The Last Word Comment
Cashflow, the bane of a credit manager’s life!
Is a modern trend of selling commercial debts a positive or negative outcome for the credit professional?
Brian Lewis Credit manager, Hanson UK
brian.lewis@hanson.biz
Like many, my role encompasses the myriad of duties expected of the modern credit manager: financial understanding, market awareness, up-to date legal information, ability to meet and to negotiate contracts and terms with customers, getting paid to terms, and keeping staff happy in a busy shared-services centre. All this in a busy, highly competitive
industry such as construction. Over the last 12 months or so, I have
attended various seminars and conferences, listened to many presentations, award winners giving speeches about their achievements, and been warned about the Pre-Action Protocol and GDPR, as though, if I do not comply, the world will end! In my role, I do not have the luxury of
credit insurance: who needs it, I would argue, if you know your ledger, customers, and markets, and can keep the sales team on board? And my sales team is pretty good.
Customer’s acceptance We can maintain a competitive advantage by supplying quality materials on time, to the right location, at the agreed price and, in turn, seek the customer’s acceptance of these by them paying to agreed terms. Plus, carrying a modest loss provision against insurance premiums to cover losses. So, to find that people are moving credit
terms into the market by ‘selling’ the debt to a third party, under the guise of offering extended credit terms and creating a competitive advantage, seems to me that the buck is passing in terms of risk management!
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www.CCRMagazine.co.uk
From the supplier view, it makes good – if only short- term – sense, in that it limits the risk and provides a potential for increased business, but only up to a level the finance house is prepared to extend, whilst increasing short-term cashflow
The customer may think it a good deal
that they can avoid paying their supplier by moving a debt in their current liabilities from Supplier A to Supplier (Finance House) B for another 30 days, but you only get that benefit once, as the debt still needs to be paid by the customer. Regular trade will dictate that the reliance
on the finance house may well become a necessity. From the supplier view, it makes good – if only short-term – sense, in that it limits the risk and provides a potential for increased business, but only up to a level the finance house is prepared to extend, whilst increasing short-term cashflow. But, my question would be: does it replace
credit management, especially your risk management when there becomes a reliance on this and credit insurance? Does the credit manager morph into a sales role, selling a product rather than negotiating a package? It can be argued that, after a rather
stagnant period, it is a good and positive outcome that credit management can offer something different to customers in a market where it is hard to be different, and standing still is not an option.
A pleasing note On a pleasing note, it is welcome that banks and finance houses are prepared to look at the industry again, after the hand washing following the financial meltdown. Even some of the credit-insurance industry no longer treat construction as lepers! Though, you must bear in mind that this is all just my personal view. CCR
November 2017
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