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Bay of Plenty Region
Thursday, March 4, 2021
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Be scared – or be prepared

Billy Connolly once said “there is no such thing as bad weather, only a bad choice of clothes”. While that’s a typical Connolly quip, I think it rings true in a lot of situations, including what we are going through as an economy and a society at the moment.

To get through any tough period in business it is important to adapt in order to lessen the possible impacts of the challenges faced, by anticipating probable issues and putting in plans to avoid or at least reduce loss.

In order to do the above, we need to analyse historically similar situations and what the outcomes were.

With a worldwide health scare, there are some pretty clear behaviour patterns. There is a massive surge in panic buying in the retail sector, and a downturn or flatline in events and tourism-based business.

That tends to be followed by a downturn in retail and business to consumer and business to business direct sales and service businesses across the board when contact restrictions are imposed.

Another major issue faced by businesses are staff shortages, which fall into several categories. You have the genuinely ill and their family members, the at-risk employee who must isolate due to immune deficiencies, the fearful isolators, and the advantage takers.

Many businesses can utilise technological advances to mitigate the effects that the shortages in on-premises staff can have.

Staff sales and consulting meetings can be held over video conferencing applications, account management, accounts and administration activities can be completed remotely from home using cloud based systems and mobile phones.

But there will be some who may find it very hard or maybe impossible to get through without some major help at both a local and governmental level, if any lengthy isolation period is imposed. And that is what is now being experienced in a number of other parts of the world.

Credit control options

From a credit management perspective there are a few things that businesses can do to give themselves the best level of cashflow possible throughout any period of economic downturn these include:

  • Deposits: There is no legal regulation that precludes or limits the ability to ask for deposits for works to be done as long as they are fair and reasonable.

A decent deposit gives you cashflow at the beginning and the end of any job or activity. If there is an increased risk that works will be postponed or suspended after they are started, then a decent deposit is essential to avoid outlay without income.

If you have any doubts that a customer can pay, then ask for payment up front especially for bespoke or non-stock goods unless you have a contract that agrees that this is your right.

With a worldwide health scare, there are some pretty clear behaviour patterns. There is a massive surge in panic buying in the retail sector, and a downturn or flatline in events and tourism-based business.

That tends to be followed by a downturn in retail and business to consumer and business to business direct sales and service businesses across the board when contact restrictions are imposed.

  • Payment Terms – Consumers do not need 20th of the following payment terms. Payment on completion or seven days at most is perfectly reasonable. Make this clear from the outset and no one gets surprised or offended.
  • Credit Limits – For on account clients, set and monitor credit limits. If payments are late then do not amplify your risk by increasing your credit limits. Someone’s ability to pay does not necessarily increase when the amount they need to pay does. Many eventually liquidated companies increase credit limits with suppliers in the months before liquidations. So use a credit monitoring service like Equifax or Centrix, which could provide a warning of a nasty surprise.
  • Secure – Place PPSR securities on all major accounts while they are all (to your knowledge ) solvent. If this ever changes (within the 5 year secured period) your rights of remedy are greatly increased.
  • Pre-Empt – No one minds a friendly gentle reminder especially if it appears automated. A text message saying something like “we look forward to receiving payment for Inv#12345 on Friday, 20 March, please remember to use Ref # 12345 for this payment. Thanks.” In times of stress, simple reminders can result in a marked decrease in late payments.
  • Act – If debtors are not communicating, time will not improve this. Send a warning letter, then escalate to collection action asap if communication and payment does not occur.

Just a thought.
Stay safe.

Nick Kerr
Nick Kerr is Area Manager BOP for EC Credit Control NZ Ltd. He can be reached at nick.kerr@eccreditcontrol.co.nz

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