PAYMENT WOES
With seven in ten small businesses battling legal disputes over late payments, a solution like credit insurance was nothing short of vital for these companies
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f you’re a business owner you needn’t be told late, delayed and non-payments are big issues for SMEs. In fact, chancellor Philip Hammond labelled late payments “the continuing scourge” in his 2018 spring statement – a trend he sought to “eliminate” – and reinforced the government’s commitment to fight them this year. However, thanks to credit insurance, these businesses aren’t worried: Syed Nauman, credit manager EMEA, Theory In this trade, wholesale fashion [retailers] are buying [our] jumpers for winter in the middle of summer, right? But what happens if you have a really mild winter like we’ve experienced previously? You can’t sell them to your customers because they’re all going to the beach or are in light jackets or t-shirts, because it’s too warm. These factors all play into late payments. I don’t think customers intentionally plan on not paying, we have to have some element of good faith. But we also have to understand the fashion and wholesale market when we’re supplying high-end independent stores. They’re subject to these variations, so we’ve got to find a happy medium. We’ve had several cases but through Coface and our own team here we tend to reach out to customers. Only when the relationship’s totally broken down do we allow Coface to take over completely. Thankfully it hasn’t happened that frequently but when it has it’s paid off really well to be honest because the pressure’s not only coming from us, it’s coming from Coface. The client tends to pay up or agree to
revised terms with us where there have been late payments. Zoe Webster, accounts administrator, Elefant Gratings We obtained cover after experiencing a few cases of non-payment. Most of our customers adhere to our payment terms but if this doesn’t happen, credit insurance helps to alleviate the stress as it means we can still meet our obligations to pay factories, suppliers and distributors on time. The onscreen rating gives a great indication of company risk and the system also enables us to view progress on the overdue invoices that [our provider] is chasing on our behalf. Sergio Vignone, credit manager, Duferco International Trading Holding In 2014, we made our biggest claim for £500,000. Everything went smoothly and we received payment 30 days after declaring the loss. That sort of sum will destroy a year’s profit and it shows why we won’t trade without cover – the risk is just too much, even for customers that we have known for the longest time. We used [credit insurance] twice in the last year in the UK to recover late payments and [it] was brilliant. In one case, we received the money just two or three days before the company filed for bankruptcy. As traders, we obtain working capital from our bank and then we receive our money when the customer pays. The banks themselves make credit insurance a condition for access to trade finance but we do not want to open our own pockets if it all does go wrong. John Hounsell, finance director, TCS Media As a media planning agency, we are the principal contact and we are liable for
the cost, whether or not the client pays us. When you consider that a campaign might cost £1m and our return is typically a small agency commission, we obviously need protection in the event of a client’s default. It has been a while since we had to make a claim – the last one was for £250,000 about ten years ago. However, one of the major reasons we have stuck with [credit insurance] all this time is they always paid promptly after liability has been accepted, even with such big claims. That is obviously very important for our cashflow. Credit limits are not always a top priority for staff when they go out to win clients. If a credit limit is refused, we always insist on pre-payment so we aren’t left holding the baby. Sometimes the client goes elsewhere and there may be other agencies that are prepared to take on the business. However, we know some small agencies have gone under owing a lot of money and we don’t want to take that chance. Rob Bowrey, chairman, Stanley Gibson Our payment terms are between 30 and 50 days and we generally report late payments after 80 days or when we know there is a problem. For example, we had a regular customer who usually settled their bill at 40 days. After 50 days had passed, we reported the debt because we wanted the customer to know we were taking the matter seriously. Sure enough, [our provider’s] collections team was able to apply the necessary pressure and collect the payment for us. It’s simple: we won’t offer credit terms to a customer unless we can obtain insurance cover for them. If they aren’t insurable, they have to pay for the goods upfront or it’s no deal. CREDIT MEANS CREDIT | COFACE
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