PrintSpeak survival guide: Credit management

nil recessus carborundorum

success story...

credit management

The story of a printer who spent a little to save a lot - an "utterly negligible" investment in a subscription to a credit database saved a bad debt of over £110,000

This success story is about a general commercial printer with a turnover of £1.6m employing 22 staff. With a 25+ year history of never credit-checking any of his customers, the managing director believed he carried very little risk. "We knew our customers, and we believed they would never do the dirty on us," he says. "Why would we need to know any more about them - other than that they would offer us work, we would do it, and some time later we would get paid?"

When, one day, the MD accidentally accepted a telesales call from a company offering online access to credit information, he found himself listening rather than politely dismissing the call. "Probably because of the general financial crisis, I realised the guy was actually making sense," he says. "I decided to look into it further."

The MD signed up with a specialist credit information provider for the print industry. "We subscribed to their database of what you might call printers' problem customers, for an utterly negligible cost."

Credit term increase

A couple of months later, one of the printer's smaller accounts asked to increase its credit terms substantially, as it had won a big new contract. "Previously we would have done this without asking any questions, but now of course we did a check on them using the database. It's a good job we did," says the MD. "This customer had actually been causing problems for several other printers over the last nine months or so."

Even if we find nothing else to cause concern in the next twenty years, we will still be in pocket after this one incident, and I will have relative peace of mind

The printer offered to do the work on the basis of some tangible security such as a director's personal guarantee. But the customer wasn't willing to do this, and so the printer declined the work. Just a month later, the MD heard that the customer had been put into administration.

Good lesson to learn

He was shocked at how close his company had come to a significant bad debt. "If we hadn't carried out that check, we would currently be nursing a debt of £113,600. I'm not sure if we could have survived that - most of my staff would probably have been out of work very soon. It's a good lesson to learn."

He says his company has discussed credit management procedures with the specialist, and as a result he has put in place a few measures that "seem like common sense", including, among other things, courtesy-calling clients to make sure they have received their invoices.

The measures have combined to reduce the company's DSO (days sales outstanding) by almost an entire month. "It really helps the cashflow," says the MD.

what is...

credit management?

Much of credit management is simply common sense plus a good dose of diligence, says Ian Carrotte, MD of print industry credit information provider ICSM

The first thing to do is to cross-check the contacts in your customer and marketing databases against their credit and financial reports. This allows weeding-out of high-risk business prospects

Operate a policy of credit-checking every single new account application, and credit-check your regular customers twice a year

Monitor the payment performance of existing and potential customers using information available within business credit reports and via a specialist industry database such as ICSM. Evidence of bills being settled later and later each month is a key indicator of a deteriorating cash position within a business

Address issues you may have with otherwise creditworthy and sound businesses that simply have a culture of late payment. This may mean moving customers on to direct payment methods

Take note of adverse indicators such as County Court Judgements. Incidence and number of adverse indicators should be a trigger to look into a business further before extending credit

For new companies, if financial data is scarce, 'blended' information can be useful: this cross-references consumer data, business information and specialist data provided by a good credit database. It gives a picture of the personal and wider business interests and track record of those running a company

who can benefit from...

credit management?

The short answer is, every single company in the UK can benefit from credit management measures. But it is especially important for:

New or relatively new print companies without a large or ongoing overdraft facility, for whom a liquid cashflow is crucial to paying the monthly wage bill and other running costs such as loans or lease payments

Print companies with a customer profile made up of a small number of large customers, rather than a large number of small customers: for such printers, each invoice is potentially large enough to cause problems if it becomes a bad debt

Print companies considering applying for any kind of financial support or borrowing. Good credit management disciplines actively help to reassure financial organisations that the company is sound and their money is likely to be paid back

Welcome to the PrintSpeak Printers' Survival Guide - helping you to ride out the recession

The pages of the printing trade press have recently read like a Domesday roll-call of print's great and formerly glorious. Who could have predicted the failure of Borcombe SP, Kelvin Print Group, Quebecor, Capital, Printhaus, Butler and Tanner, Celloglas and more? With margins on print lower than they've ever been, the current global economic crisis is magnifying the cracks in every print business model.

But for every bad news story, there are plenty of success stories. Here at PrintSpeak, we decided to pull together a weekly newsletter looking at printers who recently hit a sticky patch - and what pulled them through. We hope it will provide our readers with food for thought. A struggling business is not necessarily a failing one - and knowing who to call is half the battle. In the coming weeks we'll be looking at subjects including factoring, debt collection, credit management, VIAMBOs, cost rate reviewing, credit insurance, financial restructuring and more - building a library of business know-how and giving you the contacts and knowledge to ride out the recession.

Karen Charlesworth
Publisher, PrintSpeak
karen@printspeak.co.uk