Cash Flow Management |
Are your clients credit
worthy? |
You can credit check your existing/new
clients. This can greatly reduce their exposure to risk.
The following are ways to safeguard your client against
bad debt: |
- Prioritising
- Status Reports from Credit Agencies
- Bank References
- Trade Reference
- Account Experience
- Visits to Customers by Credit or Sales Staff
- Industry Credit Circles
- Credit Insurers
- Company Accounts
- Companies House
- Register of County Court Judgments
- Insolvency Service
|
|
1. Prioritising
Credit costs time and resources. Businesses can reduce costs by getting
small orders started quickly with a 'Fast Start Limit' for any new
accounts with no checking. Of course there is a risk but £500,
for example, may not hurt if it is lost. However, further orders need
proper checks.
Use the 80/20 rule to identify the few accounts which account for
most of the business (list accounts in descending order of value until
they add up to 80% of the total). Give those a full credit check and
only brief checks on smaller ones. Always check customers by size
of debt, not alphabetical order. |
|
back to top |
2. Status Reports
from Credit Agencies
Agencies should give full customer details, financial results, payment
experience of other suppliers, county court judgments, registered
lending, etc. and a recommended credit rating.
Agencies may deliver instant reports through on-line terminals as
well as by post or fax.
Use an agency with a complete database and a fast response. |
|
back to top |
3. Bank References
As part of the account opening process, encourage your clients to
use a credit application form which highlights that bank references
may be requested. Bank references can be a useful credit-vetting
tool when starting a new trading relationship with a customer.
A bank reference, known within banks as a ‘status enquiry’,
is a bank’s opinion as to the ability of one of its customers
to meet a specific financial commitment. A bank will only give a
reference if it has the written permission of its customer and normally
require a new authority to reply to each and every enquiry. There
is a fee for providing references which is typically met by the
party making the enquiry.
As a note of caution tell your client that the bank will base
its reply on its knowledge of the financial standing of the customer
and may also stipulate that they should not rely solely on the bank’s
reply when making their decision. Banks use only standard phrases
(e.g. 'undoubted for your figures’, ‘respectable and
good for your figures’, ‘customer not known to us for
long’, 'capital/resources fully employed', 'cannot speak for
your figures' etc.). Anything less than 'good for your figures'
is a guarded warning.
Bank references should be used only for small value decisions or
to support other reports. Remember that a bank's loyalty is to its
customer, not the enquirer. |
|
back to top |
4. Trade Reference
Businesses should ask for Trade References and should use only referees
selected by them rather than references selected by their customers.
Customers are not going to offer names of dissatisfied suppliers.
Suggest simplifying this process with a printed form, tick-boxes and
prepaid envelopes. |
|
back to top |
5. Account Experience
Remind businesses that their existing customers provide valuable up-to-date
data. Any slowing payment trend or spurious queries are triggers for
further checks. Computer systems can give early warnings of changes. |
|
back to top |
6. Visits to Customers
by Credit or Sales Staff
You may advise your client to assess premises, staff morale, payment
system and company progress before they extend credit. If they hear
'going through a difficult phase', 'a bit of a cashflow problem',
'have to cut back on orders' etc, there could be cause for concern. |
|
back to top |
7. Industry Credit
Circles
Competitors in the same trade, exchange details of slow payers and
risks. Discussion of past events is permitted but collaboration to
restrict further trade is not. |
|
back to top |
8. Credit Insurers
You might suggest businesses use credit insurance, which means the
credit insurer will undertake some of the credit checking process.
Some credit insurers offer a discretionary limit to their clients
up to a given value. In these cases, the client has to prove it has
undertaken checks below this value. |
|
back to top |
9. Company
Accounts
The Companies Act requires public limited companies and their large
private subsidiaries to state in days the average time taken to
pay their suppliers and to publish this figure in their Director's
report. This information provides small suppliers with a broad indication
of when they can expect to be paid.
In addition, the Federation of Small Businesses annually publishes
league tables of the average payment times of public companies and
their large private subsidiaries. This will allow small suppliers,
over time, to monitor and compare the payment times of these companies. |
|
back to top |
10. Companies
House - www.companies-house.gov.uk
The role of Companies House is to incorporate companies and also
to gather and relay information on these companies. They hold details
of a million companies registered in Great Britain including details
on accounts, mortgages and director's information; including details
of disqualified directors.
Information is available by visiting one of their offices in person
for a company search or by requesting the information by fax or
post. Companies House Direct also provides information on-line and
produces a wide range of publications to help companies. They provide
information to their customers, including a quarterly customer magazine. |
|
back to top |
11. Register
of County Court Judgments
The Register, which is maintained by Registry Trust Ltd on behalf
of the Court Service, is a public register open to all. It contains
details of almost all money judgments from the County Courts of
England & Wales and these remain on the Register for six years.
Any individual, firm or company can carry out a search of the
Register at a fee of £4.50 for each search. In the case of
an individual, the fee is payable for each named person at a specified
address. In the case of a firm, for each firm at a specified address
and in the case of a limited company, for each full corporate name,
regardless of address, as the title is unique and plaintiffs can
sue at any place of business. This search will give details of the
defendant, the date and the amount of the judgment as well as the
court and case number concerned.
Every search request must be accompanied by the correct fee either
by cheque or postal order. The results of a search are normally sent out by second class post
within 24 hours.
Registry of County Court Judgments
Registry Trust Ltd
173-175 Cleveland Street
London W1P 5PE
Tel 020 73800133
|
|
back to top |
12. Insolvency
Service
The Insolvency Service (www.insolvency.gov.uk)
maintains two facilities which provide information to the public,
the Register of Individual Voluntary Arrangements (IVA) and the
Bankruptcy Public Search Room (BPSR).
The Register of IVAs is available for members of the public and
can be inspected in person or by written request for individual
entry details. Telephone requests are not accepted. Enquirers are
requested to provide full details of the individual for whom they
would like to search. Enquirers will then be informed of the result
of any search and, where a positive match is found, will be provided
with a copy of the relevant register entry together with details
of the Supervisor of the IVA (who must be a licensed insolvency
practitioner), whom they may contact for further details. No charge
is made for searches of the Register and the supply of relevant
information.
The Bankruptcy Public Search Room
(www.insolvency.gov.uk/information/guidanceleaflets/register.htm)
maintains a record of bankruptcies from 1973 to the present. Details
of bankruptcies dating from 1924-1973 are available on special request
but are not available for public inspection and will not be searched
routinely. Bankruptcy information is held on index cards filed in
alphabetical order, which contain the name and address (at the date
of the bankruptcy order) of individuals who have been made bankrupt
in England and Wales. The date of discharge is NOT always shown.
Searches can be made in person and also by post giving the name,
postal address, occupation and date of birth (or approximate age)
of the individual to be searched. Requests will normally be returned
on the day of receipt, by post. Search requests by telephone cannot
be accepted. No charge is made for this service. |
|
back to top |
| |
