When you are approached by a potential customer you will no doubt be excited by the addition to your revenue stream. However consider the following:
The addition of this potential customer significantly increases your company’s net profit and is considered a life changing opportunity for you and your business. Consequently you eagerly approach your bank for an increase in your business overdraft in order to facilitate the new business that your customer requires you to undertake. The bank authorises the overdraft, however you are required to sign a personal guarantee in-case your business is unable to repay the loan. You happily sign the agreement certain that the revenue from your new customer and subsequent profit will alleviate any such problem.
With the overdraft in place and your new customer on board, business could never be better!
You’ve agreed 90 days payment with your new customer, not ideal, but acceptable based on the level of business they are bringing to your company.
90 days after the first invoice has been submitted the customer has still not settled their fist invoice. Furthermore the total outstanding account, if not paid, will cripple your business. However your customer assures you that the delay is simply down to the accounts department and the fact that you are a new supplier.
120 days later you begin to get concerned as none of the invoices have been settled and the outstanding amount if not paid will put your company into an insolvent position. However you continue to service the customer in order to ensure that there is no ill feeling, that may prevent further orders, and that payment of existing invoices is eventually made.
180 days later you receive correspondence from an insolvency practitioner stating that your customer has gone into administration and that you are invited to submit the amount that you are owed so that it can be added to the creditors listing.
With your overdraft in full use and very little other receivables to rely on you read the insolvency practitioners correspondence with complete and utter dread. Questions running through your brain:
• How am I going to pay the wages?
• How am I going to pay my bills?
• How am I going to pay my overdraft?
• What am I going to say to my family?
• How am I going to survive?
After visiting the bank to explain you realise that they are not going to support you and very quickly you are forced to liquidate your business.
Moreover the bank calls in the personal guarantee on your loan which eventually results in you having to sell your house, as a result of a force of sale.
The stress of the business failure and subsequent cash strain on you has a detrimental effect on your relationships at home.
You are left with no business, strained relationships at home and a complete loss in confidence!
If only you had taken time to consider the customers credit reports and subsequent score so that you could truly assess the risk that you were undertaking.
Furthermore you needed to plan your credit management policy so that you ensured that your receivables were received.
A comprehensive credit management policy can assist in preventing bad debt and at the same time promote prompt payment in order to assist your cash flow.
More importantly your terms of credit need to reflect the risk that you are undertaking. Had you in this situation insisted on a personal guarantee you may not have been awarded the business. However since non payment has resulted in the demise of your business, the perhaps this may have been a good thing! Had you obtained a personal guarantee likely hood is that you would not have found yourself in this horrid situation.
A few months on you see your customer, driving a expensive car and find that he still in business and is doing well as a result of the pre packaged administration of his previous company. You feel angry, frustrated and defeated!
Hindsight is a wonderful thing, but what is certain is the fact that prevention is better than the cure.
ICE PACC is designed to prevent such scenarios from happening and as a credit management tool can be used to assist you and your company from limiting your liabilities thus reducing the risk that you as a business undertake when offering credit to potential customers.
The ICE PACC will:
• Assess your potential customers credit worthiness
• Offer terms that will hold the customer to account
• Provide you with a comprehensive online credit management tool
• Facilitate FREE pre legal debt recovery.
For further information contact us directly at info@icepacc.com or view the product at www.icepacc.com
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