The Octempo:RM Blog

Octempo:RM is to continue lightening the load of bad debt risk for haulage firms with the launch of our new Back Load Protect service.

Back Load Protect allows greater protection for firms trading with customers overseas under ‘backloading’ deals, where the truck goes out full and then loads up with more goods to bring back to the UK for the return journey.

These deals expose hauliers to credit risks, because they don’t have a relationship with their client and often source business through a third party, for example an agency. And they often overlook obtaining credit information on overseas companies as it can be expensive.

Our new service allows them to reduce their exposure, by outsourcing the credit checking of the foreign customer, the credit control follow up, and if needed the debt recovery to a firm with a number of foreign nationals who have direct experience of the haulage industry and understand international business cultures. And with Backload Protect you can pick and choose which element of the service you want.

Hauliers are coming under increased pressure through falling demand, increased competition, higher fuel prices and shrinking margins. Being hit by a bad debt in this environment can have serious implications. We launched Back Load Protect on the back of supporting our haulage clients. In particular we have an £18m turnover haulier client who generates 20% of their business through backloading on trips to Southern Europe.

Much of their work comes through an agency so they don’t know the actual customer, so it makes sense for them to have extra protection against potential bad debts. On margins of 5%, a bad debt of just £5,000 would put massive pressure on them as they would need to bring in another £100,000 of invoiced sales to overcome the loss.

Our haulage clients claim Back Load Protect is a flexible option because it can be used on a pay-as-you-go basis only when the firm is looking for backload business. It is also highly cost effective as you can avoid annual subscriptions on credit information and you gain access to our overseas skills and experience at a fraction of the cost of providing similar in house.

Further information is available at http://www.octempo.com/BackLoadProtect.aspx

Bank lending to small businesses in June was over a third lower than in the previous year, despite the British Bankers’ Association (BBA) claiming that its members were making loans of around £27m to small businesses every day. Total loan value in June 2010 was £598m but this is a 31% drop on last year when loans for the same month reached £867m.

We are past the halfway point of 2010 and so far monthly average for lending to small businesses is around half the amount banks lent two years ago. 

So, forget the spin that the state owned banks want us to believe. The real story is the trend that shows lending is going down and considerably decreasing. Fortunately it appears that Vince Cable is at least on top of this, having warned bankers that their bonuses could be linked to lending - a statement likely to get their attention.  

It's unlikely to change in the short term though and, as always, there is a solution easily at hand - get your customers to pay your invoices on time.

Sounds simple but newly released Business Link data shows that nearly half of UK small and medium sized businesses have no efficient system in place to chase unpaid invoices. Efficiency is one thing but effectiveness is more fundamental. Many businesses use very traditional credit control processes with a lot of manual correspondence and little use of the phone.

If you fail to be pro-active in chasing up your invoices then you will get what you wish for. A lot of credit controllers I've come across are actually afraid of using the phone, largely because they only chase invoices after they are overdue so every phone conversation is negative and defensive. It doesn't need to be this way. Pro-active credit control and invoice chasing is really just good customer services and handled properly can boost the professional reputation for your company.

Next time you're looking at your cash flow and bank balance, take a look at how long your debtors take to pay before you pick up the phone to the bank. 

We all love our customers, but some demand a disproportionate amount of our time when it comes to getting paid. All businesses have them: they are well meaning but disorganised; great business partners but just awful at paperwork. And if you're not careful they divert your credit control resources away from good paying customers and before you know it you've got credit control challenges everywhere.

If this has happened to your business, or is about to happen, follow these simple steps to avoid it hammering your cash flow:

1. Take a look at your customer list and the average days they take to pay. If you're not sure how to do this take the month end debtor balance, divide it by the annual turnover of that customer and then multiply by 365 days. This will give you a rough measure of the number of days an invoice from your business remains unpaid
2. Compare this list to the standard terms you give your customers. Surprised? Most companies are and that's why it's a useful activity
3. Of those customers who pay late, try and estimate how much time you spend chasing invoices each month. Then do the same for the good payers. Big difference isn't it

Chances are that your good payers will also start to take longer to pay as you divert more credit control resources to the slow payers and away from the good payers. Remember, many businesses don't pay invoices until they are chased for them, on the basis that 'if you don't chase you don't need the money'. I'm not suggesting this is good practice but it is often the reality.

So, you've done the analysis and identified the problem, but what's the solution? You either take it on the chin and suffer, or do something about it. If you want to do it yourself internally then you will probably need to hire more people, but is this the most cost effective solution. A better idea would be to pass these customers out to a third party to manage - you pay for what you use, get access to their software and efficiencies, and allow your staff to focus their energies on strengthening the relationships with your good payers. The third party, either working in your name or theirs, can then work on improving the payment behaviours of your consistent late payers.

There you have it - how to avoid 20% of your customers consuming 80% of your credit control resources, and boost cash flow.

As markets across the world fall it is worth understanding that these macro economic problems will impact directly on businesses that engage in export from the UK. It is sometimes easy to see stock market falls and IMF bail outs as 'big stage' problems that do not impact individual businesses, but the reality is very different.

With a GDP of only 2% of the Euro zone the major risk to UK exporters is not Greece itself, but rather a more widespread public debt problem that exists within all major developed economies - a problem that all will have to deal with at more or less the same time.

The austerity measures that have been enforced on Greece by the IMF are brutal - examples include a VAT rise of 2% to 21%; public sector salary bonus cuts of 30%; tax rises on fuel, tobacco and alcohol; and a state-funded pension freeze - but Greece has no choice but to reform its economy. Whilst the IMF/EU bail out also includes measures to stimulate the economy the short term impact will be a choking off of domestic consumer demand.

The falling demand is important for exporters as it will quickly lead to tighter cash flow problems for businesses in Greece, extended invoice payment and an increased probability of default and bad debt. We are advising all our clients, with our support, to keep very close to their customers in Greece, to re-evalualate the credit status of those customers and also review existing terms of trade for new business.

And whilst the problem currently impacts Greece directly, there are fears that other economies such as Italy, Spain and Portugal could go the same way. These risks cannot be controlled by an individual business but they can be identified, managed and mitigated. For more information please visit www.Octempo.com and request a free no obligation call back.

Whilst we successfully support a large number of clients who trade overseas we are constantly reminded of how important cultural understanding is when it comes to successful debt recovery. It's not just about language, though clearly without it you are unlikely to make any progress at all in getting paid - in France for example, attempts to collect debt in English will generally result in the call being ended abruptly.   

To illustrate the point about cultural awareness, we recently signed up a client with significant debt collection needs in Russia. Russia is a distinct cultural environment when it comes to business and debt collection - a fact which the following case study explicitly highlights.

One particular debt placed was for £25k. The debtor was an established company in Moscow and the contact was a Mr. Fydorov (the names have been changed):

• Our first contact attempt was met with a stonewall - not unusual
• The second attempt was slightly more successful in that we were informed that Mr. Fydorov was on a special project for 5 months and was not contactable
• Undeterred, our third attempt resulted in a conversation with Mr. Fydorov's deputy
• The fourth attempt still didn't result in speaking with Mr. Fydorov but we started to build a relationship with his deputy
• The fifth contact received a sympathetic response from the deputy, and an outline of a way forward
• After further correspondence exchange the debtor sent a letter offering settlement close to the value of the original debt

There are three main points to take away from this if you want to collect international debt successfully:

• Persistence is key
• You have to speak the language
• You absolutely have to understand the culture

In the above example we used a Russian national on the team, based in our main office in Warrington, and they fully understand the subtle nuances that would generally pass even a fluent Russian speaker by if they were not a Russian national. It also helps to be able to manage the process from within your home country too - the cultural differences work at both ends of the process and often UK companies can become frustrated by dealing with the cultures of debt collection partners based in a particular country.

For more information on our Russian debt recovery services please visit http://www.octempo.com/Debt-collection-recovery-russia.aspx