Protecting Your Business isn't Half As Painful As You Think - CPA

Protecting Your Business isn’t Half As Painful As You Think

31st January 2018.

Usually, the best way to prevent calamity is to protect yourself from the thing that wants to run you down, trip you up or knock you out.

So jump over that banana skin on the ground,

Look up from your phone in time to see that metal pole coming right at you,

and most importantly, credit check those customers, before they- or you- fall into financial disarray.

Since the collapse of Construction giant, Carillion this month, it’s become increasingly important to know exactly who you’re doing business with.

Are they reliable?
Do they have a positive credit rating?
Is their business failing?
Is their involvement in your business going to damage your brand?

These are all important questions, and ones you should always ask when taking on new customers.

Know Your Customer

– The Credit Application Form

Here at the Credit Protection Association, we provide all our members with credit application forms to use with their new customers. Information such as credit ratings, business revenues, and the business addresses should all be filled out by the customer before you jump into business with them.

Do not rush into anything.

If they claim to need extra time to gather the right information, then give to them.

They may squirm away from providing you with their full financial history and credentials, but this is when you need to be insistent.

You do not want to find yourself in a dispute with them after they’re 4 months late with the payment.

After all, if they’re really really reluctant to provide you with their details, it might be wise to take a step back.

Perhaps they have something to hide?

A the end of the day, your focus has to be on your own business, not theirs.

– The Credit Report

Here at CPA our members often find themselves with little knowledge of who they have gone into business with!

The customer may have provided an incorrect or incomplete address on the credit application form, or may have moved and not supplied a forward address.

It happens!

This is where our credit report system, StatusReportLink, comes in very handy to our members- please see our previous blog for details on how to navigate it.

The ‘company identification’ section of the report helps our members find all the information they need about the customer.

They will be provided with an accurate description of the customer, with a business address and company name included, along with registered office, VAT number, web address, banking details, and of course the incorporation date of the business.

All in all, no strings barred, our member will see the debtor in all their glory.

Even the directors do not escape the spotlight.

Are they well-established? Do they change directors often? Are they well-behaved or rogue?

Other areas such as sales, profitability, cash flow, detailed financials, county court judgements, and net worth are also included on the credit report.

The business owner, therefore, has all the tools they need to conduct business accurately and efficiently.

If the customer is found to be inappropriate then our member can make an informed decision to halt association completely.

– The Credit Score

Credit scores are used by lenders and suppliers to determine whether businesses have a good track record of repaying debt, and are therefore one of the key factors affecting a firm’s ability to get a loan or goods and services on credit.

According to research from RateSetter Business Finance, 44 per cent of SMEs have never checked their company’s credit score. The study also revealed that a further 6 per cent had opted against checking their score in the last year. Only one in five (18 per cent) had checked within the last six months.

While we understand the attraction of turning away before a crash, it’s not a good idea in practice.

Yes, you could see your credit score and immediately see you’re in trouble, but if you don’t, does that mean you aren’t?

(no).

When it comes to keeping your business afloat it’s best to have everything at your disposal.

In the event that your score is lower than you desire, or lower than you believe you deserve, there are ways to improve it.

The best and easiest way to have a high credit score is to have a good trading record. This means paying your customers and suppliers on time and delivering quality-driven goods and services.

– Monitoring

Once you have the customer hooked, and they have passed the credit application form and initial credit report, it’s tempting to take a step back.

We do not recommend this.

Never-mind how trustworthy you believe your customers to be, it is beneficial to always have an eye on them.

Always have an idea of what exactly they’re are up to.

This means you will know if they are in financial difficulty (and not telling you) or even if they have given you an underestimation of their finances.

If this is the case, you need to have all the facts, so you can change your credit terms accordingly or take action on outstanding invoices.

All our members at the Credit Protection Association have access to the monitoring facility on our credit reporting system, StatusReportLink

It will basically mean that if something happens to affect the creditworthiness of your monitored company you will receive an email alert.

Of course, this service is not just restricted to your customer base.

It can also be utilised to look up your competition and see what your suppliers are up to.

This gives you the perfect excuse to be a bit of a detective every once in a while.

In the wake of recent high-profile corporate liquidations, it has become vital to keep tabs on your own business’ financial activity, as well as all those you do business with!

Every business is part of a supply chain and you risk being the chink in the chain if you don’t know what your entire entourage is up to.

Don’t Assume Blue-Chips are Safe

There is a common misconception that if you are a blue-chip, or if you do business with exclusively blue-chip companies, then you have no need for debt or credit management.

This is just not the case.

It doesn’t matter if you’re the Goliath or the David, if you haven’t been monitoring your customers or keeping tabs on their overdue accounts, then you are going to see the consequences.

Huge tobacco seller, Palmer & Harvey had 34,00 employees and delivered goods to 90,000 grocery and convenience stores, went into administration last December.
Similarly, furniture chain store, Multiyork, which employed 547 people in 50 shops, went into liquidation last November with £1.9 million of net debt at the end of the year.
And most recently, the construction giant, Carillion, ran up debts and sold assets worth £217 million between 2012 and 2016.

You can be big, small, blue-chip, pink-chip, it doesn’t matter.

Once that debt starts to pile up, everything else will fade into the background.

So what do I do now?

No matter who you are or who you trade with, it makes sense to regularly credit check your key customers and partners. The team at CPA will happily monitor them for you and notify you of any changes.

Since corporate businesses started tumbling down like dominoes, all business owners have become increasingly aware that no-one is safe.

Everyone risks a collapse, so everyone must make the right preparations.

Don’t bury your head in the sand and hope it gets your neighbour instead. Conduct regular credit checks, monitor your customers and your suppliers, and keep an eye on those late payers.

If you start to see that pile of invoices building, don’t just feed it to the shredder. Pass it to us!

Credit management companies like us at the Credit Protection Association will chase those late payers and bad payers and stop you following Carillion’s example.

Having CPA at your side helps protect your bottom line in these difficult, and frustrating, times.