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Coface: Businesses urged to take action now to protect themselves againts economic turmoil

21-07-2008

As new figures out this month show business failures rising sharply, experts at leading credit management specialist Coface have produced advice for businesses to help them stave off some of the worst effects of the credit squeeze.

According to Coface, key actions businesses should be taking in the current economic climate are:

* Stay alert for signs that your customers might be experiencing financial problems. Look for changes in payment patterns such as previously prompt payers falling behind or delaying payment. Customers with problems will often avoid speaking to you on the phone or fail to respond to your correspondence

* If you suspect that a customer is experiencing financial problems, run a credit check on them and be prepared to re-assess your relationship if the results give rise for concern

* If an account is continuously overdue, set a strict deadline at which point you will stop supplying that customer – and stick to it. Allowing unpaid invoices to mount up will harm both your business and your customer’s

* Don’t be afraid to use a specialist debt collector to seek payment on overdue accounts

* Always ensure thorough credit checks are carried out on new accounts

* Beware customers who switch to new suppliers at the point they reach their credit limit with you. This is often a sign of problems looming

* If managing your cash flow is proving problematic, consider using either invoice discounting or factoring. A good invoice discounting specialist can advance you up to 90% of the value of your outstanding invoices immediately in return for a fee and interest charge. This leaves you to continue collecting payment in the normal manner. Factoring is another option; this is where the factor takes responsibility for the management and collection of invoices

* If you’re fulfilling a customer order of significant value, consider taking out a trade credit insurance policy. This will protect you if your customer fails to pay as a result of insolvency. With a trade credit policy you’ll be able to get back up to 90% of the money you’ve lost

Figures released by information group Experian this month showed that business failures have risen 17.5% for the first half of 2008 compared with 2007. Property-related businesses have been hit hardest with failures up 81%, followed by banking and financial services up 58%.

Commenting on the situation, Grant Williams, senior risk manager at Coface said:
“All the key indicators are pointing to the global economy getting worse not better so now is the time for businesses to really focus on their financial management. The simple truth is that a good many companies will not survive the next 12-18 months. This is a bleak forecast, but by taking the right steps, a business can fend off some of the worst effects of the economic slowdown.

“Cash flow is going to be critical so now is the right time to take a long, hard look at your accounts payable and your options. If you leave it too long, the effects of the squeeze will intensify so everything will become more difficult.”