Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

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Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014

Transcript of Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Page 1: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Customer Credit… Why & How

Institute of Chartered Shipbrokers Lectures

Singapore August 2014

Page 2: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

So who am I?

• Managing Director • Global Head of Credit

Awyr Las Pte Ltd (inactive) Soyuz Bunkering Group

John Phillips MSc, BSc (Hons), FICS, CMILT,

Visiting Research Fellow University of Plymouth

Chartered Shipbroker, entered tanker operations & port agency 1982, own business 1990-1995, worked in Middle East, Greece, & Singapore, specialised in counter-party risk and intelligence/research in maritime sector since

2002

Page 3: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

and Soyuz Bunkering Group (SBG)?

Established in 2013 by interests affiliated to Souz Petrolium SA through Summa Group Europe Holdings BV

Part of the Summa Group (Russia)

Offices in Rotterdam, Dubai, Singapore and Hong Kong

Strong position on Russian Far East, ARA and West Africa

Team of experienced Traders and Operators

Strong support from parent group

Page 4: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

What is Credit & what are the Risks

In most of the bunker market trading & supply businesses, Credit runs hand-in-hand with due diligence and is usually described as: “Credit, Due Diligence & Country Party Risk”

Managing Credit / unsecured transactions

Risks of Non-Payment

Using Credit as a Sword & Credit as a Shield

Page 5: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Understanding Credit Risk

Credit Risk can be defined as the amount of risk taken against non (or delayed) payment for goods delivered today but paid in the future

An extension of the RISK we manage everyday

We all come across Credit Risk in work

If I lend you my Ferrari for the weekend, what is the likelihood I will get it back on Monday undamaged (or at all)?

Page 6: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Shipbrokerage & Shipagency

the impact of introducing parties where default occurs Financial (cash-flow) Reputational (measurable?)

the risk of operating without adequate pro-forma funding Delayed Payment (cash-flow) Non Payment (cash-flow + legal recourse + reputation)

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Shipowner & Operator

Vessel Withdrawal (always best option?)

the impact of non-payment of freight or hire Financial (cash-flow) Reputational (bank confidence in decision making ability)

Page 8: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Three Key Themes

Knowing your Customer

Prevention is better than Cure

Forearmed is Forewarned

These cannot be overstressed and have been a mantra of Credit Report Writers and Managers since the 1970s

Page 9: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Selecting the Right Party

Adoption of ‘Best Practices’

Use of Rightship or equivalent processes (best practice!)

Carry out Due Diligence review on at least bi-annual basis

Credit reporting Agencies assistance (Due Diligence data) Dynamar Infospectrum Lloyd’s List Intelligence Ocean Intelligence

Page 10: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Implications of Transacting unsecured

Will customer still exist at due date?

Will I be paid on time or delayed (if so, how long)?

What is my cost of borrowing (see next item)?

What is my margin (is it worth it)?

Do I have capacity (Loss of Opportunity)?

What is my exposure profile (Ratio 1-5 risks)

Recovery costs

Page 11: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Impending Default - Some Warnings

Speak with brokers – Is tonnage idle, what is happening in macro and how will it impact micro economics?

Check Press & other Media comments

Calls are met with ‘unavailable’ or ‘will call back’

Has there been a steady slipping of payments (legal implications of not addressing immediately)

Have Reporting Agencies (OI, LLI, Info, Dynamar) reviewed recently, change in recommendations?

Page 12: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Revisit Review – Why?

Why Revisit:• Has something changed in the business?

• Moreover is business still there?

Page 13: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Use of Financial Statements

Reporting Standards

Some jurisdictions do not report (this applies to most in this sector)

Creative Accounting

Age (even for PLC’s can be 1Q out)

Difficulty in obtaining even when reported

Language used

Page 14: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Do Financials have a Value?

Corp. Hancock: Sir. [Offers mug of tea]

Maj. Gen. Urquhart: Hancock. I've got lunatics laughing at me from the woods. My original plan has been scuppered now that the jeeps haven't arrived. My communications are completely broken down. Do you really believe any of that can be helped by a cup of tea?

Corp. Hancock: Couldn't hurt, sir.

Page 15: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

What can you learn?

How a business has performed historically

Suggest how it may perform going forward

Indicate how it has structured its finances

Give insight into shareholders’ commitment

Show how it remained liquid historically

Is the business ‘open & available’

Who audited and what opinion

Page 16: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Reading Between the Lines

What type of Company is it

What is it trying to say in its Financials

What is not there that should be there?

Why are the Financials overdue?

In an improving market why are numbers down?

Has business been lost & what is the orderbook?

Page 17: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

So what should be there?

And why isn’t it?

To do this you really need to know who your customer is and what it does

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Legal & Recovery Considerations

Are we being “Reasonable”

Ensure data collected is accurate

Speed may well be of the essence

Empty Threats are No Threats

Interact with Legal and Finance

Remember Legal Recovery has a cost – evaluate

Establish track on vessel (www.sea-web.com or www.seasearcher.com) and maybe go active

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The REAL cost of recovery

Debt chasing

Arrest of vessel – if a Maritime Lien exists

Enforcement of award after vessel release

However, this can take months or years.

Example from Marine Fuels sector

How long would it take to make back a USD 1 margin on a 1,000 tonne sale of IFO 380 cSt at USD 610 pmt

Page 20: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Any Guesses?

Its an reasonably easy one…

610,000 tonnes

And remember, in the meantime you have financed a purchase at USD 609 which you maybe paid on 5 days!

(finance cost)

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A thought….

So what percentage is this of annual sales?

I’m sure this translates to brokerage commissions or agency fees, how many more deals to be done to recover the

money outlaid to bring a customer in who doesn’t perform!

Now tell me that good credit decisions have no value

Getting it right will save time and money

Page 22: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Use Credit as a Sword and as a Shield

Develop Business

Using good due diligence as a way to grow your Business safely

Wise Growth - Considered & Reasoned Growth

Use credit/unsecured transactions to encourage wanted accounts

Protect the Business

Credit/unsecured transactions only where credit is due

Closing out unwanted accounts

Use credit to deter unwanted accounts

Page 23: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

The Importance of Audit Trail

Internal & External Factors

Best Practice

Credit Insurance & Finance Approvals

Counterparty Confidence

Bank Confidence

Management Purposes (ISO identification of system failures)

System Improvements (ISO remedial &

Page 24: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Main Players

Credit Manager / Business Development Manager (Strategic implementation of Corporate wide solutions to meet strategic goals)

Research Teams

Finance and/or CFO

AP/AR & Treasury Officers

Legal Counsel

…and of course – Operations teams

Page 25: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Credit Management Structures

For those with credit sales in portfolio

Hierarchical system

Triangular Systems

Multi-Point Systems

Single Advice Methods

Passed Responsibility Method

Each of these can be developed with or without a Credit Model to support it -

Page 26: Customer Credit… Why & How Institute of Chartered Shipbrokers Lectures Singapore August 2014.

Thank You