I have avoided writing about Brexit since it has been confirmed as I think it is a waste of time to speculate on areas that are unknown and out of our control. We all know that there is as much uncertainty as ever, however there are a number of things happening in the real world right now that is having an impact on the credit function that I think you should be aware of, regardless of how the situation is finally resolved.
- Customers within the UK and EU customers of UK suppliers are stock piling to mitigate the potential effects of Brexit. This will have a real effect on the amount of credit extended to customers. It stands to reason if your customer places orders for three or four months stock (depending on the industry) this will impact on your exposure, and knowing sales people as I do, the reality is that they are probably telling their customers “Why not buy four months stock now and we will give you extended time to pay, so you are not out of pocket” The reality here is that if your customer is not out of pocket, you are going to be! You will have to pay your suppliers for goods that you are not going to be paid for for a number of months and this will have an impact on your cash flow and bring about an increase in your days sales outstanding. As the person responsible for credit, you need to have these discussions now to avoid surprises in a few months time.
- As a result of the uncertainty, some Credit Insurance companies are cutting limits on a number of companies, particularly in the UK. You need a plan to be able to deal with this, and your plan will depend on your risk appetite. Make sure this is agreed at management level. There is always a balancing act when it comes to properly managed credit between the commercial reality and the risk involved, If you are currently dealing with a customer who owes you say, €80k, and you have insurance of €100k, it doesn’t take a genius to be able to accept that business, but if the customer decides to stock pile and their balance is set to reach €200k or if the Insurance company cuts the limit to €20k, or both, now you are faced with a dilemma. Do you accept the business or do you turn it away? Anyone who has attended any course I have ever given, will know that my rule for credit is always to “find a way to deliver every order” and as the uncertainty builds this becomes more of a challenge.
- Apart from Brexit, there is so much uncertainty in world markets, the trade war between USA and China, the German economy heading for recession, the volatility of the Italian market and so on…now is the time to get your credit under control. We are living in a pre-recessionary economy, and now is the time to take the steps necessary to protect your own business, the worst thing you can do is to trade at irresponsible levels without any thought for the consequences,
Article written by Declan Flood , The Credit Coach and Chief Executive of Irish Credit Management Training. Who is available to help you to get your credit under control through focused credit management education, and training
Declan is also happy to deliver motivational training for your Credit and/or Sales Teams on how to improve your whole business through the proper management of credit and by developing simple risk mitigation strategies and by putting the customer at the front and centre of everything that you do.
He can also show senior managers how a credit focused business can improve sales, improve customer experience and improve the bottom line.
You can contact Declan by email at firstname.lastname@example.org or by phone on 087 244 7052 or check out the website www.icmt.ie. Always happy to help.