit limit just because they have paid their first or second invoice promptly and are about to place another big order. Credit limit decisions should reflect the customer’s solvency rather than their commercial potential. 4. Be wary of deviations from customers’ normal payment behaviour eg extending the payment date by a few days or raising disputes shortly before the invoice due dates. 5. Obtain credit insurance to protect you against the risk of bad debt through customer insolvency or protracted late payment. Without insurance you could lose the revenue from the sale, while the squeeze on your cash flow could make it more difficult to pay suppliers and invest in further growth. Next time exploring export markets
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Bad debt can cause serious problems for any business but SMEs are particularly vulnerable to disruptions in cashflow. In the second of Coface’s advice articles for SMEs in Birmingham, we explain how effective credit management can help protect your business.
Transcript of Birmingham - Safer trading with Coface #2
Bad debt can cause serious problems for anybusiness but SMEs are particularly vulnerable todisruptions in cashflow. In the second of Coface’sadvice articles for SMEs in Birmingham, we explainhow effective credit management can help protectyour business.
Late payment was on the agenda in Birmingham lastmonth. Addressing members of the Federation of SmallBusinesses (FSB) at their annual conference, leadingpoliticians from all three main parties – George Osborne,Nick Clegg and Ed Miliband – pledged to act against thepractice if their party wins the General Election1.
Of course, this is not a new phenomenon: manybusiness owners will recognise the sickening momentwhen they realise they have been hit by a bad debt,often swiftly followed by worries about cashflow, theirability to pay staff and meet other obligations. In fact, itis estimated that a quarter of business failures are linkedto unpaid invoices and these insolvencies will haveconsequences for those further down the supply chain.
The good news is that company insolvency rates acrossthe country are going down as the economic recoverytakes hold. According to the latest Insolvency Servicestatistics2, there were just over 14,000 companyliquidations in England and Wales in 2014, down 6.3%on 2013 and continuing the downward trend that beganin 2011.
However, Coface’s experience shows that protractedlate payment probably represents a greater threat tocompany cashflow. In 2013, we reported that 60% ofclaims notifications from our UK credit insurance clientsin the previous seven months were made because of acustomer’s protracted default and 40% because ofinsolvency, a reversal of the situation in the same periodin 20123. It seems some customers will do whatever ittakes to hold onto their cash for as long as possible butthis is a particular problem for small businesses wheremargins are usually tighter.
Given the importance of SMEs to economic growth,politicians’ commitment to addressing late payment atthe FSB Conference is welcome and yet SMEs who
offer credit terms can also take steps to protect themselves. A rigorousand consistent credit policy can limit your company’s exposure to high-risk customers.
If you do not have the resources to research and monitor credit risk in-house, consider working with an established specialist. For example,all Coface’s credit insurance clients have access to our CofaNet creditmanagement system, which enables them to check the creditworthiness of potential and existing customers and apply for anappropriate credit limit. They can also use it to report losses, monitorcover on unpaid invoices and analyse their customer portfolio.
Coface has developed two policies for SMEs with turnover of up to£10million. Premier Trader and SafeTrader (available online) have afixed annual price which includes credit insurance cover againstinsolvency or protracted late payment by UK and overseas customersand payment collection.
As well as peace of mind, this gives you the confidence to grow yourbusiness and could help you demonstrate your own credit worthinessto investors and suppliers.
For more information call 01923 01923 478111 or visit www.cofaceuk.com
References1 Osborne, Miliband and Clegg at Federation conference in Birmingham,
Birmingham Post, 26 March 2015
2 Insolvency statistics: October – December 2014, The Insolvency Service,
29 January 2015
3 Late payment now greater threat than insolvent customers says Coface,
Coface press release, 6 November 2013
Safer trading with Coface
Here are Coface’s top five credit management tips:
1. If you haven’t done so, assign responsibility for determiningcredit limits and tracking receivables to a trusted member ofyour accounts team. You could also agree a referral process forparticular clients or sums over a set amount.
2. Ensure your contracts clearly set out your payment terms andthe interest charged for late payment. Consider a retention oftitle clause, affirming your ownership of the goods until they arepaid for.
3. Don’t be persuaded to increase a customer’s credit limit justbecause they have paid their first or second invoice promptlyand are about to place another big order. Credit limit decisionsshould reflect the customer’s solvency rather than theircommercial potential.
4. Be wary of deviations from customers’ normal paymentbehaviour eg extending the payment date by a few days orraising disputes shortly before the invoice due dates.
5. Obtain credit insurance to protect you against the risk of baddebt through customer insolvency or protracted late payment.Without insurance you could lose the revenue from the sale,while the squeeze on your cash flow could make it moredifficult to pay suppliers and invest in further growth.
Next timeexploring export markets
33245 AP_HorseWorld 09/04/2015 11:52 Page 1
