We operate in a world of extended and shifting supply chains, quick turnarounds and shifting markets. So how do businesses build confidence in their counterparties? Risk Director, Paul Lablans has some answers…
Have you tried working with the procurement function of a big business recently? It can be a trying experience. The sheer amount of data and processing required to become an accredited supplier can be bewildering.
And for many businesses, it’s a massively one-sided affair. BigCo is doing checks on you; but what level of certainty do you have on their willingness or ability to pay for services rendered?
Even in mid-sized companies, the financial control function is likely to be relatively modest. (Some SMEs will struggle to justify a full-time financial controller at all.) And in many growing businesses, control – with the added certainty that brings around getting paid on time – is less of a priority than investment in sales and products.
So it’s a Catch 22: you need certainty around your Receivables to have the confidence to fund growth; but because growth is the priority, you perhaps haven’t invested in financial control and analytics that might give you that certainty around your income.
Today, that’s not just an issue for businesses dealing with smaller clients or chasing new business opportunities. High-profile corporate failures in the first quarter of 2018 are a reminder: any debt, owed by any customer, can go bad.
Knock it simple
A lot of our Bad Debt Protection clients need to not only protect themselves but bolster their resilience. Those big companies can make contingencies for a proportion of problem payers and, effectively, self-insure but whatever the size of the business, nobody can afford to be completely complacent. For many of the clients we work with, an unexpected non-payment could be catastrophic.
Bad Debt Protection goes a long way to solving their problems. And the real attraction is that it’s a simple solution to an obvious risk.
Pretty much everything is handled as straight-through processing when onboarding a new client, or agreeing a contract. We have our own sources to evaluate creditworthiness, augmenting the experience and insight available to us from the wider economic environment. That means over 90% of applications are okayed immediately, and the remainder within 48 hours.
We’ve developed a client portal that customers love. It makes the whole process even more streamlined and ensures they can get confidence in taking on new debtors even more easily. The cost isn’t high, either – usually about eight or nine basis points. That’s cheap when set against the potential losses.
Result? Peace of mind over new customers and certainty on payment. But that’s only part of the motivation for taking on Bad Debt Protection. A lot of it’s about minimising the admin headaches of chasing and collecting overdue monies – especially when you’re dealing with clients in a different jurisdiction.
It’s all about timing
Making it easier and more reliable to do business is always a priority for smart businesses. But quite apart from the high-profile corporate failures that have left suppliers with unpaid debts, there are reasons for looking at Bad Debt Protection right now.
The UK economy, if we’re being frank, is not in robust shape (and there are various different types of structural issues with the European, American and Asian economies, too). And some sectors are clearly in a precarious state – retail springs to mind.
True, there are also lots of reasons to invest – from changing markets to opportunities created by automation or outsourcing. But the same forces of change that create those opportunities put customers at risk, too.
(Incidentally, it’s worth mitigating these risks ahead of any possible downturn, when the insurance companies’ risk assessments would inevitably get more thorough – and limits on total debt insured become more severe.)
As well as those macro-economic signs, external issues like legislation and innovation have affected counterparty confidence. Take Brexit – we do a lot of work with the recruitment sector, and 18 months ago that changed forever.
Questions of clarity
Bad debt protection also makes businesses better counterparties. Obviously those BigCo procurement criteria vary, but knowing a supplier is less vulnerable to a customer failing to pay is a reassurance.
It not only makes them more resilient but more attractive from a credit point of view - becoming holistically more financially robust and stronger for it. That means they can make much better use of working capital – so it’s not just about offsetting risk, it’s also about helping them fund growth and investment.
We see information that even the decision-makers in the business itself probably don’t monitor on a regular basis – so we can advise when risks are increasing, for example. It’s not about pestering customers; it’s about smart insights drawn from invoice behaviour.
Some clients even bring us in to do audits, helping them to develop a deeper understanding of when and why exceptions occur in their customer interactions.
In other words, in an uncertain world, Bad Debt Protection helps businesses gain both deeper insights into their customers and more certainty over their income. That additional confidence in today’s climate is quite some trick.
Find out more about our Bad Debt Protection here.