As we move back down through the Covid-19 alert levels and more businesses commence trading, it is clear that it will not be ‘business as usual’ for most businesses for some time. There may well be a small short surge as businesses open, but at present most business owners have little confidence in predicted business and public confidence beyond that period, as the impact of restructuring and redundancies take hold.
This raises the question of what steps business owners should now be taking to assess the risk of doing business with clients going forward. It would be great to be able to tighten terms of trade and insist on higher deposits or shorter payment terms, but practically that is unlikely to work in a lot of cases.
So what can a business owner do to improve credit management processes? Here are some ideas.
1. Review and update your terms of trade to ensure they are robust enough
2. Ensure, where appropriate, that you have protection through the Personal Property Securities Register by registering your interest in the goods sold.
3. Set up a credit watch arrangement with your credit agency to ensure that any issues with major clients are advised early. This at least gives you a head start over other unsecured creditors.
4. Review your client base and determine those clients where a failure to pay two months debt would severely impact on your business viability and look at taking our debtor insurance on those clients.
5. Where practical, look for higher deposits or shorter repayment terms.
6. Do proper due diligence on new customers including credit checks. This is a time when customers may be changing suppliers because of credit issues with the current one.
Like with health and safety and employment law, it is not sensible to use the old adage: “It will never happen to me”. Over the past few years some well-known companies have fallen over and I would love to have a dollar for everyone who said to me: ‘That was a surprise”.
Well-known brands in the media at present are publicly advising of difficulties, so one would be naive to think that any company is immune from failure
Now is the time to review and improve your credit risk procedures to bring them in line with the significant improvement that has occurred with health and safety processes in recent times.
– Steve Wilkinson, TAB Business Owner, Christchurch & North Canterbury