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BIFAlink


Policy & Compliance


www.bifa.org


Staying in business: the best way is ensuring you get paid


BIFA has had a long-established working relationship with the European Freight Trades Association, an organisation specialising in credit control matters. We asked its Secretary, James Campbell, to provide some practical guidance on credit control policies and procedures in these difficult times


Over the years James Campbell, Secretary of the European Freight Trades Association (EFTA), has written a number of articles for different publications but, by his own admission, this one on credit control policies and procedures in the current trading environment has been the most difficult. We are all facing such an unexpected and extreme situation with absolutely no certainty as to what is going to happen and over what timescale. From the outset the key message is that there is no ‘one size fits all’


guidance or solution that can be advised. Members will have to consider the most appropriate measures for themselves to take. The guidance is written on a commonsense basis with a view to practicality and damage limitation. Credit control (which, in many businesses, is looking after the


biggest asset – the debtors list) has never been the easiest of jobs and in the last month or so it has almost instantly got a whole lot harder. The balance between getting customers to pay up in a timely fashion and maintaining customer relationships, so that future trading is maintained, is a tightrope walk if ever there was one. Problems have been exacerbated by having the safety net of a relatively stable economy whipped away instantly and without warning. Unfortunately, even before the current crisis struck there was already


an almost accepted culture of late payment stretching back over decades, and despite a lot of talk about tackling the issue it has never really started to diminish. The Late Payment of Commercial Debts (Interest) Act 1998 is only effective if a trading relationship is over because suppliers are afraid to use it effectively for fear of upsetting the customer, which is understandable. The Prompt Payment Code has had some limited success, but to the hardened big company late payer being ‘named and shamed’ is like water off a duck’s back and a small price to pay for free finance. There is already evidence that a number of companies have


identified trade credit as the cheapest, most immediate and easiest source of finance, by way of delayed payment at the expense of the supplier, and if the banks do not get their act together sooner with regard to access to the various government financial support initiatives such behaviour, which could reasonably be regarded as unscrupulous, is likely to become ever more widespread. BIFA has already covered the process for opening a credit account


and associated due diligence for a new customer in its ‘A guide to due diligence regarding credit application procedures’. The basis of the advice to know your customers and ensure that you can be paid is more important than ever before. The guide provides sensible and


10


pragmatic advice so that if Members are approached for credit, they can follow the sensible tips provided to make the best decision based on the available evidence. However, in the current economic climate, the applicant business


should be asked whether it is certain that it is able to meet your credit terms – should the account be granted – and possibly to offer a lower credit limit than you might have previously considered until such time as a payment pattern has been established and by when the economy will hopefully have started to pick up. Also, it should be made clear that credit will not be offered on, for instance, Duty and VAT due to HM Revenue & Customs (HMRC), or if carriers require payment prior to releasing documents and/or freight. As far as dealing with existing credit account customers is


concerned, it may be prudent to conduct a review of each customer as to whether continuing to extend credit to it is a good and/or justifiable idea. Such a review should include: an analysis of the last set of accounts filed at Companies House (these can be obtained for free at www.betacompanieshouse.gov.uk); a look at what your credit reference agency (CRA) is suggesting but with the caveat not to be overly reliant on the recommendations being made; checking the payment performance you have experienced (was it on time or late); and working out what the profit margins were on the movements undertaken. Unfortunately, in most cases there is


unlikely to be any information as to what is going on with the customer right now. Depending on what information can be put together, it might be that you reach the conclusion that the profit margin for doing business with a certain customer might not justify the risk of providing your services on a credit account basis and that pro forma/payment up front terms have to be sought – not easy to get agreement to when you have previously extended credit, but needs must. Obviously there is the danger that you will lose the


May 2020


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