The Analysis Forums
Flagging up the key issues
Red flags for creditors are often up for debate at the Forums, they can include a turnover of staff and different excuses for delayed payment
Laurie Beagle Managing director, Forums International
lauriebeagle@forumsinternational.co.uk
Jon Swan, head of credit services at Hachette recently asked if we could ask the forum members what they would put on a list of ‘red flags’ that could be interpreted as possible symptoms of a company being in financial distress. He, together with our member have come
up with an interesting list which we would like to share with the CCRMagazine’s readers.
Company risk awareness – red flags June 2020
Physical – related to premises lMain telephone not being answered. l Poor quality of stationery. l Over glamourous trading name (for example the use of Global, Pan-Global, or International). l Poor state of repair (for example lifts out of order of carpets worn). l Over ornate premises (the 3F’s – Ferraris, Fountains, and Flagpoles!). l Lack of cleanliness in the premises. l Reception area closed (only applies to larger companies). l Too much stock on site.
lManagement departing the company. l Extravagant growth claims. l Negative chatter from employees about the business on social-media sites. l Staff attrition high particularly in finance or accounts payable. l No-one available to take telephone calls and no response to e-mails or other written communication. l Reduction in order volumes.
Human – relating to behaviours l Erratic order patterns including short- notice cancellation without good reason. lMain buying contact leaving abruptly. lSudden and unexpected increase in orders. l Decision makers or payment signatories often unavailable. l Directors leaving unexpectedly and at short notice. l General mood and morale of staff. l Behavioural and attitude changes (for example they were once collaborative and are now distant, elusive, or non-committal).
July 2020
Jon Swan, head of credit services at Hachette recently asked if we could ask the forum members what they would put on a list of ‘red flags’ that could be interpreted as possible symptoms of a company being in financial distress
Financial – relating to payments, banking arrangements, and filed accounts l Change of bankers. l Qualified auditors report. l Short payments, part payments, or requests for payment plans to repay exposure. l Requests for extreme temporary payment terms (for example four to six months “until COVID blows over”). l Claims that end user customers are not paying them (the distributor or partner). l Varying excuses for delayed payment. l Claims that local banking restrictions due to COVID-19 are preventing them from paying. l Management accounts showing reduced turnover and possible losses. lMovement of business plan into other sec- tors (for example moving from retail into wholesale).
l Small companies paying off debentures or loans from directors. l Extending their accounting period. This is just one example of one of the many types of projects and
discussions initiated by our members. In this way, our Forums are driving the future CCR
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