Protection or collection?

Of those credit managers polled, 58 per cent cited credit reference agency purchased reports among the range of tools they use to guard against bad debts, compared with debt collection (23 per cent) and factoring and invoice discounting (two per cent).

According to the report, which polled over 260 credit professionals across the UK, there is also a continued perception amongst credit managers that credit insurance is expensive. Out of those companies that still use credit insurance, almost nine per cent have decreased the percentage of their business that is still insured over the last year, whilst 61 percent of businesses do not use credit insurance altogether. Seventy-two per cent of credit managers reported that over 50 per cent of their business is credit insured, five per cent down on a similar poll conducted during 2011.

Gordon Skaljak, External Spokesperson, Graydon UK, commented: “It is encouraging to see that companies are using business intelligence to manage their risk effectively and identify the right opportunities to enable them to transact with confidence. Through optimizing their credit management, businesses are more likely to enjoy sustainable growth.

“There are other options for business owners to consider when they can’t obtain credit insurance on perceived “higher risk” businesses. These include self-insurance, whereby companies make calculated provisions for bad debt assessed on the likelihood of a client defaulting on payment, creating their own emergency fund to be accessed in the event that a company should fail. Credit reports are also a way in which businesses can protect themselves from the threat of business fraud whilst also remaining open to business and growth opportunities.”

Credit managers do not believe credit availability is key to customers’ cash flow status. Just one third of credit managers (36 per cent) polled saw the lack of availability of credit as a threat to their customers’ cash flow. Thirty per cent cited the fall in consumer spend as a threat with eight per cent finding increasing petrol prices, while 14 per cent highlighted the lack of credit management procedures.

Philip King, Chief Executive of the Institute of Credit Management (ICM) offers advice to SMEs on managing payments: “Above all, perhaps, the best way to manage cash effectively is to follow the mantra of ‘know your customer’, and that means checking the credit details and risk of a customer not just at the start of a new business relationship, but also on an ongoing basis. Because in these uncertain times, fortunes can change almost overnight.

“In terms of specific ‘tips’ or advice, SMEs can reduce the risk of late or non-payment by using automated payment methods to ensure the immediate transfer of funds; agreeing explicit payment terms in advance of a transaction; invoicing customers promptly; not giving a customer any reason to dispute an invoice; demanding interest on late payments, which is a company’s legal entitlement; and perhaps even rewarding those customers who do pay promptly.”

The findings contrasts with those of a similar poll conducted by Graydon UK in 2011, when nearly two thirds (62 per cent) of credit professionals surveyed viewed the lack of credit as the greatest challenge to their customer’s cash flow. This is positive news as businesses are beginning to adapt to the current economic climate and are using preventative tactics when managing their credit risk.